Renovating or selling run down house in Fremont, CA (San Jose: hardwood floors, real estate market)

[Oorah]

Hi
I have a house that is located in Fremont, CA. It's 1230 square feet and located in the Mission San Jose High district. I've got about $20,000 left on the mortgage. Here's the story:
I inherited this house from my father who passed away recently. Unfortunately, he let the house go to *****. I did a lot of research, brought in a few contractors to look at it. Cost to renovate will be ~$120,000.

Questions: should I put in the money and time to renovate the house and rent it out? Or should I leave it as is and try to sell it?

Some factors are what is the real estate market like in Fremont, CA and where will it most likely be 2 or 3 years from now?

Other factors to consider: I have the money to pay for renovations out of pocket without taking out a loan.

Thank you.

[ccm123]

I cannot offer any opinions on the renovations. But, the housing market in Fremont, especially MSJ is hot right now. There are multiple offers, over asking, for homes. It is one of the most desirable neighborhoods in Fremont.

[mstnghu2]

I would renovate it and sell it. You will more than likely to get a nice return on your investment. Mission San Jose is highly desirable and many people are willing to pay just about anything to live there.

[justinbro2002]

You should have no problem selling the home in MSJ in it's current condition. But if you fix it up for $120k are you going make that money back plus on the backend? I assume you had the house appraised when you father passed away because you have to for tax purposes, what was the worth then and how long ago was that? What are the comps in the area going for related to what your house appraised for? No one can tell you what the house will be worth in 2 to 3 years the market might continue it's upswing or it might start a downswing by then. I know that prices in MSJ are higher than before the bubble burst in 2006-2007 so this is a great time to sell. If you do decide to fix it up before you sell you might want to consult with someone who understands the Asian community and be sure that you are fixing the house up to appeal to the Asian buyers who are the majority of buyers in MSJ.

[Oorah]

Thanks for all the feedback. I'll list all the issues with the house:
1. Kitchen needs to be gutted out and completely replaced
2. Both bathrooms gutted out and replaced. There is dry rot in walls and damage to subfloor
3. Cracks and holes in dry walls
4. House needs to be repiped
5. Popcorn ceiling replaced
6. All windows have cracks or holes in them
7. Screen doors need to be replaced
8. Hardwood floors have Unremovable stains and need to be replaced
9. Ceiling has water damage which means weak spots in the roof
10. House might need to be re-wired
11. There may be damage to subfloor in other parts of the house
12. Interior doors and front door need to be replaced
13. Interior needs a paint job
14. Garage door needs to be replaced
15. Rotting deck in backyard needs to be ripped out

Having said that, do you all still think the average Asian family is going to buy a rundown house like this and put in the time to renovate it? In its current state, I can't imagine selling the house for anymore than half it's value, which would be $350000 (house is valued at $700,000). I have the money to fix it up and pay for it upfront. I'm just trying to figure out if it will be worth the time and effort.

Here is another factor to consider: I live and work in Southern California. So that throws a wrench in any plans to eiher renovate or sell the house.

[cardinal2007]

Monetarily you would probably be better of renovating the house it seems, if it is valued as it is at $700k, and you can only sell it for $350k, a renovation of $120k will probably make it valued more than the $820k that A+B leads to, the reason is due to all the work involved, and most people buying it would have to carry a mortgage for a while, or sink the money into it, and hope they can get it out.

The issue with your location is a big one, it seems like you would need to be here to supervise the renovation. Essentially coming here every weekend, and possibly taking vacation time to be here, maybe even taking a leave of absence if doable. The difference is possibly $500k, usually the tax situation would be such that you don't even pay taxes on that, but I don't know since you personally never lived in the house. But $500k is probably more than you earn in a year of working.

As for whether to sell it or rent it out, that depends on what you could rent it out for, and what you could sell it for, $850k-$900k is just an estimate based on what you said about the house being valued at $700k now. The benefit of renting it out are that you get to take advantage of the Prop 13 inheritance rule, and therefore not really pay taxes to Fremont, so you get the rent, and you don't really have to pay much taxes to Fremont, and they provide great schools increasing your property value for cheap essentially, win win, well except for your neighbors that don't get as good a school as if you sold it, but really you don't live there, why worry. Of course it depends on the math, but just remember it is not all equal, your costs are lower than it would be for someone else buying it from you with cash.

[80skeys]

do you want a lot of cash in hand right now, or are you content to hold title to rental property for several years/decades? Either way probably works out about the same in the long run.

[gnomatic]

Originally Posted by Oorah

Having said that, do you all still think the average Asian family is going to buy a rundown house like this and put in the time to renovate it? In its current state, I can't imagine selling the house for anymore than half it's value, which would be $350000 (house is valued at $700,000).

Your target buyer is going to be working professionals with high school age kids, they don't necessarily have the time to handle a renovation, and will most likely be willing to pay more for a move in ready place in MSJ. You will probably want to get it done well before school starts though.

It would be easy to rent out too, if you chose that route.

I had friends who paid over 750K for a townhouse in a complex just because it's in MSJ (and it's right on the border, if they ever redraw the line, they would be in the less desirable warm springs)...also had friends who moved from a house they own (also in Fremont) to renting in MSJ just for the school district.

Most asians I know would rather buy new build ..but a gut renovation on a old plot of land would be ideal, since it has the almost the advantage of a new built home without the HOA that most new developments have in the area.

[Luke9686]

Owner finance it with a 6% interest rate, $50K down. The high interest rate will encourage them to refi and cash you out in the near future.

[Oorah]

Yes, I was already leaning towards the idea of renovating it and renting it out to a family. The tricky part will be finding a contractor who I can trust to get the job done without me babysitting them. My visits to view the progress will be limited to the weekends 90% of the time. Taking a leave of absence is not an option for me (I'm in the military). Therefore, most communication will be by email or phone. There's a lot of money on the line to fix up this house, but if I can find the right contractor who has experience with long distance clients, then the time and effort will be worth it in the long run.