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Monthly Archives: October 2018

To Rent Your House, or Not? Part 2

It’s no fun to discover you inherited a house that’s upside-down (on the mortgage).

…continued from Friday’s post

Sweetheart’s lucky day came when her Aunt suggested that she refinance what was owed on the house and the renovation costs for a lower monthly payment. It was still sort of a long shot, because even going by the payoff on the mortgage, she needed more than it’s worth to fix it up. This is where having a good relationship with your bank and keeping your credit score up as high as possible really comes into play.

She talked to the banker she’d worked with her entire adult life, hoping for the best. Thanks to her just over 800 credit score, she walked out with a new mortgage with a lower interest rate, lower monthly payment, and the leftover money to bring the house to a livable condition!

It took three months for the house to be completed.

What Do We Learn from This?

This is just one scenario that demonstrates why we try to push everyone to have a great credit score. When the unexpected happens, it could really bail you out!

The Renovation Story

During the three-month renovation:

All of the wood that had mold growing on it was replaced. That is what took the longest. Most of the ceiling was covered in it, and the wood had begun to rot from the water. In a situation where mold has been allowed to grow and thrive for that long, that is really your only option. I know some people just paint over it and think that will smother it out and kill it.

Some paint brands claim to be able to kill mold. I don’t have any experience with those. There are ways to kill small areas of black mold. It is usually easier to just replace the areas where it is growing. You have to kill it, then remove it, then use a mold resistant paint ($$$) over that area, and hope that you got it all. A quick search on the internet showed MANY results on removal for small areas. I saw them all in agreement that just painting over it will not help it. I am so convinced in getting rid of it in fact that everywhere Rattlesnake had it was replaced completely. I personally would not have been comfortable with it just being treated and painted.

She put the house on the market for rent at $625/month and has had it rented out for just under a year now. She priced it to bring in $50/month extra that is put into a savings account for repairs only. She doesn’t see any of the profit, and won’t see any for the next 10 or so years when the mortgage is paid off. It was an incredible learning experience. She was fortunate that her parents instilled good money management and credit score awareness in her. Had she not had that kind of credit score, she would have had no good options.

Every day is a new day for the housing market. We rely on data and trends for as much foresight as we can get, but in the end nobody really knows. Educated guesses can be made most of the time. When deciding to take on a mortgage have an exit strategy in place just in case you need it. Something as long term as a mortgage can be a very uncertain thing when planning that far ahead. Be prepared for what could happen, and if something does happen that you are not prepared for, The Hermits will do our best to help you!

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Lining Up the Parkwood Contractor

This can become a nice entryway, right?

Now that we have the keys to the Parkwood house, Carol has been able to go through it in greater detail. She also chose which contractor to work with for this project, so our friend Ray from some of our previous jobs will be joining us again for this one. His bid will work well for us. Welcome, Ray!

What’s the Plan?

You’re probably well aware that the house has a lot to clean out, which has to happen first. But at least you can see floor space now in some of the rooms.

We’ve had queries about whether any of the stuff that’s left is worth buying from us, or if we can donate it to folks we know. Carol’s pretty sure there are horrible germs or bugs on all the furniture, and is equally sure that the relative who stayed at the house after the previous owner died managed to find the things that were worth selling. And we are glad that she did, because she deserved to get something out of her dedication to the property.

After clean-up, the fun begins. Here are some highlights of what Carol and Ray agreed to do.

It’s dark and dreary in here. Let’s add skylights.

Interior

  • Add skylights. As you can see from the photos, the house is pretty dark inside, so two skylights will go up in the living area.
  • Remove a wall into the kitchen. There’s an unfinished wall leading into the kitchen. It will go away and help open up the main living area.
  • Finish the laundry room addition. The laundry room used to be in the garage, and it was partially converted into a room, but without an air conditioning vent. We’re going to add one and finish the addition, which is basically sound.
  • Update the bathroom surrounds.
  • Find the source of and remove the smells in the master bedroom and any other smelly room.

This is some of the nice siding that has already been renovated.

Exterior

  • Replace the trim with wider boards. This will give it an updated look.
  • Finish the job of adding new good quality siding to the house. The material is there; it just never got finished.
  • Replace the roof. This is really important, of course. Carol hopes to use a newer, more modern color on the roof, and will repaint the exterior modern colors.

And all the obvious issues and damage you can see in the photos will be addressed. As you look Carol’s photos over, let us know if you have any other ideas we could try!

More Fun Photos

 

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To Rent Your House, or Not? Part 1

It’s no fun to discover you inherited a house that’s upside-down (on the mortgage).

I read this really interesting article a few days ago that can be found here. We didn’t write it, but we have heard it before: the housing market crash in and around 2009 left many people with very few options.

The truth is that we never really know how the housing and job markets are going to go. With that knowledge we should all have a backup plan that is attainable before we sign that dotted line!

So many things can happen that make a mortgage unmanageable. This leaves homeowners with very few options, one being to rent their house out and find another dwelling that more meets their needs. Putting the house on the market to try and get out from under the mortgage is, I think, the first choice when you realize you just can’t do it anymore. Sometimes that is not a viable option depending on how much you owe, repairs needed, and the time it will take to sell it.

Considerations

There are some things to consider before you, too, become a landlord by accident.

Look at what your mortgage payment is, and figure out if you can charge any dollars over that for rent? You will need those extra dollars for repairs, taxes, and insurance. Anything that you charge over your mortgage payment cannot really be considered profit either. You will have additional expenses. Because of this, renting your house out will not immediately earn a very good living for you 99% of the time.

A Scenario

Let’s look at some fictitious numbers (because I can’t remember the real ones honestly, but I will get close) to help explain why renting may seem like a great idea, but may not be worth it in the end.

I’m going to use a scenario where someone was left a house that had a mortgage on it. Before they got the best advice, they went ahead and signed to assume the mortgage and take on the additional house payment. They had the credit to do it, and the mortgage company was happy to oblige rather than foreclose and put it on the market themselves. This is a typical situation that can make someone an unintentional landlord.

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Some Thoughts about the Changing Real Estate Industry

Beware of 3D printers building houses! From a cool article in Business Insider.

We’ve been discussing lately the possible impact of the encroachment of technology in the real estate industry, especially artificial intelligence.  What are investors supposed to do when the process of locating deals (querying all the various lists out there for potentially distressed houses and homeowners) is taken over by AI or automated to the point where someone else always finds them first?  Is it going to render the humans obsolete?  Then I remembered a book I read once called What Every Manager Needs to Know about Economics.  One of the chapter take-aways was this – a robot can build a car, but a robot can’t drive a car.  (I know, I know – self-driving cars.  But the logic still holds.)

There may come a time when a bot or some software can identify potential properties faster than we can, but it’s still going to require a human to meet the humans involved and negotiate the deal.  At least for now, it will still be humans who do the repairs.  And houses will still be bought and rented by humans, who will live in them.

I think changes in how people make their decisions about housing is a more important (if less interesting) conversation.  As more and more people opt for other arrangements than the traditional single-family residence or duplex (think mobile homes, tiny homes, modular, manufactured, apartments), the same sort of dynamic is going play out in those areas.  The investors who don’t adjust their approach to this industry and expect to keep doing the same thing they (we) have always done, are the ones who are at risk of becoming obsolete.  But that will be because of failure to adapt to the changing behavior of humans, not because of technology.

As I was writing this, I heard this TED Talk.  Not exactly on point, but interesting –

 

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Parkwood Ho! And More

A sampling of computer debris at Parkwood.

Parkwood

Yep, the closing on Parkwood, the former hoarder house in Round Rock, finally occurred, not without additional delays and frustration on the parts of everyone involved. But it’s done! And Mandi’s getting the utilities set up so we can get to work.

Carol was looking forward to getting the keys so she could start step one of the renovation process, which is getting it completely emptied out. She already has the contractor selected for that, so we look forward to news of how that goes. Apparently they left some things that we can resell, like school lockers, beds, a lot of tools, a camper, and a LOT of computer equipment.

It will take some effort to sell things, but that will make the renovation less expensive, so we’ll see. Russell is going out there to take another look today.

It will make a huge difference to have higher ceilings and better lighting down here.

The Hermit Haus

Lee took our contractor, David, to the church to go over what needed to be done and prioritize it. While we do have a scope of work document, it really helped to actually look at the place.

The first item on the agenda is replacing the locks and one door that is causing issues. I’ve lobbied to paint them red, so it’s clear something’s going on there. He’ll also install the mail slot, so, if the Post Office cooperates, we can receive mail there.

David is also ready to embark on the destruction of the yellow drop ceiling in the basement, for which we are all very happy. Of course, the thing I’m looking forward to most is getting new, modern, energy efficient, and most important, attractive light fixtures down there!

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