Uh Oh, He’s Looking at Houses Again

With the line of credit pretty much good to go, I traipsed around for much of yesterday morning with our agent looking at some properties currently listed on the MLS. I didn’t expect any to be screamingly good deals, as they’ve all been on the MLS for quite awhile, but a couple of them were intriguing.

As far as what I’m looking for, I’m leaning a bit more towards potential rental properties than outright flips. By and large, that means the same thing (as far as looking for unloved, undervalued properties that need a lot of work), but it does open up a few more possibilities.

Targeting rentals wasn’t my first impulse when setting up the line of credit, but the more I rolled around possibilities in my head after the details were firmed up, the more it made sense. Being able to buy properties and pay for closing costs and repair costs via the line of credit is a pretty huge plus when it comes to acquiring rentals, as the only money I’m out of pocket for is the original $1,000 loan origination fee for the line of credit, plus interest on the line of credit until the property is repaired, rented, and permanently financed.

If I wanted to pick up rental properties via conventional financing, it’d be a much different story, as far as coming up with 5-10% down, paying all repair costs, closing costs, and interest out of pocket, etc. With the market and economy not exactly going gangbusters at the moment, any capital invested in rentals would probably be stuck there for at least 2-3 years. I’m confident enough in our local prospects here in central Texas to still actively be looking to pick up properties, but the line of credit seems especially suited for gobbling up rentals, especially this time of year when people are getting desperate to move properties (especially bank-owned properties), as far as taking the loss this tax year and moving on.

Discussed all this with the SVP at the bank yesterday and he was very much gung-ho about the above plan. He said as long as I can show that the numbers will work and properties will cash flow properly, the more properties the better, and they’d work with me as much as they can to provide permanent financing once the properties are repaired and rented. They obviously make more money that way (as opposed to me doing a flip every six months or so, as far as time from purchase to sale) plus they’re also aware of their role as the largest local bank here in our town of 15,000-20,000 people. From their point of view, it’s a good thing to work with someone who’s actively involved in not just improving run-down houses but providing rental options  to encourage more folks like my wife and I who want to escape Austin or San Antonio.

But yeah, enough babbling, on to the houses.

The first one we looked at is probably the best prospect, but it’s got some weirdness. It’s bank-owned and has been sitting on the market for forever, originally listed at $105,000, and has dropped all the way to $69,000. It’s a 1,300 sq. ft. 2-2, on 5.6 acres of land. It’s about ten minutes outside of town, so it’s outside the city limits, but it’s on a county-maintained gravel road. It was built in 2002 but that’s a little misleading, as it looks like the owner did a lot of work themselves and just quit at some point.

That’s the exterior and front entrance. Despite first appearances, it is a site-built home on a pier and beam foundation, and not a pre-fab manufactured home/trailer. It needs a little leveling but they used a ton of piers and leveling it should be very easy, as there’s, umm, plenty of access underneath the house.

This is the living room and where you enter the house, with the front door on the right. Why they added the mirror dividing wall there I do not know, but it’d be easy enough to remove so that the living room opened all the way to the kitchen.

The floors throughout the house are surprisingly nice and in great shape, wide-plank pine that just needs to be cleaned.

This is the unfinished fireplace that’s to the right of the front door. That’s not wallpaper on the walls (and on all the walls throughout the house) but faux-painting.

One of the two bedrooms.

The second, slightly larger bedroom (master) with French doors to the unfinished deck, and bathroom with the odd futuristic/retro shower stall.

“I am the shower stall of the future/past! Come be clean!”

The kitchen tile wouldn’t be my first choice, but it’s in great shape, the sink works, dishwasher looks decent, cabinets just need knobs and a coat of paint.

Side of the house with unfinished deck, where the French doors from the master lead. The vinyl siding is complete failing on this side (but only this side) and the view actually is pretty nice, as that’s a sizable lake in the distance and you have a panoramic view of everything from there to the right.

As far as cons (and why it’s been on the market for forever), despite being on 5.5 acres it’s annoyingly close to another house, which is about 50 yards away with an ugly fence line about 20 yards from the property. The house has ducting for central air/heat, but no inside or outside unit at all; it’s wired for it but it looks like the previous owner ran off with everything not nailed down when being foreclosed on. The whole house is plumbed and on city water but it’s off the grid as far as sewer service, and there’s no septic system in place, as the drain lines just end and are lying on the ground outside of the house. The electrical meter is missing and some of the other electrical stuff appears a bit dodgy (which might apply to the plumbing as well, as it was done by the home-owner so who knows how well it was done). The deck has to be finished and skirting or something added to enclose the foundation.

Another odd con that I haven’t encountered before is that the county has it appraised at $126,000, which is way too high given the condition of the house. I think that’s also influencing the listing price by the bank, and might keep them from accepting a lowball offer.

As far as pros, it’s on acreage, nice floors, decent layout, ceiling fans in all rooms, and it’d need some very cosmetic cleaning and painting to be ready to rent, as far as the interior. It has serious long-term potential, too, as it’s getting harder and harder to find a home on acerage that’s anywhere near town, and only will get harder in the future. That last one is its biggest selling point, by far, and what really has me interested.

As far as the numbers, it’d only work if the bank will accept an offer around $45,000, and even then it’s a little tight. I need to track down a firmer figure as far as what it costs to install a septic system in our area, but I’m guesstimating that total cost to get it ready to rent will be $15,000-$20,000, as far as all of the major and cosmetic stuff. It’d rent for $650-$700/month pretty quickly, which doesn’t leave much in the way of cash flow, if the total cost for purchase and repairs is $60,000-$65,000.

In 2-3 years, though, (assuming we aren’t heading for a Great Depression and the housing market is operating more normally), with some upgrades to the kitchen and bathrooms, this property would pretty easily sell for $140,000-$150,000, due to the acreage and location. So I’d basically be gambling that very little short-term cashflow would be worth it in the long run, as far as the real payoff when assorted markets stabilize. And I’m honestly not sure if it’s worth that gamble, but definitely intrigued by the property. I definitely need to nail down any potential electrical/plumbing/septic costs, as I could be overestimating the cost of repairs if everything existing was done properly, and if septic installation costs are lower here, especially for a house outside the city limits.

The other potentially promising property is similar in some ways (it’s on 6 acres of land) but couldn’t be more different in others. It’s a 3-1 1600 sq. ft. farmhouse built in 1895listed for $68,000 that, umm, needs some work.

This doesn’t even do it justice as far as anti curb-appeal, as there’s a fallen-down outbuilding to the right, and other dilapidated outbuildings to the left. The front porch seen there has a serious gangsta-lean to the right and is pretty much shot.

The rumor amongst agents is that whoever was living there committed suicide, so the inside is completely trashed and filled with a crazy amount of stuff, to the point that some doors won’t open to some rooms. It’s pretty creepy being in the house as it looks as if someone might possibly still be living there (if there standard of living wasn’t bothered by garbage bags full of cigarette butts, etc.) , so it’s super dark and Texas Chainsaw Massacre-esque. That’s also aided by the fact that, amongst all the stuff left in the house, there are two old rifles just leaning against the wall in one room.

The living room.

The kitchen.

Abandon hope, ye who enter here.

The, umm, “sun porch” on the back of the house.

I wish I could get more interior shots but it was almost impossible due to the amount of crap in the house, and most of the interior was very dark.

Lest I sound too negative, sharp eyes might already have noticed some big pros, which is all of the original woodwork, hardware and doorknobs, doors, baseboards, etc. are intact and in really good shape, as are the original hardwood floors. Ten foot ceilings throughout and original beadboard ceilings underneath the acoustic tiles added at some point. The foundation actually doesn’t seem that terrible, although some sills will need to be replaced along the perimeter due to wood rot. It’s on nearly 5 acres just outside of town and sits on a hilltop with pretty amazing views.

The layout isn’t modern at all, as far as rooms opening into other rooms and the one bathroom in the center of the house, accessed through any of three doors, but it’s not cramped at all and doesn’t give off the vibe of stupid-ass layout that some newer construction does that forces you to walk through one small bedroom to get to another tiny one, etc. It’s a farmhouse built in the 1800’s, and anyone interested in such a house more than likely isn’t looking for a “modern” layout anyway.

It obviously needs major work, though, and you’d be looking at all new electrical and plumbing, adding central air and heat, new septic system, new roof, adding studs, installation, and sheetrock everywhere inside but the ceilings (walls are now just flimsy wood paneling over wood slats), gutting the kitchen and bathroom, and an enormous amount of clean-up. And not just clean-up inside, as there’s a ton of crap outside, including an old water tower and cistern/well right next to the house:

Your own water tower!

Cistern and well to the left.

Most of the outbuildings need to be demoed, and there are two abandoned cars on the property, along with Jebus knows what else. There’s also an abandoned newer house (also full of junk) at the very front of the property, maybe 50 yards away, that doesn’t seem to be part of the property (checking on this). This is a pretty big negative if not on the property, as it’s very close to the house and hard to screen or otherwise hide with a privacy fence, etc.

As far as the numbers, this one only makes sense at a drastically reduced price, and makes more sense as a flip instead of a rental. Repair and clean-up costs would likely be at least $35,000-$40,000, and that’s doing it on the cheap and relying on rustic farmhouse charm to overcome some bumps and bruises, keeping the original layout and just having one shared bathroom, etc. And that’s assuming no huge surprises as far as termite/rot damage to subflooring and foundation, which is a big assumption.

You’d be able to recoup a little bit of expenses from re-sale of some of the stuff in the house and on the property, as it really is stuffed full of stuff from the last 100 years or so. Much of it is obvious crap like Bud Lite cans but there’s also vintage lamps and some decent furniture, aside from the rifles and other stuff and closets crammed full of who knows what (one was stuffed to the top with ancient projectors and film cans).

ARV is a bit hard to figure, as there just isn’t much in way of comps. It’d probably take awhile to sell as your target audience who’d appreciate the house is pretty small, but it’d probably sell at around $125,000, if marketed next spring when everything is green and you got the maximum impact from the acreage and views.

So it could work, if I could get it for $35,000-$40,000, but it’d be a major adventure and not exactly an ABC , straightforward flip. Which is both a pro and a con, I guess, as far as the element of surprise. This is the sort of house I dream about being able to rehab, and properties like this just don’t come available all that often, but it could turn into a bear of a project, once you sunk your teeth into it and started cleaning things up and exposing the bones.

Sorry for the mega-post, but I always enjoy seeing photos of properties on other blogs, so I’m trying to do that more when eyeballing properties this time around. Neither of these is a screaming good deal, so I’ll likely sit on my hands for awhile, as they’d only work at a drastically reduced price, and I’d probably have more success with a lowball offer in early December.