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I've spent a couple of months house hunting and have narrowed down my search to two houses in Westchester, NY. Please give me your advice as to which one you think is a better investment.
1. The first one is in great condition. It was updated approximately 10 years ago and has been kept in very good condition. The kitchen and baths need updating, but are fine for now. The floorplan is OK, but the dining area is tiny. The only work that needs to be done right away is painting a couple of rooms and knocking down an interior wall to expand the living room. The outside needs to have the trees trimmed back and a few rotting boards from the deck replaced. It has an inground pool and landscaped front and back yards. Lots of curb appeal. The house is on .28 acres.
It is in a nice middle class neighborhood, and is one of the nicest houses on that street, and consequently is valued more highly than most (if not all) of the other houses. Other houses in the neighborhood are valued at 450-500K.
This house costs 535K and would require approximately 8-10K of additional work, which probably would take a couple of weeks.
Appreciation on this house should be good.
2. The second one is in poor condition. It hasn't been properly maintained in 7 years. It hasn't been updated since the 1970s. It has an excellent floorplan and the rooms are very large, and is generally liveable. The main problems of this property are that it needs extensive landscaping, both front and back. It may need a new septic system in the next couple of years, its oil tanks are rusted and may also need replacing in the next few years. The electrical system needs to be brought up to code, the windows all need to be replaced, there is no heat in the finished basement, carpets need to be pulled up to get rid of cat and smoke odor, interior needs painting. The water table under the land is very close to the surface, so there is a problem with drainage in both yards. The house is on 1.05 acres.
It is in an extremely beautiful, ritzy area with houses valued from 900K to over a million dollars. This is an area I never, in my wildest dreams, could have imagined buying into. This house is the shabbiest in the neighborhood (although it doesn't look too bad). The current owner can no longer afford to maintain it due to a divorce, and is trying to unload it asap.
It costs 499K and require 90-100K in repairs. We won't have much money left after closing, so these repairs would take 1-2 years to complete. However, I figure after these repairs, the house's value should shoot up to at least 750-800K automatically, despite the downturn in real estate values.
I have never lived anywhere that had extensive construction going on for a prolonged period, so I really can't imagine what the difficulties associated with that are. Has anyone ever experienced this? Is it just too much of a bother, and potential strain on my marriage?
Overall, which do you think is the better deal? The great house in the good, middle class neighborhood OR the fixer-upper in the fantastic, million-dollar neighborhood?
What are the taxes? If you go with #2, will you be able to afford to maintain it? Normally I would say the worst house in the best neighborhood, but not sure in this case. The water table could be a serious ongoing issue. Does the basement flood?
My advice would come down to what you prefer. Move in with few upgrades or move in with a construction zone. I've done the construction zone thing personally and it is VERY hard especially if you're doing it over 2+ years. (Usually it takes longer than you think). If you are looking mostly for investment, which it sounds like you are, house #2. brookdaleresident above has some valid points as well.
The taxes on the first house are 14K and on the second house 15.7K.
Sarah, what were the hardest aspects of living in a construction zone for you?
Also, I wouldn't say that I'm looking for a house mostly for investment value. I want a house to live in with my family until my husband and I are too old to maintain the house & property. However, if we could also make a killing on the resale of the house 20-25 years from now, it would certainly help ease our retirement years. But I just don't know if all the problems inherent with a fixer-upper are worth the eventual profit.
The biggest problem with fixing up a house is finding good contractors who are available to do the work when you need it done. The better the contractor, the more booked up they seem to get.
I did fix up work on two houses (on a much smaller scale than you are considering) and the only thing that saved me was a neighbor who sold replacement windows. He hooked me up with a fantastic siding guy, his brother-in-law did A/C work and helped me there, etc. Now that I've moved to a different state I'm finding it very hard to find good people. Just something to consider!
Brookdaleresident,
There appears to be no problem with flooding in the basement, based on the inspection. The problem with the water table seems to be located in the yards. Both are damp and, in some areas, muddy. The house is located near the bottom of a hill. I don't know what runoff is like when there are heavy rains. But I would imagine that the land could get very wet.
The inspector said that for a few thousand, we could have a drainage system set up underground to reroute the water to a brook that runs through the property.
It's never good to be at the bottom of a hill especially if you're already seeing moisture problems, and you need a new septic. You also have to consider that the taxes will go up on this house as you will have to file a building permit to do the work. You should be able to lookup what the neighbors are paying to give you an indication of what to expect. If you will be stretching things to get this house done I'd reconsider as any such work always goes over budget sometimes by as much as 50% depending on what they find. Also, if your husband or you have no experience with renovations it becomes more difficult to supervise contractors or know if they're doing what they're suppose to.
Unless all of these factors appear favorable I'd weigh in favor of the first house.
It all depends on your situation.
We had this exact same scenario last year while looking for the next house, except that one of the house is not yet build. Thee one we fall in love with is located in a rich area, house is huge with lots of potential, clean and well kept but need a lot of update. We love the house so much that we brought in a contractor for an estimate to see how much it will cost us to gut the house and rebuild, we asked our agent to bring us to the house at least three times.
But in the end we purchased a new house. After rationalize our situation, with two kids ages 4 and 2, we don’t want to get into that big of a renovation job while living in it with two kids.
The issue I have with #1 is being the most expensive house on the block. Sometimes that could end up working against you if you have to sell.
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