Financial/Real Estate advice & input wanted

I really appreciate the diverse background here, and there's always someone who can see your situation from a different point of view on here, so I want to run this one by you guys & gals for input.

I recently stumbled upon a building for sale in our small, economically depressed hometown where we live. My wife & I both feel its a good deal - even for this location - and has potential, but let me give you some background on us before I get into the details of the building.

US:

I've owned this house for 6-years, it's about 1500sq-ft on about an 80'x110' double-lot on the corner. I have a 24'x30' detached garage plus a 16'x12' shed. I paid $78k - which was honestly on the high end, and have refi'd twice, still owing $72k, which is about $15k more than I could sell it for today.

We both work an hour away from here & carpool everyday. We tried to move closer to work last year, but I refuse to get caught in a situation where I have to depend on renting this house in order to afford another one. With us having 4-kids, size is definately an issue & we really couldn't find anything suitable that was close enough to be worthwhile, cheap enough to afford, and not a total money-pit. It looks like realistically(presuming no drastic job changes)we're stuck here for the next 5-years, and since it's our hometown maybe longer.

The Building

The building I found for sale is a 100-year old former Opera House & Masonic lodge in our withering downtown(all 1-block of it). It's a 3-story 40'x60' brick building, so about 7200sq-ft total. The first floor has a 15'x40' store front, behind that is about 25' of gravel floor, and at the rear is a 20'x40' cement pad with garage door to the rear. There's also an angled entrance to the gravel area off the side alley which used to have a garage door & could easily be reinstalled. It has about 20' celings, gas heat & 200amp service...in otherwords, it could easily be a dream garage!

The second floor is 2400sq-ft furnished apartment(it actually used to be 2-separate apartments & has 2-baths & 2-kitchens), and there's an old but functioning freight elevator from the 1st to 2nd floors. It's slow & not something you'd want to ride all the time, but for heavy stuff or my F-I-L who has bad knees, it's a nice feature. There's a large deck off the back as well.

The 3rd floor is the former ballroom. It never had it's wiring completed when they rewired the apartment, there's no water, and with no heat the plaser ceiling is falling down. But it's 2400sq-ft of open space that has some future potential.

The roof on the building is an 8-yr old rubber roof & is solid, but needs a coat of rubber, which I priced at $500 & I can roll it on. The brickwork is all in pretty good shape & has had recent tuck-pointing, though I did see a few loose/broken bricks that would need attention. The apartment has 2-separate furnaces, one has a blower motor out, but there's a complete spare furnace included. One of the upstairs bathrooms has a bad outlet & the other one needs the drain leak fixed on the shower. There's a 1st floor bathroom that was plumbed to the storm-sewers years ago & needs reloacted & replumbed. One of the 6'x6' front windows is broken & needs replaced, and of course there's 100's of "little things" that will take up much more time & money than I can presently imagine. One of the big things is the whole entire building is full of junk....and I'm not talking GRM "hey that's some cool stuff!" kind of junk, I mean imagine all the leftover stuff that didn't sell from every rummage sale, auction & thrift-shop you've ever seen! It will take $2k-$2500 in dumpster fees just to get rid of most of it.

I can buy the building between $10k-$12k.

The Money

We're thinking about cashing in our retirement to buy & fix up the building, moving into it & trying to either rent our house or(preferably) sell it on contract. Our mortgage & escrow is $725/mo. & I know I couldn't get that much rent out of it, but I'm sure it would rent pretty quickly for ~$550/mo. Yes, we would be taking a loss on it, but the taxes/utilites/insurance on the building will be ~$550/mo. too, so it would basically be a net-wash.

A couple of our motivating factors are: 1.) While we both have good jobs that are secure today, should something happen, as long as we could pay the taxes on the building we'll have a place to live, and if worse comes to worse & we loose the house, oh well. But that's a "doomsday" situation that we don't expect to happen. 2.) While we don't really want to cash in what little retirement we have, if we could get our home sold on contract(which I think is pretty likely), we would be pretty close to living debt-free. 3.) We're young enough, and our kids are old enough, that we should have plenty of years - many of them after the kids have grown - to still be working & saving for retirement. 4.) With a storefront, and a garage in the back, there's the possibility of opening some type of business. We've discussed some ideas, some more plausible than others, but we would want to get settled in before we pursued that seriously.

So - if you read through all that , what would you do?????

A few questions. Is the "new" building any closer to your work? Any environmental concerns (asbestos, lead paint, etc)? What are the zoning and tax laws on it's location?

On the "current" house, does it need any work? Is there anything wrong with staying there awhile longer? Do you really think a contract sale will bring you a break-even price?

And some intrinsic questions, what about the kids school district and friends? Local groceries, parks, and neighborhood events?

The two locations are 1/2-mile apart, so nothing really changes there. Our whole town is only 1/2mi x 1mi.

As far as environmental concerns, it's possible there's some lead paint on the original window frames, but since we're not financing, I don't think we legally need to have a licensed inspection.(I'll be getting more details on closing costs/requirements next week) There's no sign of any remaining asbestos pipe(or other) insulation.

Zoning & taxes aren't much of a problem. Since it is a storefront, we aren't allowed to use the front store portion as living-space(officially, but other people do it. Our village is just thankfull to have any type of occupancy at this point). We do not receive owner-occupancy tax credits since this is a commercial building & the taxes are higher: $750/yr for our house vs. $1500/yr for the building, but obviously compared to most locations those are pretty low. And until the point of title-transfer on our present house, I suppose owner-occupancy could still apply to it...

Our present house is OK. There's no serious or immediate work, but it is 131-years old, so there's always something. As far as the contract sale, after talking to some area realtors & real estate lawyers, it seems like the thing to do is contract it for a 2-5 year period, then require the buyers to get their own financing. I think that would work well, since there are many people in our area with good work history, but not good enough credit to get a mortgage for this size house right now. They could afford the $550/mo. and after a few years of reducing the principal on our mortgage, coupled with the probability that the mortgage situation will get better in a few years, should put them in a good situation to get financed. If they buyer can't get finianced, I can either extend the contract or tell them to get out & I can start all over with someone else.

That building is freakin awesome looking ,,crap I would be all over that !! Run down and make an offer . I would not hestitate .

That is a cool looking building, but, I would hold back and get some sort of inspection. I'm all for projects, but I also like to know at least 50% of what I'm potentially getting into.

The gravel floor kinda bothers me too.

Also, what type of business can be ran in the front?Given your Village population,that should be taken into consideration.( Ice cream! )

Couple of thoughts:

petegossett wrote: ... our small, economically depressed hometown where we live...

petegossett wrote: ...our withering downtown...

You sure you want to commit to investing in this location long term?

petegossett wrote: ...but I refuse to get caught in a situation where I have to depend on renting this house in order to afford another one...

Did you change your mind?

Building sounds great. Do you LOVE it? Does your wife LOVE it? Would you still love it 15 years from now if it cost you a lot of money and you were unable to sell it?

Notes on the building (from a construction professional)

-200amp service is much too small for a building of this size. It may meet your needs in the short term, but it would never suffice for multiple units, commercial rentals, or most business tenants.

-Rubber roofs usually last longer than 8 years, and I haven't heard of a coating that goes over them. Are you mixing metaphors?

-1st floor bathroom that was plumbed to the storm-sewers- that's really bad. Could cost you.

petegossett wrote: I can buy the building between $10k-$12k.

petegossett wrote: ...which is about $15k more than I could sell it for today..

Price is right. Can you afford the repairs? Do you have a good handle on the costs and the resale value? It sounds like you may want this a little too much, be underestimating the costs significantly, and be putting yourself in a tight financial spot. Can you afford to carry the old building, the new building, plus the renovation costs? Do you have other financial resources if things don't go as you've planned?

My own similar experience: I loved my little downtown area. There was a gorgeous historic building for sale for $30,000 that sat for years. I wanted it. Didn't buy it. The guy who bought it did a fabulous renovation that certainly cost upwards of $300,000. I couldn't have afforded to do it that well. In spite of a resurgence in the downtown area, I'm pretty convinced he ultimately lost a lot of money on the deal.

I bought a building around the corner, which I thought I could afford. I did a lot of the renovations (which were MUCH more than expected), never could develop the rent roll, and ended up selling it at a loss. The guy I sold it to spent a LOT more money that I ever could have, made the building beautiful, but still is having issues renting it and can't sell it.

Moral: downtown development projects are VERY expensive. They take a LOT of love. Cost will ALWAYS be a lot more than you think. Rents and sale prices are NOT guaranteed.

On the plus side: If you want to go through the hoops, there are likely to be some historical development tax credits available if you do this project.

As cool as this is, you need to stay far away from this. The main reason is that you can't afford it.

Even if you weren't upside down in your mortgage and weren't cashing in retirement to do this it would still be an iffy proposition given the kinds of surprises this building is likely to bring.

Additionally, be honest with yourself about the business prospects of the storefront. Given that you characterized your downtown as "withering," is there really any viability there at all?

I hate being "that guy," but I really think this will end up being a lot less fun that it sounds like if you try to force it now. Get the rest of your finances under control (right side up in the mortgage and enough cash to do this without liquidating your retirement) and it sounds like a lot of fun.

My previous post was probably too long.

I'll be "that guy #2" and agree with billy3esq. Don't do it.

petegossett wrote: As far as environmental concerns, it's possible there's some lead paint on the original window frames, but since we're not financing, I don't think we legally need to have a licensed inspection.(I'll be getting more details on closing costs/requirements next week) There's no sign of any remaining asbestos pipe(or other) insulation.

So, since you are using you're own money and not someone else's, you are willing to take the full risk of any potential unseen environmental issues without ANY professional inspection? That's foolish.

petegossett wrote: Zoning & taxes aren't much of a problem. Since it is a storefront, we aren't allowed to use the front store portion as living-space(officially, but other people do it. Our village is just thankfull to have any type of occupancy at this point).

Will they give you that deal in writing? It won't take much to change THAT political perspective, then you could be screwed. BTW- if you are going to live in part and operate a commercial establishment in another, it's called mixed use zoning. Strongly discouraged in most areas, and expensive to accomplish legally according to the building codes (firewall separations, sprinklers, etc.). An auto shop is a different zoning as well.

petegossett wrote: We do not receive owner-occupancy tax credits since this is a commercial building & the taxes are higher: $750/yr for our house vs. $1500/yr for the building, but obviously compared to most locations those are pretty low. And until the point of title-transfer on our present house, I suppose *owner-occupancy* could still apply to it...

You will not legally receive owner occupancy tax credits unless you are both the owner AND occupant. Don't try to misrepresent this to the government- that's called fraud.

Thanks for the insight guys! I'll start from the top & work down...

JFX001: The reason for the gravel floor is the center part of the building was originally a wood floor on a basement, that at somepoint had 4" of concrete poured on top & collapsed about 10-years ago. The seller had it filled with clay & topped with gravel. The front store area is on a crawl-space & the very rear has been re-supported and deemed safe. I know the contractor who did the work & will be talking to them next week.

Any type of food-service business would require way more $$$ to get the building setup than I'd be interested in doing. BTDT once in this downtown. I'm thinking eBay store, sign-painting, pinstriping, bicycle repair...all of which are things I've done at some point for a profit locally. But honestly, I'm much more interested in this as a residence & workshop. The idea of opening a business is a far secondary concern.

SVreX: As far as commitment, we're here for several more years at the least, and as I said above - without a lien on the building, even if it came to selling at a loss, at least I could do it without worrying about paying off a lender. We would be able to cover the utilities & taxes even without renting/selling our present house. I am worried about the commitment from a time perspective, work has been crazy lately(which is good, given the economy), but I expect it to return to normal.

I appreciate the insight on historic building tax credits. That may be worth looking in to at some point.

We have 60-amp service to our house/garage/shed, so 200-amp would be amazing to us! lol

As far as the roof, I've put a rolled-roof on a building my mother owned just down the street from this one. It was much like a big rolled tar shingle, complete with the gravely coating. The roof on this building is rolled out much the same, but it doesn't have the gravel & appears to be stretched. The seller called it a "Torched-down roof" & said it needs a coating of the "white-rubber" roofing material. Is that incorrect? It looks pretty good, but it's peeled away from the walls along the edge in a couple places & there's a couple cracks along the seams. There's no low-spots though.

The toilet into the storm sewer was disconnected & blocked years ago when they switched to a sanitary sewer. No one bothered to move the bathroom, they just used it as a closet.

billy3esq: Thanks for cutting to the chase! I completely understand your point, but the 2-main reasons we're interested in this are: 1.) It's a more suitable residence for us than what we have now, and 2.) As a means to improve our finances. Am I wrong in thinking that by doing this we would be improving our financial position? Or is it just the fact we would be stepping into uncertainty until everything is figured out?

I realize this is such a large project it will never really be done, and I'm not looking for a high-end renovation/restoration. I just want a more suitable place for us to live & a way to get out of a mortgage.

As far as the inspection - I've been screwed by professional inspectors before. I know plenty of people who know their stuff, whether it be plumbing/electric/structural/etc. who I would want involved before signing anything.

Yes, I suppose our entire downtown is "mixed-use zoning" as every single building, except the bar, also has living-space either above or in the rear. Some are rented apartments, but most are occupied by the owners - at least, for those buildings that are occupied. And the building next door, as well as the one behind, housed auto shops at one point in time.

My point about the taxes is that it will be a gradual process for us to move out of our house & into this building, so until we're fully moved out & the address changed, wouldn't we technically still occupy the house(presuming we were selling our house, not renting it)?

We do like the building a lot, but I know better than to buy a place just because you "fall in love" with it. I have no dillusions about it being "fun", and honestly, that's probably the biggest concern to me.

I'm still on-the-fence on this one, keep it coming!

http://www.andersonmacintyrehistoricalservices.com/Rossville.html Lower right of page . This is the place right ? You could wash cars and pinstripe enough to make the mortgage . Karokee opera !

petegossett wrote: As far as the roof, I've put a rolled-roof on a building my mother owned just down the street from this one. It was much like a big rolled tar shingle, complete with the gravely coating. The roof on this building is rolled out much the same, but it doesn't have the gravel & appears to be stretched. The seller called it a "Torched-down roof" & said it needs a coating of the "white-rubber" roofing material. Is that incorrect? It looks pretty good, but it's peeled away from the walls along the edge in a couple places & there's a couple cracks along the seams. There's no low-spots though.

Torched down rubber and white rubber are two different products. One adheres with heat, the other with chemical bonding. I'm not aware of any "coating" to put over a torched down roof.

petegossett wrote: Yes, I suppose our entire downtown is "mixed-use zoning" as every single building, except the bar, also has living-space either above or in the rear. Some are rented apartments, but most are occupied by the owners - at least, for those buildings that are occupied. And the building next door, as well as the one behind, housed auto shops at one point in time.

I like towns like that. Mixed use refers to a building's use, not a downtown area The building code is quite restrictive on this type of use. Different types of buildings are seen as different risks. For example: the likelihood that someone will die in a fire their sleep is pretty slim in a commercial building. But someone sleeping in the back room of an auto shop (with flammables, etc) is at a far greater risk. The fact that there are already buildings in use that do not conform to the building code has no bearing whatsoever on whether or not they will enforce the rules for you. Municipalities are funny that way. If the building is not currently in use as a mixed use building, you will be changing the usage. Make sure you are CERTAIN before you assume the town will let you do what you want to. There's an awfully lot of good reasons they might not (like funding or legal problems at the state level, etc).

petegossett wrote: We do like the building a lot, but I know better than to buy a place just because you "fall in love" with it. I have no dillusions about it being "fun", and honestly, that's probably the biggest concern to me.

My point was that you SHOULD love it.

Yup, you found it! The front is different now, there's a door on the far left leading upstairs & one next to it for the store front. Right of that are 2 6' windows. None of the original doors remain. On the alley on the left, there's a recess where there was once a garage door, now it's a double-steel door.

All the upper windows remain, and this guy is still above the archway.

SVreX - What is the proper way to fix leaks in a roof like that?

Oh, and the store is presently a resale/antique/rummage shop, while the family that operates it lives above it.

I'll ask the village about any potential problems based on business type, but they've really opened up to about anything....they allowed a "Witch School" to open, which was total shock & awe to our little back-woods town. This particular building has been an auction house, and a creamery before that.

I read about the "Witch School".

Also about the YMCA that was torn down, and the Roundhouse that is slowly going back to the earth.

It looks like a nice little Village. I asked about the storefront usage because I was curious as to what type of business could provide traffic as well as income.

Good Luck,

John

petegossett wrote: SVreX - What is the proper way to fix leaks in a roof like that?

If the basic roof is in good shape (rubber not worn thin, no major tears, flashing and seams tight), then patches can be torched over any hole.

A large roofing blowtorch is used which melts the rubber, making the patch melt into the old roof. Becomes one "seamless" piece.

Oh, this roof isn't made that way. The seams are a darker color, though my shoes didn't stick to it like tar. But it looked like it was applied like tar.

petegossett wrote: billy3esq: Thanks for cutting to the chase! I completely understand your point, but the 2-main reasons we're interested in this are: 1.) It's a more suitable residence for us than what we have now, and 2.) As a means to improve our finances. Am I wrong in thinking that by doing this we would be improving our financial position? Or is it just the fact we would be stepping into uncertainty until everything is figured out?

No. 1 is a reasonable reason to move, but not necessarily a good enough reason to do this move.

No. 2 is not really true. I don't think you're going to improve your financial position with this deal as you're thinking about doing it. One of the worst financial things you can do is cash out a retirement account. (I'm assuming we're talking about a tax-advantaged account (IRA, 401k, etc.)). The reason is that when you cash out a retirement account early, you'll pay taxes on the account at your marginal tax rate, plus a 10% penalty. Plus, you'll lose the tax-advantaged growth of that money for the rest of your life.

The only reason I would ever recommend cashing out a retirement account is to prevent a foreclosure on a primary residence that you wanted to keep.

I really respect the goal of being mortgage-free. I just don't think doing this deal is a good way for you to achieve that goal, despite the fact that I'm probably the most debt-averse person you'll ever meet. (I'm currently making quintuple--yes, quintuple--payments on a 5% mortgage to get it paid off early.)

Living in a home as it is being renovated is not a lot of fun for an individual. Once you add a wife and four kids to the mix, the stress level could rise exponentially.

petegossett wrote: Oh, this roof isn't made that way. The seams are a darker color, though my shoes didn't stick to it like tar. But it looked like it was applied like tar.

Yes it is, if it is a torched down roof. There's only one way to torch a roof.

When the rolls of rubber are put down, the seams are torched together. The rubber melts out of the seams in a darker color. Looks like tar at a glance, but its not. Pretty good roof.

The rolled roofing you described is different. It has granules ("gravel") on the surface and is held together with tar. Pretty awful roof.

Both roof are delivered on rolls. That's about where the similarity ends. Rolled roofing is thinner, has a felt backing, tears easily, wears poorly, and relies on tar for the integrity of the joints. Rubber roofing is about 4 times as thick, is made of fiber reinforced rubber, and the seams are welded (melted) together with a torch, not tar.

If you use tar or many roof coatings on a rubber roof, you will destroy the roof. It can break down the rubber and eat through it.

My first thoughts are that you will need close to $50k to make this place liveable for you, and rentable for someone else. And that's within the first year. After that, you will be able to rent the lower space (and maybe third floor) for revenue generation (recouperation).

I grew up in a small town (about 8,000 people), and my father bought a similar building to use as a garage. It used to be a store, and before that, a Kaiser dealership. He paid $19,500 for 5.000 sq ft, which he admitted was way too much (money-not space). A new roof cost him a few thousand. Heat is about $300 a month, just to stay around 50° in the winter (in SW Ohio). He has also replaced some windows and sided the building, and removed graffiti numerous times. Much electrical and plumbing work has been done (by my dad and myself, so kinda free), as well as lots of cleanup.

However, a building around the corner was turned into a residence on the 2nd floor and a coffee shop on the first floor. That building also sold for less than $20k, but needed a total remodel. The lease on the coffee shop isn't more than $500 a month, so there's not much revenue there--especially when the landlord has to maintain old utilities.

If you had the cash, I'd say go for it. The space would be great, and the total cost over 20 years would probably be cheaper than your house. If you're cash-strapped, though, I'd pass.

Thanks for the real-world input Kramer, but I'm curious why you're saying $50k to get it liveable? The apartment is finished & has had a family living in it for many years, it's so stuffed full of their junk that we couldn't get back into some of the rooms they don't use, but it seems to be in about as good of condition as our house now.

The biggest initial expense is going to be a couple dumpsters to clean all the junk out - which they've been up-front about being left behind. I figure $2k for that, based on estimates, another $500 to fix the leak in the roof, and about another $500 to fix the broken front window. Those are the main concerns at the start. Yeah, the other "little things" will continue well past that time, but really that's no different than our house now. You make a list, prioritize, and take care of them as time & money allow.

I'll update this thread in a few days after I've made some more calls.

If I come across as a dick, sorry, but sometimes that's better than sugar coating it.

You've got four kids, are living in a decent house, and want to move into an old building so you can have a "dream garage" in a building that had the floor collapse in one part several years ago, bad plumbing in another spot, incomplete wiring and plumbing with a collapsing ceiling in the area above where you plan on living, and a bad roof. There are probably tonnes of other things that the previous owners did poorly that will cost you a lot that you don't know about.

As if that wasn't enough, you've owned your current house for 6 years and have only paid down the principle $6000, and are very much underwater. You don't have cash on hand so you want to cash in your retirement accounts to buy it and begin renovations. Sorry to be blunt, but pull your head out of your ass and think about your family and your future. Have you not seen the news lately? It's filled with stories of milliions of people living with the consequences of making poor financial choices. This is very clearly one of those poor choices!

You don't want to move closer to work because you'll have to rely on renting out your current house, but you want to buy this money pit and rent out your current house? You do realize that the insurance on your house will jump because you're not living there, but renting it out? And what about insurance on this new building, assuming you can even get it? It's probably not going to be cheap. And utilities will be a lot worse in the new building - I'm guessing it's not insulated very well.

Sure, I'd love to have a cool old building to turn into a huge house/garage (there are tonnes of old churches around Detroit that would be sweet), but I don't have four kids, I have much more of my house paid off, and have a decent amount of savings to put towards it (though I'm burning through the cash savings going back to school). I also have the common sense to realize that buying an old, abused building will cost much, much more than the purchase price just to make it even remotely safe for little kids, and to know that it would make a lot more financial sense to sell my current house and buy another one that has a huge garage.

It's great to be enthusiastic about your hobbies and follow your dreams, but if (and most likely, when) this dream implodes, it's not just you who will bear the consequences of your actions, but your wife and four kids too. Save your money, pay off your house, wait for the kids to finish college and move out, then look for a ridiculous extravagance to spend your money on. Not too long ago, it was very common for families with more than four kids to live in a fairly small house, I'm sure you can do it for a few years until you get more of your house paid off and are not upside down and can look for a larger place.

Bob

petegossett wrote: Thanks for the real-world input Kramer, but I'm curious why you're saying $50k to get it liveable? The apartment is finished & has had a family living in it for many years...

I guess I'm assuming the building isn't liveable. Even if someone did live there, that doesn't mean you'll get a certificate of occupancy just by buying the building (but maybe so). This old of a building will have lots of skeletons--bad plumbing and wiring are just two of the expensive things, and they'll make your life miserable if you don't have them in good working shape when you move in. Tenents looking for cheap rent often overlook problems that you'll probalby want to fix (I know I would). Years of renovations, often done very quickly and cheaply, sometimes screw things up worse than what it was before.

My dad had windows in his building (storefront) that were cracked. When they were removed, the building settled even more, causing cracks and leaks. He replaced the windows with framing and plywood, and sided over everything.

If you have the time and patience, go for it. Just be aware that commercial (and residential) buildings that have gone thru many tenents can be a handful.

Schmidlap's post was pretty rough, but honestly petegossett, he's right.

Think hard about this one. Let your wife read some of these posts and talk about it. LOTS. Be honest- put aside your unbridled enthusiasm.

I am also in agreement with Kramer- I like his $50K number. I've spent 30 years renovating buildings like this and have owned several (with similar unrealistic hopefulness when I got into them).

There is one thing you are not considering. Time is on your side. There is absolutely no reason to believe this building will not still be on the market next year,or even the year after that.

Get a couple of bids from reputable contractors. Even if you intend to do the work yourself, they will give you quality information on the value and extent of the work. Also, hire a inspection service to give you a full written report. Probably cost something like $500. That would be a really cheap insurance policy if it reveals something you didn't think of, or a good negotiating tool if you decide to go forward with a purchase.

Pay down your mortgage, raise your kids, save some money, leave your retirement alone. Make a promise between your wife and yourself to not do ANYTHING for at least 60 days, but be prepared to extend this to 6 months, 1 year, etc. if you don't both have a very solid peace about it.

I love buildings like this. But it is a REALLY good time to use caution.