Real Estate Help

Disclaimer: We're already under contract, and have negotiated after submitting inspection results and general contractor's estimates.

Our criteria: - Close to work. We're currently 5 minutes from both our jobs and we love that. We came to Flagstaff to live a different lifestyle, and having a 20-30 minute commute is not what we want. - Must have a yard that we can do whatever we want with - No HOA. - We wanted a garage and 2 bathrooms, but we're willing to make sacrifices.

My wife and I have found a house literally across the street from our apartment in a nice working class neighborhood of Flagstaff. In the last 6-months of watching the market, only two others homes have sold that meet our distance and budget requirements. We're planning on being in Flagstaff at least 3 years. We've worked the numbers in the "buy or rent" calculators and we've determined that a house in the $250,000 range would be worth buying even if we could only stay in it for 2 years. Our rent for a 2 bed, 2 bath 2nd floor apartment is $1405, slated to increase to $1480 this year.

The inspection showed that the house is structurally in pretty good shape. It's got a small crawlspace under the house that reveal all new plumbing throughout the house. The interior is completely updated/remodeled, with new paint, doors, fixtures, bathroom, kitchen cabinets, counters and appliances.

It does however, have some half-assed things done. The back door for example, is hung backwards. The newly installed can lights in the ceiling have insulation laying on top of them in the attic. The vinyl siding has been repainted which looks great from a distance, but is loose, cracked, broken and has holes in it. It will need a new roof in the coming years. Concrete surrounding the house is pretty busted up, including the carport.

It's only a single (small) bathroom. It has a shared-roof carport.

Other than those two things, it's great!

It was listed at $262,000, we've got them down to $245,000. The house across the street of similar size sold for $252,000 earlier this year. Other homes in the neighborhood have sold with additional bathrooms and enclosed garage for between $225k-$260k.

Is it worth paying "top of market" money for a house that's close to work, but that you know you'll need to add a bathroom nearly immediately?

"Add a bathroom"--does this mean that you'll take a closet that backs up to another bathroom (water lines are already there) and put it in that space? Or does it mean you'll add on more square footage to the house? Because those are completely different things. You can add a 1/4 bath to a closet for as little as $3000 if you do a lot of the work yourself; meanwhile building a full bath and adding square footage can cost over $50,000 for a modest one (depending on a lot of different E36 M3). Make sure you know how much it is going to be.

Buying at the top of the market is never a good idea, but its a worse idea in BFE than it is in a major area. If one company leaves, did you just lose the entire market? Or if one company leaves, do you even notice?

location location location....

Fueled by Caffeine wrote: location location location....

Dingdingding... We're looking at houses right now. In our price range, we're buying a knock-down. We won't knock it down, but the next owner probably will, which means that any updates we do will not help our value.

I don't know your market, but I'd have a hard time paying top of market, in this market, for a house that definitely will need at the minimum a roof, bathroom, and probably siding while you own it, especially if it's not a house you plan on staying in long term.

But that's me, and I'm very risk averse. It may work out great for you, and you sell for a handsome profit after fixing those small things in 3 years time.

mtn wrote:

Fueled by Caffeine wrote: location location location....

Dingdingding... We're looking at houses right now. In our price range, we're buying a knock-down. We won't knock it down, but the next owner probably will, which means that any updates we do will not help our value.

Luckily this doesn't happen much in Flagstaff. Mobile/Manufactured homes, and tiny little turn of the century cabin spots will get removed, but for the most part its amazing how junky our older housing stock is in this town.

mtn wrote: "Add a bathroom"--does this mean that you'll take a closet that backs up to another bathroom (water lines are already there) and put it in that space? Or does it mean you'll add on more square footage to the house? Because those are completely different things.

It would be a laundry/half-bath combo. Laundry currently has drain and water running to it.

mtn wrote: Buying at the top of the market is never a good idea, but its a worse idea in BFE than it is in a major area. If one company leaves, did you just lose the entire market? Or if one company leaves, do you even notice?

Well the thing is, if one large company were to leave Flagstaff, it'd open up a lot of houses. We're only 60,000 with another 20,000 in students. The average home price is north of $310,000.

We'd actually own a very cheap house at $245,000, which means we've got a potentially larger buying population. Our house would be ideal for lower-middle class families IF it had a second bathroom.

Sounds like a lot of work and investment in 3 years-- new roof, add a bathroom, fix poorly done stuff. Have you calculated that in your rent vs buy equations? Consider that the house may be on the market six months when it is time to move-- does it still work? Do you plan to stay in Flagstaff after 3 years and just move up rather than out of town? If so, and you have the flexibility to stay in the house, then it might make sense to do that work. You do run the risk of not getting a return on it, though. Even adding bathrooms and fixing roofs can often only return a portion of the costs when selling.

A new roof can be a pretty big expense depending on size/material, etc. If a comparable house in decent shape sold for 252k recently, I'd use that as a starting point and subtract the cost of a new roof. That final number would be my offer. Otherwise you're just spending money for the next owner, especially if the market falters and you can't get enough out of the house when you want to sell in a couple of years.

PHeller wrote:

mtn wrote: "Add a bathroom"--does this mean that you'll take a closet that backs up to another bathroom (water lines are already there) and put it in that space? Or does it mean you'll add on more square footage to the house? Because those are completely different things.

It would be a laundry/half-bath combo. Laundry currently has drain and water running to it.

mtn wrote: Buying at the top of the market is never a good idea, but its a worse idea in BFE than it is in a major area. If one company leaves, did you just lose the entire market? Or if one company leaves, do you even notice?

Well the thing is, if one large company were to leave Flagstaff, it'd open up a lot of houses. We're only 60,000 with another 20,000 in students. The average home price is north of $310,000. We'd actually own a very cheap house at $245,000, which means we've got a potentially larger buying population. Our house would be ideal for lower-middle class families IF it had a second bathroom.

What is the average home price in the specific neighborhood? Assume you can't get much more than that. "Flagstaff" is kinda big. The neighborhood is not.

Well, we've already negotiated based on concrete work, fixing crawlspace access and other minor repairs, not including the roof.

Estimates for a roof range between $5,000 and $8,000. Which is what $252,000 minus $7,000 comes out to.

mtn wrote: What is the average home price in the specific neighborhood? Assume you can't get much more than that. "Flagstaff" is kinda big. The neighborhood is not.

Trulia says neighborhood average is $220,000. Which is surprising considering there is a new development up the road with no homes less than $325,000.

PHeller wrote: The newly installed can lights in the ceiling have insulation laying on top of them in the attic.

Check the can lights for what is called an "IC" or "Insulation Contact" rating. If they are IC rated, then it's just fine for insulation to be on top of them. Also, install an LED bulb and you will definitely we okay because they put out so much less heat. (~10 watts of heat versus 65 watts of heat.)

PHeller wrote:

mtn wrote: What is the average home price in the specific neighborhood? Assume you can't get much more than that. "Flagstaff" is kinda big. The neighborhood is not.

Trulia says neighborhood average is $220,000. Which is surprising considering there is a new development up the road with no homes less than $325,000.

But you're not in the new development. You're in the area that the average is $220,000. Find out why that is. I'd get on MLS and ask your realtor for ALL houses sold in a certain radius in the past year. Find out how much they went for, and if there is a big difference along a certain border, find out why--maybe it floods south of one street, or maybe the school district changes, maybe you've left the incorporated town and you don't get the pool/library.

In my hometown it goes along with the original builders of the houses even. An "L" home is better built than a "W" home and the neighborhoods that each built reflect that in the price.

And most of this might not matter, but what does matter is if you're buying the best house in the neighborhood. That isn't what you want to do--buy the best neighborhood that you can, even if it means the worst house. Which is another way of saying location location location.

Note: I've never owned a house and am just now looking seriously at buying. But I've done a lot of my own research.

I know why our neighborhood is cheaper: its old and some of the houses look like hell. It doesn't have an HOA, which is attractive to some buyers and turns away others. This neighborhood has multiple college professors living in it due to proximity to the university, but it also has a few rentals. It's also right down the street from a really junky apartment complex, so that probably lowers the values as well.

The fancy new houses at the top of the hill are literally 1/4 mile away, but because they are across street from half-mil homes, and because they can't see the apartment complex at the bottom of the hill, they sell for more. They are also brand new townhomes, so theres that.

Perhaps someone can see something I cant looking at 86005.

The thought of "buy the best neighborhood you can" certainly weighs on my mind. We're buying the best location for US, but maybe not the best location for others. Our house, despite being in a less desirable neighborhood is across the street from some of the most desirable areas in Flagstaff, but crossing that street would require us paying $60,000 more for a home.

I get exactly what you are saying but it doesn't make your house as close to as valuable as those new ones.

I live in an area where our house was original to the area and is 30 years old now. Since that time, we have had new homes sprout up around us on all sides and there is nothing that is under 10 years old that is not over 300K. The older homes like ours run in the 200K range. One street over is a neighborhood that is 450K+ to enter and even one block over is more because that was all added since we moved here 10 years ago.

So look at the average price per sq. ft for your area on houses older than the newer construction around you and you should have a good idea what the true value is.

It sounds like the house needs a lot of help to be even close to the top of the market. Honestly it sounds like a bottom of the market house asking top of the market pricing. The other question is what else is rotted because of the bad roof? Typically it's not just a quick thing. I found out my roof was leaking due to a stain in the drywall and I had to replace all of the ceiling drywall in that area.

I would pass on that for a 2 year stay because you will not recover the cost for the roof. That may help the house sell quicker but it's rarely something that adds value. Between that and the $14,500 in commissions when you do sell, do you see you yourself making that $20K + what ever your closing costs are?

PHeller wrote: I know why our neighborhood is cheaper: its old and some of the houses look like hell. It doesn't have an HOA, which is attractive to some buyers and turns away others. This neighborhood has multiple college professors living in it due to proximity to the university, but it also has a few rentals. It's also right down the street from a really junky apartment complex, so that probably lowers the values as well. The fancy new houses at the top of the hill are literally 1/4 mile away, but because they are across street from half-mil homes, and because they can't see the apartment complex at the bottom of the hill, they sell for more. They are also brand new townhomes, so theres that. Perhaps someone can see something I cant looking at 86005. The thought of "buy the best neighborhood you can" certainly weighs on my mind. We're buying the best location for US, but maybe not the best location for others. Our house, despite being in a less desirable neighborhood is across the street from some of the most desirable areas in Flagstaff, but crossing that street would require us paying $60,000 more for a home.

I'm not saying you're wrong--buy the house that is right for you. Just remember that it needs to be easy to sell in 2-3 years if that is all you're staying. Does the bathroom really fix that? The fact that the houses or townhouses or whatever near you are more money is somewhat irrelevant.

An anecdote: My wife and I looked at a house. Pretty good neighborhood, arguably the best that we can afford. We're at the bottom price point. We looked at the house, trying to figure out why it was so cheap. Well, we figured it out. One bathroom, odd layout, master bedroom is more of a hallway. It is just a weird house, and even weirder because everything is well made and quality. It will eventually be a teardown, and the only reason its not right now is that the lot is kinda small. We passed on it because it doesn't meet our wants and it really can't appreciate at all.

I guess that's what I was wondering. Would you buy an odd house and fix the major "layout" issue of the house (such as adding a bathroom) in the hopes of bringing it up to comps on the higher end?

Or would you rather buy the cheapest house in the neighborhood that won't need anything expensive (like a roof), but will nickle and dime you on minor improvements like appliances, bathroom and kitchen renovations, paint and fixtures etc?

In reply to PHeller:

I'd buy the cheaper house that just needs cosmetic stuff before I bought a more expensive home with a poor layout or major structural updates needed soon. Wedging a bathroom into a space where it's not easy to use or natural to get to can really reduce the appeal of having that second bath at all.

Since you're only looking to live there for a couple of years, it's basically a flip situation. Saving money is everything in a flip house, and it's a lot easier to save money on a bunch of small things than it is on big, structural stuff like a roof. You can find light fixtures, appliances, etc on clearance at the hardware store or craigslist. That's much more difficult to do with a roof. There are tricks that can be used to update the appearance of cabinets, fixtures, etc without actually replacing them. Again, that's difficult for a roof or adding a bathroom.

I'm trying to figure out what your rent vs buy calculator was calculating, because it's not making any sense to me.

• Purchase price $245,000

• Roof $7000

• Bath $5000

• Concrete $3000

• Misc $3000

• Commission when you re-sell $14,500

• Taxes $4000

• Loan interest (4% on 232,750) $18,620

Sounds like you are going to put $12K down, then spend $55,120 to avoid spending $35,520 in rent. You will have $300,120 in the house in 2 years.

IF appreciation continues at a double digit rate, your house will be worth $302,500. That's a HUGE "if". If Flagstaff tops out and starts depreciating, it's a total loss.

You are gambling on real estate appreciation, and it's not a safe bet in a 2 year window. OK, you'd also have tax advantages which would work in your favor, but that just means you get back a small percentage of what you paid out in expenses.

Then, if the house sits idle for 5 months when it is time to sell it, you will also have to subtract the cost of it sitting there. 5 months worth of mortgage payments plus your taxes could easily be $7000 (with no repairs, assuming you are not paying for another place to live).

I don't see how only 2 years of ownership in an expensive market would ever offset the rents paid.

I would rent, just so I could have the freedom to walk away after 2 years.

You can't flip expensive houses.

You can flip cheap houses in expensive neighborhoods.

We're putting 20% down.

Closings costs are estimated to be around $5800, seller is paying $5000 of it.

I'm not sure where $14,500 in commissions is coming from, explain?

PHeller wrote: We're putting 20% down. Closings costs are estimated to be around $5800, seller is paying $5000 of it. I'm not sure where $14,500 in commissions is coming from, explain?

That is what the realtor gets when you sell said house.

How are you guys determining that?

6% of sale price?

NVM, appears that yes, sale commissions range between 2 and 6 percent.

Almost always 6%.

I also have my doubts about the calculus of rent vs buy but we already had that discussion.