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Location: When you take flak it means you are on target
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If you still have a due diligence period and can still walk away I would SERIOUSLY reconsider this deal. At the very least you need to ask for concessions based upon the home inspection. This is normal.
And I would take the above posters advice - buy the worst house in the best neighborhood, fix it up to be "almost" the nicest house in the neighborhood, but not quite, sell it for top dollar in perfect condition to a turn key buyer and move on to the next one.
However, house flipping and construction is a whole career in itself. I have about 1/4 million dollars invested in tools and equipment, not counting vehicles.
If property values are falling, you are buying an old house with lead AND radon problems and a bad roof for top dollar.
Have you ever replaced a roof? Radon levels above 4ppm are above legal limits - which means you will have trouble selling it - although to abate radon you can install like a $30 fan with a vent to the outside. LEAD is a huge major headache. You have to have a licensed abatement crew do the work if children are involved - especially if you plan to rent. In some areas you have to be re-inspected for lead abatement if it becomes a rental. If the layout is obsolete again you will have trouble renting it or it will rent for less.
And remember there is a major big difference between a house that is rehabbed by professionals and that done by DIY'ers. And the difference comes in the sales price down the road. The bottom line is you can't do a professional job without professional tools and the experience. And most of this is not a teach yourself type thing. That's why tile layers and plumbers make 60 bucks an hour.
Anyway - good luck whatever you do. At least try to negotiate a price concession to cover the roof and systems.
This is NOT the time to be over paying for a house. Remember the two cardinal rules of real estate. Location, location, location - and you make your money when you buy, not when you sell.
If you still have a due diligence period and can still walk away I would SERIOUSLY reconsider this deal. At the very least you need to ask for concessions based upon the home inspection. This is normal.
And I would take the above posters advice - buy the worst house in the best neighborhood, fix it up to be "almost" the nicest house in the neighborhood, but not quite, sell it for top dollar in perfect condition to a turn key buyer and move on to the next one.
However, house flipping and construction is a whole career in itself. I have about 1/4 million dollars invested in tools and equipment, not counting vehicles.
If property values are falling, you are buying an old house with lead AND radon problems and a bad roof for top dollar.
Have you ever replaced a roof? Radon levels above 4ppm are above legal limits - which means you will have trouble selling it - although to abate radon you can install like a $30 fan with a vent to the outside. LEAD is a huge major headache. You have to have a licensed abatement crew do the work if children are involved - especially if you plan to rent. In some areas you have to be re-inspected for lead abatement if it becomes a rental. If the layout is obsolete again you will have trouble renting it or it will rent for less.
And remember there is a major big difference between a house that is rehabbed by professionals and that done by DIY'ers. And the difference comes in the sales price down the road. The bottom line is you can't do a professional job without professional tools and the experience. And most of this is not a teach yourself type thing. That's why tile layers and plumbers make 60 bucks an hour.
Anyway - good luck whatever you do. At least try to negotiate a price concession to cover the roof and systems.
This is NOT the time to be over paying for a house. Remember the two cardinal rules of real estate. Location, location, location - and you make your money when you buy, not when you sell.
From the research I've done on the Radon issue - yes it's above the limit, however in the state I'm in 70% of the homes here (according to epa) have it, and the levels reach much much higher than what we have. Based on the hourly print out, the highest level it reached was 6.2..and based on the epa chart, I think it was 7-8 people per 1,000 nonsmokers will be affected by that level of Radon. Personally, my wife and I don't mind spending 10 minutes getting laundry ready (machines are in the basement), or spending 2 hours or so watching movies in the rec room or exercising at those levels. However, we still do plan to install a mitigation device by a qualified professional, and see it really as a non issue. My sister in law is also looking at new condos, and with each one we looked at there was a radon mitigation kit installed. Once we do turn to sell it, it would definitely be a plus to the future home buyers, as we see it.
With the lead paint - my understanding is that as long as it's not chipping, or children aren't eating the walls, it's a non-issue. A fresh layer of paint wouldn't hurt, and peeling is something we will watch for in the future, but...there's lead in many, many homes. I've been in lead paint homes even when I was a child, generations grew up with it, again we see it as a non issue...paint it, watch it, be aware.
Anyway, if we do walk from this house, anything else we get would just be a sidestep. We don't want to do the 3x income rule and be stretched with a mortgage payment, and we're not trying to flip it. Just want to live there, learn repairs, pay off debt/the house, and start saving for the expensive part of town. We've already pushed (and will be receiving) a $1,000 credit at closing for repairs. Maybe could of got more, maybe not.
I appreciate the post, it gave me things to consider, and if there's anything wrong with our logic please let us know!
* 30 year old furnace, but with some parts replaced and actually working pretty well.
Surprised no one has mentioned this. 30 years is quite old for a furnace. Most are supposed to last about 20-25 years tops. So if you go through with this house, I would try to sock away a few grand for the inevitable replacement. You don't want to be caught in the dead of winter with a dead furnace.
And you still haven't answered the question I'm asking for the 3rd time. Why would you think an appraisal being near contract price mean there had been other offers? Seems like silly logic.
Wouldn't a decent real estate professional price the home close to the market value? His comment makes no sense to me either.
I have a problem with some of the things the OP is saying / doing.
To start with I think it is generally NOT A GOOD IDEA to severely "under shop" for a place to LIVE IN -- as an investor I have owned homes in "the crummy part of town" or a town that on the whole I would never live in and the reason those values are lower is generally something that you cannot, as an owner, control. From a cash flow perspective I could get rent money in those kind of areas, but tenants were not "high quality" and neither were neighbors. Now it another story if this happens the only or nearly last "trashed out" place on an otherwise nice / improving block, and it that is the case then MAYBE this sort of under shopping makes sense, but HEAVEN FORBIDE if the area is deteriotating or even 'stalled' in its current state as YOU WILL NOT GET YOUR MONEY OUT DOWN THE ROAD!!!
The second problem I have is the SCOPE of the issues the OP is talking about. As someone else has alluded to, being a PROFESSIONAL REMODELER with all the tools /skills to do things the RIGHT WAY is very different than being an "eager to learn" DIYer. I myself have developed some hands-on skills over the years, but more importantly I have a heckuva network or bums that I have run into that do not do the work they say they are capable of AS WELL AS a much smaller network of trust worthy pros that can give me an honest quote and DELIVER on it. It I could "get back" all the money I paid to the bums I would be in much better shape! My fear is that inexperienced DIY types are gonna lose their shirts on the SCALE of the work with place needs and even stand a chance of quite literally LOSING THIER MINDS if they are living in a place with enough lead dust to harm them, when I owned places that did not pass a lead test I would not live in the place until it was finished and I would make sure that the contractors knew that on such job sites proper clean-up was not just a good idea to try to get in before the end, but something that could KILL THEM if it was not done the right way in at appropriate stages. Similarly "visible rusted sewer pipe" is one of those things that ALMOST ALWAYS means there are HIDDEN issues that are so costly as to be deal killers -- modern sewer pipes that are properly laid in an area with stable soils should last over 100 years -- Ductile Iron Pipe Research Association - DIPRA - Frequently Asked Questions (http://www.dipra.org/faq/corrosion.cfm#FAQ10 - broken link) if the pipe is rusting I would first and foremost can an in-the-pipe camera down the whole sewer to find out WHY. I have seem nightmares where what looks like a tiny spot of rust is the only visible sign of a completely failed plumbing system that costs tens of thosands to "make right"...
My third big problem, and it a doozey, is that the OP seems OK with putting in more repairs than the property is selling for -- again if this some "bombed out" salvage operation I might see that such an effort could be justified. Of course you need to have one heck a cash reserver and/or a BUSINESS LINE OF CREDIT to draw on, becuase it is damned hard to get a lender to loan you money for more than the cost of any property. Even if that hurdle is crossed the issue of who in the right mind will pay you enough to cover the cost of HIGH DOLLAR INFRASTRUCTURE repairs is an even bigger problem. Just to be clear, I am an advocate of wise use of a strategy of buying a home that needs some fixing up. I even recommend that folks who are capable of using a 203k go that route. The question becomes one of RETURN ON INVESTMENT if you intend to "flip" the house either soon or after some time. In either case it ain't easy. Legal restrictions make flipping a lot harder than it used to be with borrowed money. Reality of living in a place for any lenght of time make the PSYCHOLOGY of potential buyers seeing a home as "fully restored and better than new" very different than "fixed up a while ago and now used and still overpriced"...
Now the cautions I lay out here are things that can be addressed, and as long as they are fully factored in by the OP this STILL MIGHT be a deal that makes sense, however as some one that has seen more than a few people get in "over their heads" I know that a little realism is much safer than too much optimism...
I wonder if the OP might be able to learn just as much about DIY repairs by buying a home closer to what they can truly afford, perhaps in an area that they could see themselves living long term should the need arise, and with less "defects" of the kind that many buyers are not going to appreciate the cost / complexity to repair.
When I look at data about how much ROI there is from SIMPLE fix-ups, like new doors, light fixtures and bathroom fixtures / kitchen appliances I really tend to dissuade folks from getting into a situation where the need to shell out for new plumbing, windows, furnance and roof UNLESS that is ONLY WAY to get into a "good area". Sound like the OP will still want to "get to a better part of town" even after sinking a ton of dough into something that sounds about as close to a classic money pit as I have heard in long time...
Despite the price of the home, the part of town we will be in isn't a bad part of town at all, in fact driving down the street you see 90% elderly and young families. Our neighbors are a young family with children that walk to the nearby elementary, and then a paraplegic on the other side. We spent a few hours checking the area out on a friday night between 11 pm - 12am - it was dead silent. There's no graffiti (not much in this town at all, anyway), we've checked police reports and the area is very low crime, as well as asked my wifes family who have been here all their lives, our insurance agent, people at work - it's not a bad part of town.
Again, I'm not concerned about the lead paint (although I was at first, same for Radon) - I've called the EPA, I've spoken to a lead paint tester and my fears about it have been relieved. Paint over it - pick up chips asap, don't let it get pulverized into dust, watch areas that rub together (windows), just be aware that it's there. I'm intending to spend the money to get the radon mitigation kit installed, I'm expecting to spend around $1,200 or so, could be more, could be less - we will see. All it means is my wife and I pick up extra shifts at work...
I'll agree that the sewage pipe is the issue we're most nervous about, and the first thing to be fixed. We're getting a $1,000 repair credit towards it, and when I walked through with the home inspector it wasn't something we glossed over at all - we stopped, asked him numerous questions, asked about his experience with similar homes/problems, and we left feeling it wasn't a deal breaker at all. I know he's not a plumber, and the plumber may find other issues as well, but...this is the best house for us we've seen at this price range, there's a long list of positives regarding it, and to give up all of that because we may go over a bit in repairs, doesn't make sense to me.
We're not looking to flip, or make a substantial profit off a $75,000 starter house, I just think weighing out our other options (ie, renting for significantly more, buying a house in the same range that doesn't have what appeals to us with this one) - we will be in a much better situation in 10, 15 years once we're debt free, working full time in a hospital (right by the house too!), done with school, and have our down payment ready for the nice part of town (nice as in *beautiful* houses, in the scenic part of town, not "less crummy").
Anyway, that's our thinking. I suppose to sum it up - we're not expecting the house the make us a profit, we're relying on ourselves for that. The house just allows us to live somewhere for a low cost, finish school and not have to worry about a huge mortgage, and yeah it will be nice sitting on the deck with a beer, or walking to work if I (we) choose to. Sounds pretty nice to me!
I think I saw in another thread that you are moving to Cedar Rapids and attend school at Uof Iowa. I know that there is a HUGE difference differential between Iowa City and CR and that really has a lot to do with demographics.
The salaries of the physicians and professors in Iowa City are orders of magnitude larger than that of even well paid CR residents. There is a very different economic base despite the fact the towns are not physically all that far apart. That economic base also means that the social aspects of each town are quite different. I would not worry that there are too many hard core "gang bangers" in CR (though I am sure there are some kids into some bad / illegal things...) so much as I would worry that your INVESTMENT in the expensive fix-up that it sounds like you have planned for your home may not have much return and worst case, should the economy continue to lag, you may be unable to get your money out at all.
Now if the location is such that you really will have a short commute and you are happy with that for the long term then maybe things will be OK if it turns out that you really would have been better off FINANCIALLY renting ...
There is an element of RISK in any financial decision and my warnings are really meant to help you quantify some of the risks that POP OUT at me in this sort of situation.
I think I saw in another thread that you are moving to Cedar Rapids and attend school at Uof Iowa. I know that there is a HUGE difference differential between Iowa City and CR and that really has a lot to do with demographics.
The salaries of the physicians and professors in Iowa City are orders of magnitude larger than that of even well paid CR residents. There is a very different economic base despite the fact the towns are not physically all that far apart. That economic base also means that the social aspects of each town are quite different. I would not worry that there are too many hard core "gang bangers" in CR (though I am sure there are some kids into some bad / illegal things...) so much as I would worry that your INVESTMENT in the expensive fix-up that it sounds like you have planned for your home may not have much return and worst case, should the economy continue to lag, you may be unable to get your money out at all.
Now if the location is such that you really will have a short commute and you are happy with that for the long term then maybe things will be OK if it turns out that you really would have been better off FINANCIALLY renting ...
There is an element of RISK in any financial decision and my warnings are really meant to help you quantify some of the risks that POP OUT at me in this sort of situation.
I hope things work out for the best!
I really appreciate it, and yes, you're right about Cedar Rapids! Iowa City is more expensive, but it's not a town my wife and I particularly want to live in. The downtown is horrendous (not a fan of constantly dodging students walking to class), the active "night life" doesn't appeal to us, there's too many young college kids for us (actually, they're about our age...). I'm thankful that it's nearby, but...not where we want to live.
Thanks for giving me some things to think about though!
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