Determining a good purchase price… For an owner occupied home

Ben Ballinger · 2016-07-02T10:20:30-07:00

I understand the concept behind purchasing homes for investment purposes, ie the 70% rule etc. When the goal is profit the margins need to be a certain amount to ensure that profit, I get all that. However, when it comes to just buying a property for your own use, where the concern goes from profiting to just spending less than you can make on resale, what's a good method for choosing a home? I feel like the properties in the area on the MLS are priced so high that we would guarantee to lose money after renovations. For instance, if $60,000 of renovations is needed to bring the house to appropriate standing, the asking price is only around $20,000 less than renovated homes in the area that are comparable. The's, if we were to purchase the property and renovate, we would automatically be throwing away $40,000. Although I'm not looking at this as an investment property, I still don't want to lose money on it, it's not my ultimate permanent dream home and we only plan to live in it for around 4-5 years so that would be a poor choice. We've been looking for 3 to 4 months now and are really struggling to find something that's priced fairly. Even the foreclosures seem to be priced high not to mention anything that's even close to a decent price is snapped up almost instantly. Any recommendations?

Bill Devola

Wholesaler · Bogota, NJ · Member since 2016 · 128 posts · 64 votes

10y

Honestly speaking, my answer isn't going to be helpful, but you're in some sort of bizzaro world market. In any market I've observed buyer's pay a premium for a fixed up property. Even if you're saying the market is so hot that fixer uppers aren't discounted, owner occupied buyers at the top of the market would have to be observing the same phenomenon, not wanting to do the work, and paying a bit extra to avoid taking the time and doing that work.

That being said I'm speaking theoretically, and you're talking about the real world. But if the prices just won't move up for a renovated property, I just wouldn't participate. Doesn't make rational economic sense.

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Kyle J.

Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes

10y

People often have different criteria when they buy a home to live in vs one bought with the sole intention of renting it out or flipping it. So it's hard to compare the two. In fact, I wouldn't have bought any of the houses I've lived in as rentals.

With regard to the numbers you posted, all other things being equal, it wouldn't make ANY sense mathematically to ever purchase a house that needs $60k worth of renovations when you could buy one that's already renovated for only $20k more. Makes no sense.

Lastly, unless you're planning to keep the house as a rental after you move out, I would seriously re-consider even buying a home that you know you're only going to live in for 4 or so years. Unless you have some other reason for wanting to buy, you'd likely be better off renting for that short of a period because it may actually be cheaper than buying when you factor in all the costs to buy and then re-sell in such a short period of time. Just something to think about.

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Matt Turbitt

Grove City, OH · Member since 2016 · 167 posts · 66 votes

10y

what kind of price ranges are you talking about? In most parts of the country it's basically impossible to spend 60k just bringing a house up to standard without that house being extremely distressed. My guess is what your saying is these houses will take 60k to get to what you and your wife are dreaming of.

To answer your question most houses sell at market value that's probably why you feel your having such a hard time. People are buying houses because it's a 3/2 with a garage and a basement. The fact that it's fully updated or not only impacts the number of offers but there will still be people looking for that house in livable condition that will pay market rate.

Either buy something distressed and do your dream rehab or buy something around market, do some Reno and see where the market is in 5 years. Even if you just break even the tax write offs and decreased rent would probably be worth it.

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Ben Ballinger

OP

Developer · Newport Beach, CA · Member since 2016 · 71 posts · 25 votes

10y

Thanks all. Yeah I was just throwing out example numbers but we are looking at distressed properties that need new roof, torn down to the studs, new kitchen, new landscaping, etc. Most of these homes were built in the 70s and have never been updated, many of them have water damage or had a hoarder living in them or foreclosed Ironically the foreclosures don't seem to be priced that much differently than normal homes which I find strange. Then again, I'm just learning all this so maybe I'm wrong but like I said, it seems that homes in very poor condition are selling for more than a rehab would cost to bring them up to comps in the area. I would imagine that what I want to do with the place is nicer than what I would do with an investment property so that will definitely coming to play with regards to the price of the rehab, but I wouldn't necessarily call it a "dream home" because for me a dream home would be completely custom top-of-the-line everything, like 300k rehab or new home at $200/sqft. For this I'm really looking for primarily structural changes and then say level 4 out of 6 in terms of quality spectrum. Happy to do a lot of the rehab myself. It's completely possible that I'm overestimating the cost of the rehab as well. I'm trying to be conservative but I understand that until you have a lot of experience it's hard to be 100% accurate with estimates. I figure for a new roof, changing out vinyl siding for cement siding, redo the landscaping, new kitchen, bathrooms, floors, walls, paint, electric and plumbing plus some finishes like crown molding and some wainscoting in certain areas were looking at somewhere in the realm of 60k for a ~2000 sqft home. Again, I could be off. Appreciate all the insight so far everyone.

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Determining a good purchase price… For an owner occupied home

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