Options for this old house

[TooSlow]

My primary (and only) residence is a ~800 sqft (74 m2) 2BR/1bath single family home built in the 50s on a ~6000 sqft (557 m2) lot. I'm 3.5 years into my first 5-year term on the closed mortgage, with roughly 250k owing of the 320k purchase price. Some parts have been renovated, but not very well and it's obvious the previous owners just did a rush job getting it ready to sell.

I went for a house instead of a condo since I understood they retain and appreciate more in value, and I wanted the distance from neighbours sharing walls on either side, above and below me. Yardwork and upkeep are not things I want to spend my time, so I'm now thinking a condo is a better choice (with good sound insulation).

1- Tear down and rebuild the garage (rotting and too small to fit most vehicles), renovate interior (bathroom is the most in need of work), get the centre beam fixed (I think it's just jacked up too high in one spot as it causes the hallway floor to bulge, but that spot is inaccessible to verify without removing some drywall or the furnace), replace the rotting fences and do some basic landscaping.

2- Tear it all down and build a larger house (or multi-family) in-line with the area, and a garage big enough for the average truck-loving Albertan.

3- Take advantage of a recent rezoning, which would allow me to subdivide my property into two 25x120 foot lots (7.6m x 36.6m). This would also require tearing down the existing structures, and having two long and skinny 2-story houses built.

I don't think I'd be able to cover mortgage, utilities and other expenses by renting it out, so selling seems like the best option.

With my current cash + LOC, I could do option 1, although I'd need to get an estimate on the main beam repair first. From my understanding I should get back the cost of the garage in the sale price, and having a decent one should boost marketability. This would also allow me to keep living here while work is being done.

Option 2, I'm not sure how I'd finance it. I found some values for construction cost per square foot (http://www.altusgroup.com/media/1160/costguide_2014_web.pdf)

HOUSES
Speculative (Basic Quality) 120 - 140
Speculative (Medium Quality) 130 - 190
Speculative (High Quality) 225 - 340
Custom Built 350 - 880

If I use $200/sqft for medium-high quality, and 1200 sqft, that's $240k. If I'm able to refinance my existing mortgage to include that amount, I'd need one for $490k minus say $60k cash I could put down. Using a mortgage calculator at 25 years, this is around the limit of what I could afford based on my salary. One problem I see is houses in my immediate area max out around $450k in assessment value, so unless I'm missing something, I'd be walking away with less net value than I have now.

Option 3, I don't think I could finance. I'm not sure if there are minimum size requirements for the skinny houses, but assuming the same as option 2, that'd be $480k in building costs. This would make for a $670k refinanced mortgage, which I couldn't swing. The 2 lots might get up around $350k each, which would at least put me in the positive once sold.

Plus, options 2 and 3 would require me living somewhere else, adding more monthly expenses.

Should I just stick with #1, or should I try to get more accurate numbers for potential costs and sale prices for #2/3? Subdividing seems like it'd be the most lucrative, it's not really an option for me if I can't finance it.

Is it worth considering #1 and renting it out even if I'll need to kick in an extra $400 (rough estimate) a month, while I get a condo for myself? This would allow me to retain the asset without straining my finances.

Any other possibilities I'm missing?

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Mattie]

This is just watching others in my community back home, but usually when they buy those small homes they fix it up and either resell it or rent it out for tourist season at a higher price during the week, and one person during winter months. Other than that there's really no point in buying a house like that unless you're looking for a starter home.

For Condo's. Those have a bunch of rules to follow in the community, from parking how many cars and where, to what you can plant and not plant in your yard, to what you can or can't do all across the board. I used to live in one, and the rules change all the time.

Really if you don't have the finances, there's no reason going into debt in this small house. Just sell it and get rid of it to someone who does. This really your choice what you want to do with it.

 

[TooSlow]

Thanks for the advice, Mattie It really is my starter home. That probably makes me biased towards it, instead of seeing it as just an asset that I happen to live in right now. It's not special, it's just my house! I'm sure there are better investments for my money than this property. I'll just fix up what needs it and do some minor cosmetic upgrades with the plan to sell it within the next couple years.

After some more reading, I think the people here doing rebuilds are planning on living in them long-term, which I am not.

 

[MJ DeMarco]

Answer depends on your goals...

Based on my personality, I'd be

A) Focusing on paying off the home and improving it. Your house bill (shelter) is always your biggest nut in life, unless you plan on living in a homeless shelter.

B) Evaluate income opportunities -- can the garage be rebuilt and rented as storage?

C) I hate condos as they introduce another hierarchical control structure who can tell you what to do, and what not. Not to mention the HOA fees usually outpace inflation and you have no recourse on what they want to charge.

Good luck.

PS: I assume you are in Edmonton Alberta?

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[TooSlow]

Yes, that's the place. -4C out right now! Have you been up here before?

2 strong anti-condo sentiments! Considering most of my dislikes about living in a house could be negated by hiring lawn/snow care and a maid, maybe it's not so bad.

Interest rates are so low right now (I'm at 2.45% variable), I don't feel much rush to get the mortgage paid down. But not having to pay it at all would really cut down on living expenses. I hadn't thought of renting for storage, the previous owners had planned an over-garage suite to rent out though (apparently they had plans made which they didn't want to give up). I'd imagine the ability to earn income off the property would be a bonus to its valuation. I could even live in it once built and rent out the house...

How long a repayment period do you think would be worth it for building cost vs rent income? Like if it would cost $100k to build a garage with suite, and I could bring in $1200/mo in rent income, it'd take about 10 years to cover it (after income/property taxes). Or is it better to just think of it as 14.4% annual return on that $100k?

 

[Shdreams]

My primary (and only) residence is a ~800 sqft (74 m2) 2BR/1bath single family home built in the 50s on a ~6000 sqft (557 m2) lot. I'm 3.5 years into my first 5-year term on the closed mortgage, with roughly 250k owing of the 320k purchase price. Some parts have been renovated, but not very well and it's obvious the previous owners just did a rush job getting it ready to sell.

I went for a house instead of a condo since I understood they retain and appreciate more in value, and I wanted the distance from neighbours sharing walls on either side, above and below me. Yardwork and upkeep are not things I want to spend my time, so I'm now thinking a condo is a better choice (with good sound insulation).

1- Tear down and rebuild the garage (rotting and too small to fit most vehicles), renovate interior (bathroom is the most in need of work), get the centre beam fixed (I think it's just jacked up too high in one spot as it causes the hallway floor to bulge, but that spot is inaccessible to verify without removing some drywall or the furnace), replace the rotting fences and do some basic landscaping.

2- Tear it all down and build a larger house (or multi-family) in-line with the area, and a garage big enough for the average truck-loving Albertan.

3- Take advantage of a recent rezoning, which would allow me to subdivide my property into two 25x120 foot lots (7.6m x 36.6m). This would also require tearing down the existing structures, and having two long and skinny 2-story houses built.

I don't think I'd be able to cover mortgage, utilities and other expenses by renting it out, so selling seems like the best option.

With my current cash + LOC, I could do option 1, although I'd need to get an estimate on the main beam repair first. From my understanding I should get back the cost of the garage in the sale price, and having a decent one should boost marketability. This would also allow me to keep living here while work is being done.

Option 2, I'm not sure how I'd finance it. I found some values for construction cost per square foot (http://www.altusgroup.com/media/1160/costguide_2014_web.pdf)

HOUSES
Speculative (Basic Quality) 120 - 140
Speculative (Medium Quality) 130 - 190
Speculative (High Quality) 225 - 340
Custom Built 350 - 880

If I use $200/sqft for medium-high quality, and 1200 sqft, that's $240k. If I'm able to refinance my existing mortgage to include that amount, I'd need one for $490k minus say $60k cash I could put down. Using a mortgage calculator at 25 years, this is around the limit of what I could afford based on my salary. One problem I see is houses in my immediate area max out around $450k in assessment value, so unless I'm missing something, I'd be walking away with less net value than I have now.

Option 3, I don't think I could finance. I'm not sure if there are minimum size requirements for the skinny houses, but assuming the same as option 2, that'd be $480k in building costs. This would make for a $670k refinanced mortgage, which I couldn't swing. The 2 lots might get up around $350k each, which would at least put me in the positive once sold.

Plus, options 2 and 3 would require me living somewhere else, adding more monthly expenses.

Should I just stick with #1, or should I try to get more accurate numbers for potential costs and sale prices for #2/3? Subdividing seems like it'd be the most lucrative, it's not really an option for me if I can't finance it.

Is it worth considering #1 and renting it out even if I'll need to kick in an extra $400 (rough estimate) a month, while I get a condo for myself? This would allow me to retain the asset without straining my finances.

Any other possibilities I'm missing?

I own a townhouse run by a condo business,corporation whatever there called. It's attached to the neighbor by 2ft at the back corner. So No sound transfe issues. It's great. But the condo fees on top of the mortgage is nasty. Myself a carpenter has to have them inspect any work I do. The Only perk for us is no water Bill. If your interested in a condo but your concerned about sound transfer, unless it's a concrete structure you will hear noisy neighbors if you have them. Stacked units I don't care what amount of soundproof drywall, lightweight concrete, noise dampening insulation you add. you will hear neighbors. We tear out brand new flooring and ceilings to chase sound transfer complaints sometimes. It's always hopeless. Side by side or semi detached is my recommendation. Usually the only place units are touching is the foundation and roof sheething 2 layers 5/8 drywall at the party walls is minimum code in Ontario. With 1" 1/2-2" air space between units. Rarely do we get noise transfer issues. For your garage find out more about necessary permits. Some places here the city won't let you rebuild. There's loop holes though. Keep the 4 walls and no permit necessary. But you most likely need to pour a bigger slab which will require a permit.

 

[TooSlow]

My zoning allows for a garage suite (among other things) as they're trying to increase housing in the more central, mature neighbourhoods. There's even a cash incentive for doing so, as long as your rental meets some affordability conditions (85% of market price, and must be low-income renters). It's "up to" $20k, which would work out to $333/mo over the 5 year requirement.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.