Posted by Barbara (ME) on May 10, 1999 at 07:32:20:
I agree wholeheartedly with Phil. You do not have to repair it all at once.
Life is short, and if the house makes you happy I say go for it. Consumption isn’t all bad!
Barbara (ME)
Found MY Dream Home, but not ready yet, what to do? - Posted by SCook85
Posted by SCook85 on May 09, 1999 at 17:14:14:
In the back of my mind while searching for homes to flip or rehab I’ve always envisioned finding the home of my dreams to buy and fix up. I’ve had the picture of the greatest location in my mind, mature hardwoods, large lots, older colonials and victorians, etc… I always figured that I would never be able to find a fixer in these types of neighborhoods. Well I just did, and Im struggling with whether or not to do it.
The home is without a doubt the WORST home in the BEST neighborhood.
The comps for the neigborhood range from $275,000 to $850,000. It is absolutely gorgeous. The homes range from 90-100 years old. On average they are about 3500 sq. ft.
I can pick this home up for $125,000 (the one right next door just went under contract for $495,000). The home needs a ton of work, I mean lots and lots of work. The slate roof is completely gone. All the wood underneath is rotted and there are many holes in the roof. Near the edges of the roof (at least where they used to be) the rot is so bad that it is completely gone. The wall structure appears to be in really good shape. It has cedar shingles and all the lines appear to be straight (no sagging here). The foundation looks good as well. I’m estimating that it will take $100,000 to bring this home around.
I know that I’m not ready yet to do a project like this, but this is my dream home. Financially it would strap me, I think there is a chance that I could swing the deal (I’d just make it a point to do a couple more flips per month to pay for it all).
I’m really struggling with what to do here. For those of you who have been investing for a period of time, do opportunities like this come about more then once or is this my chance to get the home of my dreams. I can’t stress enough how beautiful the location is and how desirable the neighborhood is. I looked at the home last night at 10:30 and went back today. A half dozen people drove by the home and stopped today while I was there for 15 minutes. It is going to get a lot of action but I think most will be scared of the repairs (which is rightfully so, even I’m a little scared of what might come up).
Is this the one or will there be others?
Thanks so much for your input.
SCook85
Never Fall in Love…with a House - Posted by J.P. Vaughan
Posted by J.P. Vaughan on May 10, 1999 at 09:28:34:
Steve,
There is a huge difference (in my opinion) between what
you buy as an investment and what you buy for your home.
Perhaps, as Phil mentioned, you may be able to pick up
$250K in EQUITY after the rehab. But that would be a
major consideration for an INVESTMENT decision, not
for a home you want to keep and live in. You can’t eat
equity, remember?
If you believe you can’t afford the home, don’t buy it
as a home, but consider it as a flip or rehab. Whether
you believe you can or cannot afford it, you will be
right (your dominant thoughts are reality).
If you keep looking, you’ll find many “dream” homes
over the next couple of years. And over the next 5-10
years, your ideas on what kind of house is a “dream” will change.
Good luck.
JP
Can you write the check ? - Posted by DougO(NM)
Posted by DougO(NM) on May 10, 1999 at 07:57:07:
Steve
Jimmy Napier taught me, (and those of the rest in the class that were listening) a very simple rule for determining the answer to that question. When you can write the check to buy this house, fix it up, etc. for you to live in, and not affect your financial position, then you are ready to do this deal. If you eat up your capital, and don’t forget that for you and me that includes time as well as money, on this project, how will it affect your current as well as financial posistion ? If it will have no negative effect, then go for it, especially if you can write the check ! If not, you should probably pass. (Then go have a beer or two to cry in over this “lost deal” so you can get it out of the way and get on to the next one so as to get you where you want to be faster)
Doug
Re: Found MY Dream Home, but not ready yet, what to do? - Posted by Bobbie
Posted by Bobbie on May 10, 1999 at 05:47:11:
All excellent advice–my two cents–in the end, you do this real estate stuff so that you can see your dream house, buy it cheaply, and enjoy it til the next dream house comes along. You know your market, your costs, your own dreams. A dream house is cool. Do it. If the bubble bursts the neighborhood you describe will keep its value, and you’re in position to do many, many, many more flips every month.
Thanks for your very excellent advice these past several months. My humble advice to you is–remember to enjoy the journey!
What would Rich dads advice have been??? - Posted by Rick Grimsley
Posted by Rick Grimsley on May 09, 1999 at 22:13:58:
Insted of making the decision from the 1st person
perspective why not try the 3rd person? When in the
1st person mode we often let emotions infulence our
decisions. How would Robert Kiyosaki’s Rich dad
advised you on this deal? You are the CEO of your
own life what does he say about it? Pull away from
it and look from an outsiders point of view. In fact
look at it as a seasoned investor would view it with
no emotions attached. Does it still look like a good
deal from that position? This perspective has been
very helpful to me to make good decisions
Good luck Steve and thanks for all the encouragement
that you provide to everyone!!!
Next month there will be something better - Posted by PBoone
Posted by PBoone on May 09, 1999 at 21:45:48:
Scott,
You are simply on fire relating to your posts. It has been our experience that great deals come very often when you place as much emphasis into searching as you do. Many of our REI friends ask “How do we find these great deals” and I laugh because I know just how many we pass on.
This one deal is a good test for you but just wait until you see the next “Dream Home” it will be as good or better guaranteed.
Pat
Re: Found MY Dream Home, but not ready yet, what to do? - Posted by Christina
Posted by Christina on May 09, 1999 at 20:16:55:
Hi,
The house sounds like a great deal, no matter what. Even with the extra $100,000 invested in it with repairs, it’s still far cheaper than other homes in the neighborhood. By the sounds of it, you’re the Flip King (LOL) and I think you could pay for this easily with a couple extra flips a month.
Lastly…it’s your DREAM! Go for it…follow your heart, and at the end of it all you’ll have a home to be proud of.
Good luck!
Christina
True Story - Posted by Sean
Posted by Sean on May 09, 1999 at 19:31:03:
As some of you know, I am a professional property manager. I work for a wonderful lady, who owns a million dollar construction firm that specializes in glass and curtain wall and also has over 100 units that need bills paid, tenants stroked, etc., etc.
Recently this lady saw a complex that was in an area she knew well from her youth. It’s right around USC. Well she made THE MISTAKE. She got emotionally involved. She just HAD to have the property and fix it up so that it would always be glorious like it was when she was a girl in college (She’s mid-60’s now).
This property is trashed, it’s not renting well and it’s not turning a positive cash flow. I’ve seen her write $10,000 checks into that property’s account (she owns them all through corporations) to feed the alligator only to caution me a month or two later to hold paying checks on that property because it’s running very close to running below the $500 (or whatever she needs to keep) that would cause us to incur bank fees.
NEVER get emotionally involved in a purchase.
Now, as for whether or not you can buy the property that’s a matter you need to figure out with your calculator firmly planted in hand. Since you want to keep the property you need to determine how much money it will take to get it rentable, how much rent you can collect, and how soon you can move that tenant out and you in.
But if the calculator says no, listen to the calculator.
Re: Found MY Dream Home, but not ready yet, what to do? - Posted by Lorelie
Posted by Lorelie on May 09, 1999 at 19:17:22:
I did this myself recently. I found a turn of the century mansion that needed alot of work. I bought it with an FHA 203k loan which covers the purchase and all repair work, with 3% down. Since there are three other apartments it made sense to me financially as well. I made sure the numbers worked first before I got too involved. Try the numbers on this house and compare it to your current housing expenses. That equity could come in very useful!
Re: Found MY Dream Home, but not ready yet - Posted by JPiper
Posted by JPiper on May 09, 1999 at 18:29:22:
Steve:
It sounds to me like you answered your own question in the title of your post.
Just remember that investment is DIFFERENT than consumption. Make no mistake about it, what you’re talking about is consumption. Creating a high overhead so that you need to do more deals is not the route in my opinion. See John’s post below for a great analysis of this. Understand that none of us know what the future will bring?..but the future will not equal the past. Things change?..and when and if they change the best place to be is with low overhead.
Why not buy it and flip it? You’ve got plenty of time for consumption?.and lots of years ahead of you. You’ll have more than just this dream.
Good luck to you whatever you may decide.
JPiper
What would the Millionaire Next Door Do ??? - Posted by JohnG
Posted by JohnG on May 09, 1999 at 18:11:23:
The Millionaire Next Door taught me to live below my means so that I can produce wealth. I know of many associates who live in the most expensive house they can afford and drive the most expensive car they can afford and Yes some of them even wear a Rolex !!
(I laugh at that one cause in the book - ALL of the millionaires he interviews have cheap watches)
I always wanted a Rolex and a Porsche. I promised myself when I did two more big deals Iwould treat myself. I went through all the motions - I went and test drove a bunch of Porsches (911 of course) and I went and tried on a bunch of Rolexs and then I didn’t buy either one. Rather, I put a bunch of money down and borrowed more to buy 3 more LARGE real estate deals. These deals will pay me back many many times what I would have put into the “toys” and one day in the not too distant future I will be able to buy both toys all cash. But, something tells me I won’t be doing it even then. I think there might be a bigger deal coming down the pike.
So, what does this have to do with your post ? Should you buy this monster home ? The money you tie up in purchase and reno is money that could be out there making money for you in real deals. Sure you will have equity, but I had a million dollars equity one time and it was in raw land. And every week I went to the grocery store, they wouldn’t take a peice of it to put food on the table - I needed cash. I lost my equity and I lost my land and I will never forget that lesson. Equity is not at all liquid. Cash, on the other hand is always king !!!
Re: Found MY Dream Home, but not ready yet, what to do? - Posted by gwtx
Posted by gwtx on May 09, 1999 at 18:06:16:
Steve,
Are you sounding like the motivated “buyer”, are what?
Sit down, take a valium, and re-read Robert Kiyosaki’s books.
But, if just have gotta have it…get an escape plan together. Don’t jump out the plane w/o a parachute!
.02
gary
Re: Found MY Dream Home, but not ready yet, what to do? - Posted by phil fernandez
Posted by phil fernandez on May 09, 1999 at 17:32:11:
Hey Steve,
Glad to hear you’re doing great. Let’s see. You can get it for $125,000 but it needs about $100,000 in repairs. That’s a total of $225,000 and the house next door just sold for $495,000. Am I right in assuming that the house next door is similar in size and style as the house you are looking at. If that is the case, then you could be sitting on about $270,000 worth of instant equity. That’s over a quarter of a million dollars.
Here’s what I would do. Obviously it may strain your pocket book at this time. However you have demonstrated in the past that you are someone that can rise to the challenge. Consider this just another one of your challenges. Yup as you said you will probably have to do a couple of extra flips per month. But knowing you will have to do the extra flips will give you more focus to achieve the goal.
Also, who says you have to dump the entire $100,000 into repairs all at once. Do some repairs now. spread the repairs out over a period of time.
I would have a hard time walking away from the potential of $270,000 worth of future equity. I’d go for it.
Re: True Story - Posted by CarolFL
Posted by CarolFL on May 09, 1999 at 21:24:51:
Wait a minute … this is a home for him to live in, if I understand right… different calculations.
Not a rental… a liability, not an asset…
But it doesn’t mean it shouldn’t be done…
Carol