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  1. #1

    Question To buy or not to buy?So many questions.

    I'm not sure where to begin so I will start at the beginning of my house hunting experience almost a year ago.
    *If you don't want to hear my sob story, just scroll down to the smiley face to get to the details of the house itself.

    I've known for the last 4 years that what I currently pay in rent for my studio apartment, is more than what many mortgages are here in town. About a year ago, a conversation took place between myself, my boyfriend, his brother, and their parents. I found out that they had wanted to buy their sons a home, for cheap, so that they could live out their college careers, fix it up a bit maybe, and sell it when they were done with school. This in combination with my situation made me decide that I wanted to buy a house. I wanted to buy a house where the three of us could live, renovate, and then sell about 5 years down the road.
    Between the three of us we could get dirt cheap "rent" (although at any time I could still pay the whole mortgage myself if necessary). I would also be investing my money in something I had control over. I won't bore people with my dislike for stocks and the like.
    I knew houses were cheap post-bubble, and that values pretty much had to go up (which they are starting to now).

    So there were a number of good reasons to do this; and I remain confident for getting this far.
    My max loan approval was 55K. I'm young, and while my credit is good, to finish my last year of college I have started working a third shift job so I can go to school during the day. The pay isn't great, but it can afford the apt, so any house with the same payment shouldn't be an issue.

    I don't want to take a loan for the max 55K. Honestly, I don't want to pay more than 40K for a house. After spending a year looking here in Indiana, I learned that you don't get much more for that 10K. If a house is selling for cheap around here, it's 20-40K. Otherwise it's 50K+ The stuff in the middle is honestly overpriced versions of the cheap 20-40K options.

    So I've been looking at cheap houses. Three categories of homes exist: 2 bedroom houses which aren't selling, houses that have a major major issue that typically costs more than the house to fix, or old houses.

    So this is why I am here. There are old houses in our city (1905-1930s) which have been getting gobbled up over the last 4 years by investors and the like. I love old houses, but I fear their secret costs.

    I've been through the house purchase process once already but the deal fell through after 8 months of toil back and forth with the bank (shortsale).



    So today I come to this forum with a house that was built in 1925. The home itself is a Fannie Mae REO. The house has been on the market since April and this past Friday they dropped the price by 10K to 29K.

    This $29,000 home is 1,616 finished sq ft & includes: 3 bedrooms, 1.5 bathrooms, unfinished attic (blown insulation), living room with fireplace, 4 seasons room, dining room, kitchen, and an unfinished basement. The house also features french doors throughout the first floor, hardwood floors (some have been carpeted over), and a two car garage.

    So the bad news and the real reason why I am here is because it obviously has problems. I knew this with the previous house I tried to buy, but ultimately couldn't get the bank to come down enough on the price to cover those repairs.
    Before I start listing problems I would like to emphasize that I honestly would like to at least try to DIY as much of this as possible. I'm going to have a learning curve at some point no matter what, so I figure as long as I can cover the major repairs contracted or otherwise in my budgeting, I can try doing the work, and let a contractor take over if absolutely necessary.

    So, let's start with the roof. There's more than one. There's three of them. One large roof and two small side roofs. The small roofs are leaking. I have measured those parts of the house from the outside and come up with less than 200 sq ft of roof if we assume they need to be replaced. One of these small roofs is a flat roof that I would like to raise the pitch on so it isn't flat anymore. The other roof has a ridge running along the middle. The leak on this roof is along the valley where it connects to the wall of the second story.
    Both of these leaks have made it inside the house, and one leak actually ran along the wall and into the hardwood floor. It damaged the plaster, lathe, and hardwood in that corner (this is the 4 seasons room).

    The roof over the garage is dipping slightly, although it looks good you can see a difference if you look at it from the corner. As long as it doesn't cave, I'm not terribly worried about it if I can afford the rest of the house. Maybe that's naive, but I figure that's something that can be put off for a few more years with some tarp or something to buy time.

    The main roof looks fine; we went into the attic, and where there was once a leak around the chimney; it appears to have been fixed (the chimney has a bunch of tar-looking stuff around the area where it meets the roof). Otherwise the big roof looks good.

    The gutters need cleaning. This house has been vacant for some time I assume, and the owner mowed the grass like twice a year according to the neighbors. I wouldn't be surprised if the flat roof failed thanks to a stuffed gutter.
    The house is on a slope and the gutters go into the ground where I cannot see how far away from the house they go. I don't know if there are french drains installed or not.

    Next, the house still uses water radiators, powered by gas. All I know from this is that this means there's a ton of plumbing throughout the house. So if there's an issue, I fear it's going to be expensive...very expensive.
    Bonus, the house does have central AC.


    Finally we come to the basement. Here you can smell moisture, you can see condensation on the walls, and tiny puddles along those walls. There's some mold starting to form at the very bottom of one area.

    The basement walls have been reinforced. At some point a second, shorter wall, was run along the inside of the basement. It covers every outside wall except one five foot area surrounding the sump pump. Here it appears someone ran out of money, because there's some rebar sticking out where it looks like foundation was carved away to put something else in.

    This is the scary part. This is where I normally tuck my tail and run. I know foundations are not DYI. But, the area is quite small, and the house is so big.

    I am honestly torn about the potential glory versus price of this home. 29K is a great deal.
    The house is on a busy street now but with some bushes the noise can be managed.

    So here's the big question. Is it worth the risk? Can I get the absolutely necessary repairs done for 10K?
    I would have 5 years to live in/repair this home. I wouldn't feel comfortable putting more than 10K in a single year. If the house needed another 10k, I could probably spread that out over the remaining 4 years without too much worry.
    As a bonus, my boyfriend is majoring in electrical engineering and has already done house wiring work if it turns out the electrical needs updating in the home.

    I just don't want this to be a money pit where I spend more than I will ever get back. If the house will never be worth more than 50K then why invest more than that amount in it right?

    To those who have read my lengthy rant, I am extremely grateful! I am genuinely torn about this property as I want to wrap up my house search and start building equity; but I don't want to be so delusional that I walk into a nightmare.

    P.S. Here is a link to photos of both the inside and outside.

    http://s79.photobucket.com/user/Mids...linton%20House

    Regards,
    MidsummersEve

  2. #2
    Join Date
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    Default Re: To buy or not to buy?So many questions.

    Buying and selling fixer uppers is a tough business: hard to make money but easy to lose money. Especially if you are starting.

    But how else will you learn the business? You got to make the same mistakes that others have made before they learned how to turn a profit. So if you want to do it, be prepared to lose money on your first project. Are you ready to lose money on your first project? I didn't think so.

    Ask yourself:
    1. How much do perfect homes selling for in the area?
    2. How much will it cost you to bring this home to a "sellable" condition, then multiple by 1.5. Do you see a potential profit?

    You've listed a partial list of necessary repairs: you need a new roof, you need to replace rotted wood, you need new plumbing, new HVAC, upgrade electrical, and on and on. I see much more than 10K-20K in basic replacements and repairs. Your budget is not nearly enough even for an experienced flipper.

    My suggestion: don't take this as your starter project. For a first project pick a property that needs less. Good luck.

  3. #3
    Join Date
    Aug 2007
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    6,617

    Default Re: To buy or not to buy?So many questions.

    I made it through most of your concerns and my thought is this. As a first time home buyer this property is way more than you're going to be able to handle. As for the cost of repairs, it is impossible for anyone to provide you even a decent ballpark figure without personally inspecting it, your descriptions indicate some pretty significant repair costs, let alone all the DIY time and expense you'll be getting into.

    You say you can get the house for $29K, conservatively, I'd say you will put at least that much more into it to resolve the major issues and repair the damage. If the current market value of the home is less than $60K, then it is not a good investment for you. With as much work and money as it will take, you want there to be some decent equity accrued by the time you've finished.
    I suffer from CDO ... Its like OCD, but in alphabetical order, LIKE IT SHOULD BE!!!

  4. #4

    Default Re: To buy or not to buy?So many questions.

    I greatly appreciate the advice. I want to sink my teeth into something worthwhile; but not at the expense of ending up in serious debt.

    I will keep looking, and hopefully a more manageable project will come along.

    Regards,

    MidsummersEve

  5. #5
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    Default Re: To buy or not to buy?So many questions.

    You sound like a tough cookie with guts. Only folks like you succeed in flipping. But you need to find a simpler project for a starter, with room to make a small profit, or you will licking your wounds for a long time and will be discouraged to try again.

    Let's face it, with selling prices at the 50K-60K mark, you have to find a property that requires around 5K in materials plus your labor.

    If you learn how to turn a small profit, if you acquire knowledge in fixing things and if you polish your selling techniques, maybe you'll be able to move to the real market, where flipping profits soar, like New York City.

  6. #6
    Join Date
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    Default Re: To buy or not to buy?So many questions.

    a good project house to start with would be something that has a sound structure, a good roof, a good heating system, no major electrical issues and no major plumbing issues.

    look for something that needs maybe a new kitchen, a new bathroom, new windows. things that are manageable to take on yourself or with minimal help. painting the rooms, stripping wall paper, refinishing wood work, etc.

  7. #7

    Default Re: To buy or not to buy?So many questions.

    Thanks for the advice everyone.
    I'm not looking to start a business in flipping houses; I'm mostly looking to live somewhere for cheap and then at least get that money back in five years. It just so happens that the houses which come in at that price range have these types of issues commonly associated with them.
    I honestly fear buying a two bedroom home because they simply are not selling in our area even if they have every possible bell/whistle.
    If I have to relocate after college; I do not want to be tied down with a property that isn't an easy sale.

    So as my rent in this tiny apartment continues to climb, I've just been between a rock and a hard place trying to find a suitable house that is understandably cheap, with repairs that might even cost 10-20K (as long as it's not all at once). As long as those costs were recouped eventually I wouldn't be able to complain too much in the end because unlike my rent money which is permanently lost; I could at least sell a house for what I spent on it/put into it.

    Regards,

    MidsummersEve

  8. #8
    Join Date
    Aug 2007
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    6,617

    Default Re: To buy or not to buy?So many questions.

    Breaking even is definitely a good thing, but you don't want to kill yourself to do it either.

    Like I said, what is the market value of this house in good, liveable condition, if it is at least double your purchase price, you might have a chance to recoup, it will depend on how major the major repairs are. With any house, it would be a wise investment to hire a contractor to give you an opinion on the property's condition and cost of repairs, NEVER purchase a home that will cost more to rehab than it's real value.

    By hiring a contractor, I'm talking about an active tradesman, not a "home inspector" who is only going to give you a condition report and not a cost of repairs.
    I suffer from CDO ... Its like OCD, but in alphabetical order, LIKE IT SHOULD BE!!!

  9. #9

    Default Re: To buy or not to buy?So many questions.

    http://www.zillow.com/homedetails/27...73204314_zpid/
    Hopefully this link puts this house into better perspective with others in the area. Although I don't trust Zillow entirely, it still gives a reasonable ballpark.

    It's hard to determine the market value of this specific house because of its location for me. If it were inside the neighborhood it currently borders, I would say it's an 70 thousand dollar house at least(in good condition). Being on a busy street though; I have no idea. The last house I tried to buy was inside the neighborhood area, and was worth 81K on the taxes (went up for shortsale). I almost got it but they wouldn't go below 35K and the house needed work.

    The only reason I mentioned 50K is because that was the last price I saw this sell for according to public record. I don't know if that was in "good" condition. I imagine not considering the degree of damage at present.

    I've actually sent out emails to get estimates for the work needed, but I ran over my cellphone Saturday when I went to take photos of the house, so I am currently without a phone until my new one arrives... so I can't make any phone calls or set up appointments at the present moment.

  10. #10

    Default Re: To buy or not to buy?So many questions.

    Quote Originally Posted by A. Spruce View Post
    Breaking even is definitely a good thing, but you don't want to kill yourself to do it either.

    Like I said, what is the market value of this house in good, liveable condition, if it is at least double your purchase price, you might have a chance to recoup, it will depend on how major the major repairs are
    http://www.zillow.com/homedetails/27...73204314_zpid/
    Here's a website I have used to get a broad sweep of property values across town. I cross reference this with the areas I associate with good schools, or bad neighborhoods. It's not spot on, but close enough to know which areas are good and which ones should be avoided. The link is to the house in mention so there is some relative perspective on the situation?

    With that said, this house sits on the outside of a good neighborhood. I tried to buy a house inside the neighborhood; it was worth 80K on the taxes (appraised), but was on shortsale. I couldn't get them to go below 35K (and it needed more work than this house I think).

    With this house, if it were in the same location, I would think they'd be comparable, but this house sits on a busy street. I have no idea how much that affects its value.

    You're definitely right with the balance of work to pay-off. I (perhaps naively) pictured working on room at a time until the thing was done over 5 years (which seemed reasonable?). Obviously the imminent repairs like the roof would have to be completed, but I've talked to several people who think I'm looking at no more than 3K for the two small roofs, and that's assuming everything needs ripped off and replaced.

    As soon as I get my hands on another cell phone (I ran mine over Saturday after going to look at the house again) I will try to call a contractor out to give me an estimate on the foundation. That seems to be super questionable depending on who I ask. Nobody can say for sure whether it's a minor or major job (rightly so since nobody has seen it).


    Regards,

    MidsummersEve

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