Dollars and Sense

The Backside, part 1

When people learn that John and I renovate homes, we often hear that we are like (insert the  names of one of the famous couples you see on one of the many home renovation television programs here) or “I would love to that. It looks so fun.” To the first comment, we most often reply that we are not as pretty nor interesting as whomever they have mentioned. To the second comment, we say that working on homes, while very rewarding, has its highs and lows. What we usually don’t say is that it can be gut wrenching, and we keep bottles of Tums in our refrigerator. So much goes on behind the scenes, and there is a ton of work that takes place to determine whether a project is viable before we even put an offer on a home.

Like one of the couples you see on TV, we pay cash for the properties we renovate—investing our retirement funds in our encore career of home renovating. Because the money comes out of our back pocket, we must be extremely judicious in our purchase of properties, and buying right is the first priority. 

Once we find a home that meets our criteria of location and size, we then invest hours into the process--researching the property itself and other surrounding home sales, driving the neighborhood, looking at trends, touring the property, assessing the repairs, talking with subcontractors and inspectors, and running budget numbers on the anticipated renovation costs. We do all this because, while we love doing this, it isn’t a hobby.  We need to assure in as much as possible that we are wisely investing both our money and our time.

If a property makes it through this first hoops, we initiate the purchase process by issuing a contract and negotiating a price. At it is at this point, we get excited. We think about possibilities. We imagine what the home could be. Even though no one has signed on the bottom line yet, we are invested. It is a big letdown when the contracts fail. 

Here is our reality check. In the past three months, we have made offers on six different homes that have made it through our pre-qualification hoops, but we were not able to purchase any of them.

So what happened?

Three homes were snapped up within a few hours of going on the market. They were sold to buyers who waived the inspection process. We rely on experts to help us know what maybe in the walls, in the roof, or underneath the structure. The inspection informs our renovation budgets, we choose not to skip this step for sake of time. Those who watch the home reno shows (and we do too because we can learn from their successes and mistakes) have seen unexpected termite damage, foundation issues and other problems uncovered during the actual renovation process. And yes, even with an inspection, there are surprises come up during a renovation and these can blow a budget to pieces. We’ve been there.

The other homes did not pass through the last crucial qualification of the contract process – the ability to provide a clear title. Here, just signatures away from purchasing the property, our real estate attorney has proven to be our guardian by discovering encumbrances that have caused the contracts to fail. One unexpectedly had to go through the bankruptcy court to assure that all debts had been paid. One was not able to clear get clear title because of a number of recent quit claims. 

While we hate to let a property go at this point, the legal hurdles associated with these properties were too time consuming, too risky, or too costly up front. When this happens, we must shift from being hopeful, can’t wait to start to pragmatic and careful because we know that in the long run, investing in the wrong property, even at the right price, is not in our best interest. We have to break off the love affair and remember that, while we do this to make the homes and the neighborhoods better, we also do this to make a living.