My husband and I are in negotiations to buy our next live-in
renovation. When I shared the news on Facebook my friend Laura asked, “Curious
why it’s a project house, it looks great as is.”
She’s right: the house has character and curb appeal, and
the photo I shared captures those aspects and not the peeling paint or broken
doors.
The photo I posted on Facebook |
Curb appeal photo |
living room with hardwood floor and view of Henderson Bay |
I can answer Laura’s question by saying what needs to be
fixed: exterior paint, garage door and roof, the 1970’s green pet-ruined
carpets, weather-beaten and dog scratched deck; but that list, isn’t a
renovation.
To say why this is a project house, I want to explain what
I’ve learned about the difference between buying a home with the idea of living
in it long term and buying it with the idea of resale in a few years.
My husband and I have owned three homes in our 32 years of
marriage. The first was constructed as a vacation cabin in the 1930s, and added
on to once or twice before it became ours. We moved into an 800 square-foot
home with 3 small bedrooms and 1 bath, without a garage or carport or
landscaping, and a woodstove as the only heat source.
Over the course of 13 years, we built a backyard deck and a
studio/playhouse, installed central heat, remodeled to add a master bedroom and
bath in a daylight basement, knocked out walls to make a dining room upstairs,
replaced the kitchen cabinets with maple ones my stepfather built, installed
new flooring in every room, and put a new tub and toilet in the existing
bathroom, in addition to septic repairs and regular maintenance.
We did all this a little at a time to accommodate our
growing family, and financed the improvements with bonuses, stock options, and
salary increases my husband received in the corporate world.
We sold the house for significantly more than we paid, and
even including the costs of materials and labor over the years, came out ahead.
That experience mirrored what I’d heard growing up as part of the American
dream: owning a home is always a good investment.
We built our next house, buying a 7 acre parcel of
unimproved land and literally sinking thousands of dollars into the ground as
we built a non-standard septic system to work in sandy soil, ran water, natural
gas, and electricity, graded for a driveway and foundation, and installed an
engineered fence to hold back a rock terraced hillside built in the 1880s (you
can read my essay about the stone walls here).
The stock market was booming then, so we loaded our home
with all the modern conveniences—stereo speakers in every room, custom closets
and dressers, roll-out desks, bookcases, china cabinets, window seats, and a
Murphy bed.
We built our dream home on a dream lot, following the advice
of the property’s listing broker to build a house worthy of the property.
The trouble was, unlike places such as Saratoga and Los
Gatos in the Santa Cruz Mountains, Boulder Creek is not an area associated with
luxury, and when it came time to sell after my husband was laid off, we found
ourselves, like so many others, parting with our house for much less than we paid
for it.
Paying cash for the land and many of the improvements so
that our mortgage was manageable saved us from a “short sale” and bank involvement.
We bought our Bainbridge Island house just as we signed a
sale contract for our Boulder Creek dream home. Without a job to qualify for a
mortgage, we were cash buyers looking for a low-priced house that also had
amenities important to us: space for an apartment retreat I could rent out,
nice yard, and water view if possible.
I’ve written in detail about that journey on this blog
before, and the condensed story, is that when we sold our home after
two-and-a-half years, we’d renovated it from studs to ceiling.
We came out ahead on the sale for two important reasons:
First, we did almost all the work ourselves, only hiring help in the very last
months. Second, the home was our primary residence for longer than two years,
allowing us to avoid capital gains taxes.
Now that renovating homes is our livelihood, resale
potential becomes a primary factor. Buying a house already in great shape isn’t
a wise choice, since there’s no real value we can add.
Buying a dilapidated home doesn’t work either; not only
can’t we live in the home while working on it, but it’s a bad investment. When
there’s too much work to be done, there’s no way to make a profit. This is why you
see derelict homes with “For Sale” signs for years, until finally, the building
is razed for new development or burned as practice by firefighters. There’s
just no way to make the needed repairs pay for themselves.
Real estate investors who do traditional “flips” typically
fix and update: replacing broken windows, musty carpets, appliances, toilets,
and vanities, but they avoid upgrading plumbing or electrical, remodeling, or
re-roofing.
Any work that requires a permit costs rehabbers valuable
time and money, so “the numbers” have to work, meaning a formula that weighs
purchase price, “holding” and improvement costs, and future selling costs,
against future sales price must yield a profit, typically 20-30%.
That’s where people like my husband and I come in, taking
risks on major repairs because we envision potential in the property, the view,
the neighborhood, community, or something else that spurs us to sink (hundreds
of) thousands of dollars into a house that can only be recouped by the
financial benefits of living in it for at least two years.
The home we’re planning to buy has a ground floor apartment,
great landscaping, views of Henderson Bay and Mount Rainier, and sits on a
picturesque street that will soon be widened, connected to another road, and
utilities placed underground. All of those are great assets we want to
capitalize on.
Ground floor apartment, main level living, upper level bedrooms |
Rhododendrons & Japanese maple, part of the lovely landscaping |
Besides the obvious repairs mentioned earlier, drawbacks
include a mid-house staircase that negatively impacts the apartment kitchen,
the main floor living area, kitchen, and bath. And the master bedroom ceiling
slopes quite low at the windows, blocking the views.
We envision eliminating the interior stairs and moving some walls, and raising the roof in the master bedroom with the possible addition of a rooftop deck for unobstructed views of Mt. Rainier and Henderson Bay if the costs are reasonable. We
believe the transformation will be worth our time and money. And, that’s why
it’s a project house.
In the meantime, we've discovered the garage was built partially on neighboring property, which means lots of research now to determine if we want to go through with the purchase and future legal costs.
In the meantime, we've discovered the garage was built partially on neighboring property, which means lots of research now to determine if we want to go through with the purchase and future legal costs.
The cute but problematic garage |