Wednesday, May 27, 2015

Live-In Renovating, or Why It's a Project House

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.
Weatherbeaten exterior paint and deck

Beat up deck but great landscaping

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

Henderson Bay from deck

Mt Rainier behind the treetops

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.

The cute but problematic garage

1 comment:

  1. My wife and I recently sold our fixer-upper home. We took our time renovating the place, and soon realized we no longer wanted to live there after all the work was finished. We enjoyed turning the potential we saw in our minds, into a reality, as I am sure you do as well. Thanks for sharing this.