Re: Are we crazy?
What DJ said, plus...
Don't plan to live in the house while you are renovating. That would make it take much longer.
Houston's advice is good, but to clarify his math:
Value after renovating to neighborhood standards MINUS the cost of renovation MINUS another 20% EQUALS purchase price
...which means your offer price must be even lower to allow for negotiation. Just don't go above your calculated purchase price.
At least that's if you're expecting to use this property as a financial vehicle. On the other hand, if you're planning to live there until you die and you don't care about your children's inheritance, the fact that it's a place you like has some value that only you can see. (That is, if you have the cash, there's no limit to what you can offer.) Of course, your lender sees it only as a financial vehicle and places exactly zero value on how much you love it.
Keep in mind that with a conventional loan, banks will only finance to appraised value. For example, let's say you qualified for $100,000 with a 20% down payment (finance 80%). If you offer $100,000 and it appraises at $90,000, the bank will only lend $72,000 (80% of 90K). You then have a choice: allow the sale to fail; offer $90,000; or offer $100,000 and pay $28,000 (20% of 90K + 10K) down.
With a rehab loan the math is similar, but it is financed according to the estimated post-renovation value (and many rehab loans are government backed so only require 3-5% down). Typically, the bank will initially fund only the sale and then will periodically fund renovation costs.
The "Senior Member" designation under my name doesn't mean I know a lot, it just means I talk a lot.I've been a DIYer since I was 12 (thanks, Dad!). I have read several books on various home improvement topics. I do not have any current code books I can refer to. I was an apprentice plumber for two years.