A Local Realtor’s Journey to Buying a Home
EPISODE ONE
Holy smokes folks, its actually my turn.
I worked insane hours in inhumane conditions (different blog post that I may never write) for 6 years and saved up enough to have a down… I found a loan officer that can get little self employed me into a house if I have 20 percent down, regardless of my income (I do need good credit however). Wowee zowie it just might be my time to take the plunge!
It feels like there’s such a deep reticence among buyers right now. A queasy uneasy time. Inventory keeps rising, but prices have also continued to go up in most markets (albeit more slowly). There’s a question in our minds, “Am I really getting a deal? Some of these offerings feel like a deal in so many neighborhoods, especially compared to the peak pandemic highs – and yet –
We’re still scared.
Stillness feels like the only safe option. Hold tight. Hold on. Sit on your money in the bank – it’s earning a little interest anyway.
But history has shown that the best time to have bought a house is 10 years ago… There are highs and lows, and we all want “time the market” by waiting for the bottom of the crash before we jump in… But you can’t ultimately time the market. You can try, but in the end, you buy a home for one of two reasons. One, you want to live there. Two, as an investment. If it is a good investment and the numbers work, it will be a good investment in the long term. Or you buy a house because you want to live there, and the years of living there help even out the highs and lows of the market if you hold long enough.
The way I think of it is this: the housing market isn’t a hang glide or a trapeze act – it is akin to swimming. When you’re a homeowner, you take the plunge and you are in the water until you sell that same house. And the best way to get better at swimming – is swim a lot.
Sure – home purchases are too big and too weighty to get in and out of quickly. Each home is a river and along the way you make friends and build a raft for that exact river – to make the journey far more comfortable. I have a few good friends who run practical and they both advise getting homes that need little to no repairs – essentially what we call in the business turn key. Even more, I know folks who prefer new construction. But there’s no accounting for taste, and a home I recently helped manage was built in the 90s and somehow needed more work than imaginable… and I have friends who own victorians well over 100 years old and the houses tend to need a few things, but overall function well. Each house is its own case, but while we all want hard and fast rules, there is no accounting for the thing that really matters – your gut feeling. Most of the time a purchase happens because something in you says YES – a big wholehearted yes.
Today I looked at four properties – two aren’t worth mentioning beyond to say: Realtors who shoot pics of houses that make the property look WAY bigger than it is are doing the house no favors when buyers show up and walk it. I’ll also add, who wants to pay over a million for a two bedroom with no options for expansion… on a dark steep lot that’s not walkable?
Ok, onto the fun ones:
The first was 1033 Magnolia in West Oakland
https://www.zillow.com/homedetails/1033-Magnolia-St-Oakland-CA-94607/299068137_zpid
This is MASSIVE mansion of an old victorian, built in 1890 split into a four plex, two smaller ground units downstairs, side by side (each tenant paying 1100/month – been there 40 years), and a second floor large gorgeous 2 bedroom one bath unit paying 1700/month, also a very long term tenant. The top floor is remodeled and very sweet, a two bedroom one bath, with a great little deck way up high, giving that city scape kind of wonder. It looks down onto green backyards of the homes on either side. There’s even a detatched cottage in the back, around 600 feet that is under construction after severe “moisture intrusion” which is a professional way of saying moldy and gross.
As a realtor, we’re not allowed to say something is moldy, as we are not certified mold inspectors. Only testing and an expert can attest to the true nature of those terrible dark marks and suffocating musty smell, but alas – it sure isn’t habitable right now.
The grand asking price for all this is a cool million. (999,000.00 of course, so it shows up in searches where people have it set to a million maximum…)
The Big Drawbacks
The houses next door are so very close it feels very much like city living, the backyard is paved over, and there are no trees on the lot. However the big oh-boy-can’t-quite-make-that-work issue is that it is a 5 unit. The second you go from 1-4 units as a class of property onwards to 5 units or more, you shift from residential loans to commercial loans. Shifting to a commercial loan means higher interest rates and lesser requirements related to disclosure (the assumption is that if you’re buying 5 or more units you are a qualified investor and need to do your own due dilligence and inspections). For me, never ever get those super low sweet rates that come along every so often to spur the housing market is a huge deal. You can refi, sure, but it’ll never be what your Aunt has locked in and isn’t giving up – 2.5 percent interest – mid 5s is wonderful rate in the commercial world.
***The Second One was a special kind of glorious:
https://www.zillow.com/homedetails/7141-Homewood-Dr-Oakland-CA-94611/24815733_zpid/
People always throw around this “good bones” phrase, so much so that it has lost all meaning,… what I’ve translated that to over time is: a great layout.
If the walls are cracking, people will act like the walls themselves are just skin- the bones (I.e. studs/framing) underneath the walls are great – just a little plaster needed, no big deal.
Anyhoo, this is at Homewood Drive in the Oakland Hills – nothing walkable about it, only two parking spots, but MOTHER OF GOD I liked it!
It’s a FOUR story layout, with three family rooms. Configured as a three bedroom, three bathroom, there’s an office nook, and one of the three family rooms makes an obvious bedroom. The architect spent some extra time on this baby.
The kitchen has a dining nook that is surrounded by windows and give the impression of an eat-in sun room. Every room is big and spacious and comfortable and has windows, closets, and proximity to a bathroom.
The bad news is that the carpets are stained and need to be replaced, a TON of the windows and sliding glass doors have seen better days, the decks and exterior stairs need to be replaced and won’t pass a safety inspection (I don’t think but can’t say for certain as I’m not an inspector), and at least one of the bathrooms has significant tile breakage. The kitchen could use new countertops and new appliances – it’s out of date, y’all.
Still, it felt like it could be a comfortable home, with room for everyone.
One of the hardest things about buying a house is the cast of characters involved.
In my case, the people I run this decision by (In terms of thinking through if it’d be a good place for them to live long term) are my 10 year old son, who is a self-professed city kid, my partner who is a self professed city boy, my partners’s kids, 16, 10, 8, who like walking around a neighborhood and aren’t used to car culture ~
And then my parents – who are no longer with us – but I like to imagine if they’d like it, and how they’d set it up, cause it brings me comfort to think of them esconsed in a home, its a guidepost for how I’ll feel most at home too. Our childhoods never really leave us, no?
To be truthful, I don’t think either of these are “the one.” The location of the Montclair one is too far out, and frankly it needs 160-300K of work to make it shine (did I mention windows, two bathrooms, a kitchen, mulitple decks)… And Magnolia street in West Oakland is charming and wonderful, but just too small without the back cottage to fit my blended family, and I don’t think even after repairs I’ll like the back cottage enough to want to pay higher interest rates in order to get this place… And I sure would like a backyard with a couple trees in it…
Onto the next one – the pavement pounding continues.
CHAPTER TWO – Berkeley Fourplex +
I put in my first offer! This property needs a ton of work. I’m sure if it smelled good and had no scary elements, it would have sold already.
What I love:
The backyard! It has a few old tall trees, some gorgeous old plants, a screen of tall bamboo on one side, honeysuckle, angels trumpet (Latin name Datura), an open, flat grassy area. It’s big enough for a fantistic party, a hot tub in the corner, a pergola, maybe even a little outdoor stage?
The Attic – Yes, I admit this attic needs a ton of work to be “habitable” from a loan perspective, but my oh my the air is so good and the light is so beautiful and most of all I can see the ridge line of hills from the stairs I climb to enter, it feels a world apart from the rest of the city and I feel an enchanted, creative spark up there. Apparently it was occupied by artists for decades, painters, dreamers. Perhaps that’s why I feel so very at home.
The Potential– As of now, the cottage needs some bigger updates, like a new layout for the kitchen and bathroom, and likely some french doors or a private deck. The units could use laundry facilities, and nicer custom tile, but most of all we have the empty, albeit delapidated commercial space which was once upon a time a Japanese grocery store. This 800 square foot commerial space could be a tiny little arts venue, whether a mini dance or yoga space, a tiny house concert type location, or even a flexible art space for everything from music lessons to writing groups. It’s been empty for over 50 years, so is in deep need of repair, but it could even be separated out into storage and laundry facilities for the four units – maybe a tiny gym? It’s big enough to be a cafe, which could be my son’s first restaurant – lord knows he’d like to sell the world his mother’s chicken soup.
What’s Rough
The big caveat on this particular parcel is that it is zoned commercial. Why does that matter? First of all if hugely affects the type of loan you can get. The typical amount of your down payment has to be 25%, not a small amount of money and for many of us, a barrier to entry. Then the interest rates are higher, the property taxes are often higher, insurance can be more costly, and most commercial properties also have requirements as far as environmental assessments. In this case, I’d need to pay for a Phase One Environmental Assessment to rule out things like past uses that may have caused pollution.
It’s lacking carpets or flooring in three of the four units, the kitchen height is around 6 feet in the cottage, and rather dark, the attic itself has no walls or kitchen, holes in the floor, etc… A few areas smell strongly of dog pee mixed with cigarettes, and there’s no light in the vacant commercial building, lots of trip hazards and decades of old items inside. In other words, it is not light, bright, and airy.
I feel a certain glee in the attic – a close friend said, “You’re being emotional. Never be emotional about money.” Which is funny to me because I see potential from the rental income from the other three residential units that would allow me to improve the attic over time. Many would much prefer a turn key single family home, but that would leave me without income coming in from the property itself, which is not a place I’m yet in. Most of all – I can see that attic as my little dream space… Sunny, up high, with gardens and trees out my windows… Even if my knees give out someday, there’s plenty of room to put a lift on the back of the house to hoist me up to my single story spot.
THE DEAL TERMS
I put in my offer signifcantly below asking. I did that for two reasons: 1) This property has been on the market for well over a year and not had any offers, which indicates it is over-priced. 2) Due to its commercial zoning, I have to put 25% down and spend a lot of time and money getting it ready to pass appraisal, which means I’m putting myself at risk. I could stand to lose many many thousands of dollars and over a hundred hours of my blood, sweat, and tears. I’m willing to subject myself to risk, but I need to then also reap the reward.
The seller has yet to respond other than to say he got a call saying a broker has a buyer at 1.2 million and that sounds awful nice… I said “I want this to work out for you, and I’m not going to push you.” If he can sell it for that, great. That said, I don’t want to wait around much longer. I’ve put in my offer, and I want an answer soon or else I’ll take my money and go elsewhere. Just today, I larger 5 unit in Berkeley came on the market that needs NO work for 1.25, with higher rental income and a lot less grief. I’ll go look at that and an 8 unit near Lake Merritt for 1.5, currently bringing in close to 15,000 a month in rental income. This does seem to be a classic case of a seller dragging their feet, hoping for more. It’s common, you can’t blame anyone for wanting what they want. But you also can’t blame the buyer for moving on.
Chapter 3
The response is imminent… The seller may let me know one way or another tomorrow… Holy wow. I do have people trying to talk me out of it, but most things I’ve pulled off in my life people think I can’t do. So… hasn’t stopped me yet! It will be a ton of time, money, stress, work, tears, and beauty. If I didn’t see the end result as truly beautiful, I would not bother.
The eightplex near Lake Merrit was cool – neat old building, but it had a drabness to it, and seemed like it needed a lot of work – new siding, a new roof, and it had NO YARD. The fiveplex in Berkeley looks to be in good condition save the backcottage, which was cute in a storybook sort of way. It doesn’t seem to be able to pass through an appraisal as is due to the back cottage being in disrepair. The owner may consider carrying the loan with a strong down payment, but again the big issue: No Real Yard. If I can’t be up in the hills or adjacent to a big park, I’m someone who needs a garden. My first job was working at the plant nursery at Smith in Hawken, and at a flower store, I worked on a farm for a summer, harvesting chamomile, and my place – where ever I live – is filled with indoor plants. The backyard is a priority for me – Ideally one big enough for a party, a hot tub, and a stage. Stay tuned to see if my offer gets accepted – I just might hear tomorrow!
