Would you spend $91,000 remodeling a $150,000 house?

[Brian Elfert]

I am in the process of buying a bank owned house that needs major remodeling. The house is $150,000 plus I got a remodeling bid for $91,000. The remodeling includes complete forced air heating/cooling system with duct work, All new Andersen windows and patio door, rebuild bay in kitchen, new siding, new exterior doors, new water heater, new bathroom, new flooring, and paved driveway. (City requires paved driveway.) The house is one story with 1,300 square feet on the first floor and 1,300 square feet in the basement. Lot is 3 acres. The septic system was replaced in 2011. I still have until next week to cancel the deal if I want.

I'm really conflicted on what to do here. It seems like a lot of money to spend, but the house will be practically new once it is all done. I can get a new house for the same money in the same city, but the lot is pretty bad and I don't like split level houses.

[Mike Henderson]

A lot depends on whether you expect to live there for a bunch of years. If so, I'd spend the money if the location and the finished house is what you want.

All houses require maintenance and if you spread that cost over say 20 years, it might be what you'd spend on another house over those years.

Mike

[Shawn Pixley]

So all in you're $ 241,000 on a 2,600 sf house? That's ~$92 / sf with no allowance for the land cost. If the area is reasonably good, likely to appreciate, and you're planning to live there for a while, it seem like a reasonable deal. You'd be unlikely to be able to buy the land and build new for that price.

[Greg Peterson]

What are the comps? What is the market value of the property?

[Jerome Stanek]

So all in you're $ 241,000 on a 2,600 sf house? That's ~$92 / sf with no allowance for the land cost. If the area is reasonably good, likely to appreciate, and you're planning to live there for a while, it seem like a reasonable deal. You'd be unlikely to be able to buy the land and build new for that price.

Why would you assume that prices for houses vary a whole lot through out the country. maybe Where you live it is a good deal but in other places it would be a horrible deal.

[Matt Meiser]

What are the comps? What is the market value of the property?

^^^^^ This is the real question. What would it likely sell for when you are done?

[Rich Engelhardt]

Is this the Freddie Mac house you mentioned a month or so ago?

[Raymond Fries]

I agree also that if the total package is what you want and you are planning on living there then go for it. I would do it if it made my dream home and I was not planning on moving. If you think you might ever want to sell it then it might be a different story. Sometimes remodeling costs do not raise the appraised value to match what you put in to it.

Good Luck with your decision.

[Brian Elfert]

What are the comps? What is the market value of the property?

I am getting a rehab mortgage. The bank won't move forward with the loan if the appraiser doesn't think the value of the completed house will be high enough.

A similar rambler house that is 2,100 square feet one one level (no basement) just sold for $210,000 last week. It was a 1987 house versus this one is a 1980 house. I wanted to go look at that house, but it sold before I could look at it. The windows on that house weren't as good as the replacements will be, but it was fully finished and looked great in the photos unlike the house I am buying. There is a house built in 2002 for sale that is one story with 1,750 square feet on the first floor and a mostly finished basement for $260,000. The lot is smaller at just under 1 acre. There are two new houses I can get into for around $250,00, but I really don't like split levels and they both have 1 acre lots. (I really have no need for more than one acre.)

[Jason Roehl]

About 17 years ago, I saw an elderly couple put $260,000 into a house they had bought for $150,000. The husband even went back to work (professor) to help pay for it. The initial estimate for the work was half that, but the wife got a little carried away with customizations. I don't think any room had less than 5 coats of paint on it from her changing her mind (we were the painters). When it was all said and done, they definitely did not have a $400,000+ house, but it was what they wanted to live in (even though they said it would be their kids' inheritance--I questioned the wisdom of that).

You need a place to live. Can you afford it? Will you like it? I've long not considered a house an "investment" as many do, though there are ways to make it one (but generally not if a bank is involved with a long-term mortgage).

[Mike Heidrick]

Is that one contractor subbing out everything? You should have had a dozen seperate bids with 2-3 for each IMO.

[Brian Elfert]

Is that one contractor subbing out everything? You should have had a dozen seperate bids with 2-3 for each IMO.

I really don't have time to get a dozen bids. I am getting two bids right now. I'm not even sure who I would go to for a third bid. The bank will work with, and pay, only one general contractor. They won't allow the homeowner to act as the general unless I was in the business and have a license and insurance. They also don't allow any DIY for anything the bank is paying for.

I am getting a conventional rehab loan. I have tried to find another mortgage company that will allow better terms, but I have not found anything. There are FHA 203K mortgages, but the costs are higher with the mortgage insurance requirements for an FHA loan.

[David Weaver]

I wouldn't do it if you can get something else for the same price. There's a better chance that the final value of the remodeling is higher than the bids, plus it's just a nuisance to be presiding over all of that work and trying to make sure that it's done right.

Rehabs are better for people doing the work than they are for the buyer, unless the same person is both of those.

[Matt Meiser]

Is that the HomePath thing? There are a lot of houses for sale around here advertised with that.

If the value of the finished house is inline with the costs and you will be happy with the final result and the time to complete, I say go for it.

[Erik Loza]

We did and it was one of the best moves we ever made. My wife bought the house 15 years ago for $150K. We put about $85K into a major remodel two years ago. We're in one of the most desireable neighborhoods in town and though we plan to stay here for a while, coudl turn around and sell the house for Three-quarters of a million, tomorrow, if we wanted to. So, "yes", that made sense. On the other hand, we own a tract home in the burb's (which we maintain as a rental), that I bought back in 2006 when I was single for $130K. That area is filled with houses like that, that sit on the market forever and likely will not appreciate much in value in the forseeable future. For that house, there is no way I would put another 60% of the total cost into any sort of remodel even of I actually lived there and planned to stay for a while. No matter what the economy does, you would never get any return on that investment.

I guess that's the real question to answer.

Erik Loza
Minimax USA