Finally, a house I don’t need to carry a weapon to walk into.
A little background: I have been feeling like I have not been getting enough leads. After pleading with the head of my firm, he had a pretty direct solution – to put me in front of the salespeople.
The idea was that I could tell them what I was looking for, and maybe one of their listings would work. Or maybe someone would come across a property that would be just the thing. Better to have dozens of pairs of eyes searching for me than to rely on my wits alone.
So I made up little flyers for all the salespeople in the home office, stating what I was trying to do. And I’ll say it again, because maybe I’ll convince myself. I want to do rehabs of reasonably priced-homes because I think the middle class needs (and deserves) decent housing. I feel like if this fails, I’ll become just another NYC broker chasing $2 million listings. And I’m sure that would be a fun job, but it doesn’t feel like a mission.
So anyway, on my little flyers I told all the salespeople what I was looking for, and that I would need a $70,000 spread between the price I could get the home for, and the price I could sell the home for fixed up.
I only got one bite, but it was from an agent who supplied me with three different MLS sheets. She musta missed the $70K part, though. Sheet 1 was for a property in East Orange, N.J.; I know East Orange pretty well, and this was too fully priced to rehab. Sheet 2 was for a property in Irvington, which I don’t know. And sheet three was for this cute little Colonial in the Estate section of Orange. It was listed at $389K, and homes all around it are selling in the $500Ks. Many of them are bigger, but I found one that wasn’t. Woo hoo, I thought.
I showed the sheet to the head of my firm. “It’s too expensive,” he said. “Take a look, but there’s no room to rehab it.”
When I waved the $500K comp at him, he dismissed it. “The house for sale is smaller. You can’t just say, ‘this is three bedrooms and that is three bedrooms.’ You’ve got to count the front windows.”
You know what happened – he was right.
First a description: the house was probably built in the nineteen-teens, and it’s limited by its bathrooms. The main floor has a living room, dining room, and a porch that’s been closed in to make a baby’s room. There’s a too-small (by today’s standards) kitchen, about 10 feet of it, and the only way to make it bigger is to bust through a powder room that’s the only bath on that floor.
The upstairs floor has the master and two smaller bedrooms, all sharing one bath. You know, if you’re a first-time buyer shopping for a house, and you can drop $500K, you can actually get a master bath these days.
So it’s a small, cute house in a great neighborhood. It’s worth $425K — if it’s mint mint mint. And between me and that $425K is a new kitchen and new baths and a new door and oh, 20 new windows. Paint, did I mention paint? And I’ve got to do a perfect job to hit that comp.
The original list was at $445K. According to the selling broker, the owner really, really thinks it’s worth that. I floated the idea of offering $320K and was told to put it writing, but it probably won’t fly.
The secret reason is that there isn’t that much equity in the house. I didn’t think about this when I started (oh, there’s a lot I didn’t think about when I started) but one of the principles of rehabbing is that you’ve got to buy houses cheaply.
And one of the reasons you can buy houses cheaply, the thinking goes, is that when house values have been rising, sellers will still walk away with a nice little paycheck.
But in truth, as house values have been rising, sellers have been taking out second loans and home equity lines like their houses are ATMs. I’m guilty of it too — I threw a HELOC onto my beach house to finance this silly venture.
Now of course if all the equity in a house has been cannibalized, a seller can’t sell cheap. Let’s say the mortgages on this puppy total $300K, and then the salesperson takes $20K, is the seller gonna take $320K? Is she gonna take $340K, or is she gonna wait a year until someone stupider than me comes along?
Well, you know the answer to that: there ain’t no one stupider than me.
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