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Friday, July 14, 2006

Sweat Equity: money in the bank

(May 2006 - that's me removing old patio to prepare for above grade deck.)

It's Summer.

Lot of projects are underway for many homeowners. For those considering homeownership, perhaps one of the strategies for buying a home is to consider a fixer.

Sweat equity is one way to produce equity the old fashioned way. It requires time, hard work, a creative mind, tools, money and some know how. If you end up doing a good portion of the work yourself vs. hiring contractors you will save a lot of money and gain equity in the value of your home.

Consider buying a fixer.

I've never purchased real estate other than a fixer. Initially it was by necessity. I had to buy piece of junk in Ballard or we were going to continue to rent. After our second fixer in Edmonds, we purhased the fixer we currently reside in out in Snohomish and it's been a very long haul. I'm still working on the house, but have saved over $100,000 in bona fide labor costs by doing it ourselves. Two years running has taken a toll. To be brutally honest, you can get burned out. Further, I'm cheap. I hate to spend money. I still drive a 12 yr old minivan. I also have three very easy ways to destroy things: kids.

My introduction to housing was by accident. The start was participating in a renovation of a home my college roommate purchased on Queen Anne Hill in Seattle back in 1989. At the time I really didn't know how he bought it. As a punk kid fresh out of college thinking I knew-it-all, I admit I was envious of his good fortune. The market was hot. Fast forward to today with my experience, I now know how he did it and didn't do it, but that will be saved for another posting. I had no experience in home improvement whatsoever. Since then I've gained skills little by little until having a well rounded background in most everything. I'm still weak in framing, but then again I don't build homes for a living.

I won in Las Vegas. (this really deserves it's own post)

Do you have friends who always say this, but they don't tell you the amount they lost? Real Estate can be the same. It's so funny, because I have a friend who's wife always spills the beans about how much they really made (code for lost) weeks after they come back from Vegas. And lose they did. We'll, I've made many mistakes in fixing a home that have cost me plenty. No bones about it. For example, see the photo below.

One of the best screw up's on record, at least that I'll admit to on a public blog is the following: every square inch of our home's interior walls (except for baths) were covered in dark paneling. No probelm I thought. Just peel them off, touch up the drywall, texture and paint. Nope didn't happen. The previous owner glued them all down with stuff they must use on the Space Shuttle. Destroyed the drywall taking the paneling off. Retail cost: $8500 error.

For some people, they don't mind sore muscles, running all over town for supplies, and being constantly filthy---it's starting to get to me now, never mind that I'm not 25 yrs old anymore. The satisfaction of making a house your home is clearly a highlight. It's not for everybody and it does cost hard earned money. If you can't afford to buy a home that is "move-in-ready" or new construction, consider buying a home that needs improvement. You can save on the purchase price and build equity the old fashioned way while enjoying the satisfaction of being a do-it-yourselfer.

How about you? Would you consider a fixer if you were a first time buyer? I did and it has paid dividends every time.

Just a liiiiittttle too far down my driveway. Plus a few choice words and $800 pain.

Cheers,

S-Crow

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14 comments:

S Crow said...

I recognize this post is long. I'll keep them much shorter in the future or link to our company website for in depth posts.

Lake Hills Renter said...

I have no qualms about putting some time, effort and money into the house I end up buying. I don' expect to be able to find a house the way I want it, rather I'll make it that way. But I don't know about spending 1-2 years to get a house to the way I like it. I know how I am with projects and I don't have that kind of attention span. The trick is going to be finding a house that will give me a soild start toward the house I see in my head, then I'll do the rest of the work to get there myself. And for the right price.

meshugy said...

I really admire people who have the dedication and skills to fix up a house. However, it is a lifestyle of sorts. I've had countless friends try it and give up after realizing they no longer had time to anything else.

I could never do it....I bought a house that was completely remodeled and move in ready. For me it's worth it...I run my own business so it comes down to what is my time worth? If I spend all weekend hammering nails, am I really saving $ if I could have spent that time improving my business which will ultimately result in more $ per hour? For me it's clearly a better chance to pay someone else to do it. I don't even do my own yard work...there's never enough time!

There's a huge amount of remodeling going on in Ballard right now. From casual observation, most of it is being done by contractors. I think a lot of people are in the same situation that I'm in...they're really not saving that much if they can spend that time doing something else more profitable.

jcricket said...

s-crow - sorry to hear about your garage door there. I feel your pain. Both homes I've owned have been fixers. The second we nearly gutted and spent the next 9 months doing work while living in the basement (which we had finished before we moved in). My wife really enjoyed that ;-)

Our only big mistakes were in some materials choices. Picking fir flooring for the entryway wasn't the best - high traffic has really worn it out. And we picked a light colored grout for our bathrooms. That turned out not so brilliant.

We probably saved around the same as you - $100k in labor + materials (I bought lots of stuff from "odd lots" or at wholesale through my friends in construction).

The payoff is great. We bought this house significantly below asking and below what other people on our block paid for their houses. Most of the work was what I'd call cosmetic (I did re-do all the electrical and plumbing, but there was no rot to fix, no structural or water damage, etc.). The "end price" is still below what we would have paid for the "finished homes" and now the house is very much the way we like it, down to little things like the light switches and electrical outlets.

It's not for everyone, as lakehillsrenter points out. You have to have the vision and determination to see it through. Plus the stomach to deal with the constant construction. I've just never seen a house that I wouldn't want to do something to, and if it's "recently remodeled" or new construction, there's a premium built into the price that I'm just not willing to pay, so fixers are better for me.

S-Crow said...

Lake, Mesh, et al-

I'm afraid you are all right.

I can completely relate to those who think it's worth their time & money to hire the work out.

The thing about our current situation was that we really were cash poor after putting down a good downpayment and we made a pact that if we didn't have the money, we were not going to go forward with project "x". So we improved only as the budget allowed--Cash in hand.

It worked out for us as we didn't use the house as an ATM machine, but for many it's not feasible.

Forgot to mention that during the 1st three months of our fixup, our family lived in my wife's folks basement. Funny because when we were first married we lived there as well, but this time I stood in the doorway and said, "hi, I'm baaaack.." (w/3 kids)

Lake Hills Renter said...

Oh, and it just hurts for me to look at that garage door photo. Ouch!

gregory.wharton said...

In my opinion, the best way to make money in real estate is buy distressed or undeveloped properties and redevelop them.

However, doing so requires some very specialized knowledge and skills, so I would not recommend it for everybody.

In fact, for most people, every $1,000 they spend on do-it-yourselfer projects will wind up taking something like $10,000 off the value of their home. I love finding homes owned by do-it-yourselfers, because I know they probably didn't do the job right, will wind up having to sell at a heavy discount after the inspection reveals that fact, and I know how to fix it the correct way on the cheap.

S-crow said...

Greg-

That would be a great topic for the Seattle PI Blog:

"how do-it-yourselfers actually lose $10K in value for every $1000 they spend on improvements."

Anonymous said...

Fixers used to be fun.

They are too expensive now to be worth it.

This post seems ridiculous to me. Sorry.

Anonymous said...

Forgot to mention that during the 1st three months of our fixup, our family lived in my wife's folks basement.

Hmmm... I'm assuming this was how you blackmailed them into paying for the renovation?

S-crow said...

lol

cosmos said...

I love finding places others pass by because they can't see the potential. I haven't done it with houses, but have done it with three condos. One had black semi-gloss paint everywhere - on the cabinets in the kitchen, and on the walls in the dining area and living room. Another condo was all in dark browns (apparently the wife of the seller had wanted to make it "ship like" because the seller had been a merchant seaman.) Lot's of paint (with the right primer you can even paint laminate and tile), changing hardware & fixtures, putting in new windows and carpet, adding some molding, and installing nice built in closets can really make a huge difference. What I like most is that the home really ends up feeling like mine, and like me. For myself, I can't imagine doing it any other way.

dash_point said...

apparently the wife of the seller had wanted to make it "ship like" because the seller had been a merchant seaman.

I hope they added port holes, or it's no sale for me.

Anonymous said...

Most of the new contruction houses are cookie cutter models, almost devoid of any character. I rather have a smaller house and fix up the way I want with character, rather than one of those mini-macmasions on postage stamp lots.