To buy or rent?

nealjpage · Mar 6, 2008

For some reason I turn to you guys for long-term financial advice. To a bunch of photoaholics that will gladly sell off your first-born for a D40. :lol:

Anyways..

I've got a line on a place to buy here. It's what I would call a "unique fixer-upper opportunity." Seriously. Some would say the best tool to renovate this place is a gallon of kerosene and a book of matches. But I scorn people with that type of thinking. And I'm always up for a challenge.

Anyways, I figure I could get the house and lot for about $40,000. It would need a new foundation plus a total re-build of a portion of the house, a new kitchen, bathroom, roof, and furnace. Luckily someone had kicked the back door so I was able to explore inside the house today without a realitor.

Am I crazy to undertake this project? I'm 29 and single. I don't currently own a house. IF this place wasn't a disaster, I'd be looking at about $150,000, easy for a comparable place. I currently rent a small (500 square feet) house for $500 a month. House payments on the place I'm looking at ($40k for the house plus an additional $40k for total renovation) will be approximately the same amount I'm currently paying for rent. Plus it would be mine, and I could (potentially) sell it for a profit later. And I could finally build that darkroom! :mrgreen:

So, let me have it. Anyone have any advice?

mrodgers · Mar 6, 2008

If you buy for $40k, and put $40k into it, for $80k you will indeed probably pay the same or close to your $500 rent stated. My house was $88k and I pay not quite $500 for just the payment.

Remember, as a home owner, you would then have property taxes or at least in my state where I live.

After 30 years at $500 per month, with renting you have nothing. With buying, you have a house that is valued significantly more than what you paid. That means, for the 30 years you've been paying rent, you are just handing your money over to someone else merely for the option of a roof over your head. After 30 years of a $500 house morgage, you have a very nice investment to cash in on.

The sucking sound of money into a house never really stops though. You have to constantly upgrade, constantly repair, constantly put money into it. But in the long run, it is very much worth it.

A friend of mine bought a house that was run down. It was in the beginnings of a rebuild with it being gutted and the drywall hung. That's how he bought it. No floors, no kitchen, nothing in the bathrooms, no appliances, no siding, no insulation, no anything inside but the drywall hung. He paid around $40k as well. He insulated, put new siding on, new roof, built his own cabinets, bought all new kitchen appliances, put new hardwood floors throughout (2 floors), new bathrooms (2), new light fixtures, had to have at least $40k put into it as well (did his own work including cutting the cabinet wood and hardwood floors from logs himself). He has decided to move and had it recently appraised at $200k.

My father-in-law has always told me about buying houses, location location location. Make sure the location is good, you can always change the structure. My friend outlined above has a wonderful house that he has put his blood and sweat into. The appraisal looks fantastic, but it is completely landlocked from public roads (has a right-of-way to get in) and is way back in the woods. The appraisal might be great at $200k, but I very much doubt the market value is anywhere close to that due to location.

If the location is good, I would have to say it is always far better to buy than to rent. If you have the money and time to fix it up (which $80 total is quite cheap for a house now-a-days) I say go for it.

Kazoo · Mar 6, 2008

mrodgers said:
Remember, as a home owner, you would then have property taxes or at least in my state where I live.

After 30 years at $500 per month, with renting you have nothing. With buying, you have a house that is valued significantly more than what you paid. That means, for the 30 years you've been paying rent, you are just handing your money over to someone else merely for the option of a roof over your head. After 30 years of a $500 house morgage, you have a very nice investment to cash in on.

If the location is good, I would have to say it is always far better to buy than to rent. If you have the money and time to fix it up (which $80 total is quite cheap for a house now-a-days) I say go for it.

I work at a bank (yep, that's the sound of my soul being sucked away) and yep, mrodgers has some very sound advice. The only thing I would be concerned about is that you mentioned the foundation needs replacing. You'd want to find the most trustworthy contractor in town to give you an estimate, and then add a fair bit of $$ to the quote since renovations always end up costing more, and taking longer. But if a contractor and a good home inspector give it the thumbs up, go for it - if you've got the patience for the challenge, yeah you'll come out ahead.

Lisa B · Mar 6, 2008

It depends on the state of the market at the time you decide to buy, how much you have to invest in renovations and your long term hopes, dreams and goals.

I have both rented and owned. I owned a house that we aquired at £149k and that was cheap for the area we were in at the time. House prices have risen in the last couple of years so the money in the house may be regained now but we're in for a slump in the market. Im not involved with that house now so it makes no odds to me but still...if you can buy a place for 40k then you should take that as good money. It is only a good investment though if you have the money to put into the reworking of the house and structural integrity. IF you can afford that and think that the area where the house is based is good enough for people to want to live, you can buy to invest even if you live there - we renovated our house between us, 3 of us, with bugger all experience and hardly any money - it took time, but we managed it, it is not impossible.

Just ask yourself how badly you want your own place, weather you have the time and money to invest, weather you want to buy to sell in the long term or if maybe renting it out is an option...

I personally wouldnt buy a house again. I have had so many issues trying to sell the house or financial **** because of it that i'm happier to rent. Its cheaper, you have easier access to help and moving is less stressful. I can up and leave if i rent. I cant do that if i buy. STILL. Everyone is different and so you hae to think about the kind of person you are. Buying may well suit you better.

You probably have a gut instinct about this already, or else you wouldnt be asking advice. I have a feeling you might buy, and at those kind of prices i would be tempted to do the same thing. Just make sure you explore all avenues before you agree to anything and do your sums. If you're on top of it, you should end up with a nice little earner.

Lisa xx

Big Mike · Mar 6, 2008

Sounds like it needs more than $40k worth of work. Make sure you estimate that very well...and also consider your own time and what it's worth. If this is going to cost you $40k and 5 years worth of weekends...that's something to think about.

If you can pull it off...it's a great way to make a lot of money and either get yourself a nice house to live in...or a way to upgrade to a place that you really like (or into another fixer-upper).

monkeykoder · Mar 6, 2008

After about 5 moves a ground up and doing several apartment renovations with my dad I don't think I'd ever do a renovation again the first time it is fun the second time is just wearing and it gets worse from there but if you have the money and friends I'd go for it but don't think 40k is going to do the renovations for you unless you're doing almost all the work yourself.

nealjpage · Mar 7, 2008

I took a coworker over to look at the house today. She used to be an architect. Her advice: walk away.

RyanLilly · Mar 7, 2008

Bad foundation? I would find something else, actually I'm looking to do the same thing as you right now. With the depressed housing market and high foreclosure rate, just keep looking, something will come up. One I have a sizable down payment in hand, I will probably get pre-approved for a lone, that way I know exactly what kind of money I have available and I could jump on a property more quickly if necessary.
I have no problem with Drywall, flooring cabinets, bathrooms, plumbing and electrical; that I can handle all myself. I want to avoid any structural, foundation, tuck pointing, roofing stuff, if possible. The time and money requires is much greater because I am not experienced enough to do that work my self.

Good luck house hunting,
Ryan

kundalini · Mar 7, 2008

Cosmetics and mechanicals can be worked out, but if you have a faulty foundation, well........that's the foundation. Everything sits on that. My 2¢.

nealjpage · Mar 7, 2008

Faulty foundations are common around here. Houses weren't built on cement or brick foundations here until the 1930s. Most houses, like this one, were built on wooden foundations.

My problem is this: the stock of properties available for less than $100,000 around here is minuscule. Those that do sell for less are basket cases, sort of like the one that i'm looking at.

Fangman · Mar 8, 2008

Always remember if you are paying rent you are paying someone else's mortgage!

At 29 and single you can do what yo like and be able to virtually camp out in the property - doing this sort of project with a family is near impossible.