Considering Small House Purchase

[CoolChange]

Some of the recent threads on small homes and condos have prompted me to tap the collective wisdom here regarding something I have been considering for some time.

In another post, I mentioned my mother's declining health. There is a small house (1Kish sq. ft, 1/3 acre lot, 2BR/1bath) for sale about two blocks from her which I could likely purchase for $25K or less, around 1% of my net worth.

The house is in the general neighborhood where I was raised on the edge of a small town, backing up to forested parkland where I could see myself spending considerable time.

My initial thoughts:

• Being in this close proximity to my mother might allow her to stay in her home a few more years.
• Even if this investment goes to $0, it would not be that much of a hit to my portfolio.
• The location is not ideal but is good for me in many ways.

Major initial concerns:

• I have never actually owned real estate; so, I am a babe in the woods.
• Is my potential liability in fact larger than my purchase price if something were to go sideways?
• My general apprehension about any largish purchase.
• This would move me about 1.5 hours from long-term girlfriend. (I know others who have made this work; but, I know of a few failures as well.)

Rent for a similar place in a less desirable location would be $600-$700; this is also something that I am considering.

I realize that I have not given a great deal of information here; but, any thoughts, suggestions, questions, etc. are welcome as I start thinking through this.

To start, assuming that I would proceed, given the relatively small initial investment required, how much due diligence is warranted?

• Buyer's agent
• Lawyer
• Inspections, what kinds?
• Contingencies in offer letter?
• Title insurance (assuming so, online estimate is <$300)
• Not planning to bother with a mortgage, mistake?

Recommendations for books, web sites, etc. that I can use to start educating myself will also be appreciated.

Thank you.

 

[Live And Learn]

My first recommendation is to follow your gut.

Homebuying isn't that awful of an experience. If the house is listed with a broker you should call them. They can also recommend what needs to be done for closing. You will definitely want inspections (engineer and pests) and I'm pretty sure Title Insurance is mandatory.

 

[Midpack]

The concept sounds good, but $25/sqft is very, very low no matter where you are. The chart below is without the lot.

The popular tiny homes (e.g. Tumbleweed) are about $150/sqft and up.

You might want to find out what the price/sqft is where you are. The liability could indeed be far more than the purchase price for resale - if the house is a basket case, you may not be able to find another buyer willing to take it on as-is, you'll have to complete a costly rehab to attract buyers and sell.

If you proceed, you'll want a complete inspection, probably by an inspector of your choosing. That price is so low, it probably means there are several issues with the house, that may be costly. Caveat emptor...

 

[jfn111]

For a $25,000 purchase.
Contact the listing agent and arrange a walk thru.
If you like what you see make an offer contingent on inspection.
If the offer is accepted contact an inspector (Small house should be around $225)
If the inspection comes out OK then buy it.
A cash sale, at that price, will be about a 10 minute closing with $500 or so in closing costs.

 

[Marita40]

I'd be curious to know where you are located. In my neck of the woods you couldn't find anything that inexpensive. But then I'm in an urban area. In very bad areas of my town you might be able to find a house of that size for, say, 79,000.

Anyway, as already stated, get an inspection and scan other real estate ads of comparable properties so you know why the price is so low.

 

[harley]

The only time I ever saw a place for that low a cost/sq ft, it turned out that the land wasn't included in the deal. You could live there, but could never make any changes, and when you sold the land wouldn't sell either. In certain cases that might be OK, but would never have worked for us. So I would look into that and other aspects of the property. At that price there's something funky going on. Maybe an active volcano underneath or something?

 

[CoolChange]

A Few Responses from OP

My first recommendation is to follow your gut.

Homebuying isn't that awful of an experience. If the house is listed with a broker you should call them. They can also recommend what needs to be done for closing. You will definitely want inspections (engineer and pests) and I'm pretty sure Title Insurance is mandatory.

Thank you.

The concept sounds good, but $25/sqft is very, very low no matter where you are. The chart below is without the lot.

The popular tiny homes (e.g. Tumbleweed) are about $150/sqft and up.

You might want to find out what the price/sqft is where you are. The liability could indeed be far more than the purchase price for resale - if the house is a basket case, you may not be able to find another buyer willing to take it on as-is, you'll have to complete a costly rehab to attract buyers and sell.

If you proceed, you'll want a complete inspection, probably by an inspector of your choosing. That price is so low, it probably means there are several issues with the house, that may be costly. Caveat emptor...

This is an economically depressed area with few sales; actual selling prices over the last six months have averaged $25-$35/sqft, as low as $20; one for $70. Many houses in the area, including this specific house, have been on the market for well over a year.

Yes, this give me some concern about unloading the property a few years down the road. My assumption is that I could unload the property at some price, maybe just $1 if need be, to transfer liability.

For a $25,000 purchase.
Contact the listing agent and arrange a walk thru.
If you like what you see make an offer contingent on inspection.
If the offer is accepted contact an inspector (Small house should be around $225)
If the inspection comes out OK then buy it.
A cash sale, at that price, will be about a 10 minute closing with $500 or so in closing costs.

Thank you. This is along the lines of my best case scenario.

I'd be curious to know where you are located. In my neck of the woods you couldn't find anything that inexpensive. But then I'm in an urban area. In very bad areas of my town you might be able to find a house of that size for, say, 79,000.

Anyway, as already stated, get an inspection and scan other real estate ads of comparable properties so you know why the price is so low.

Think near the middle of the USA, small town, no real industry remaining, mines/factories closed long ago, etc. Schools, post office, etc. still open to support farmers, truck drivers, along with many on some form of public assistance. Justified's portrayal of this kind of area is a bit over the top but not that far from reality. And, like many on that show, it still feels like home to me.

 

[Choices]

Title ins is not mandatory if you are not financing;HOWEVER, I Would buy owner's title insurance to protect you in case a long not dead owner reappears. Virtually never happens, but the title ins insures the title search.
I woulld buy the place if the inspections are okay. It may need paint, etc but to me that's the fun part! You may find out you like being an owner!

 

[Choices]

PS. Make sure you get property insurance and add this property under your Umbrella policy.

 

[LauAnn]

Sounds like fun. I would enjoy the process of fixing it up. 1000 square feet sounds perfect -- not too much to take care of. Hoping for you the inspection does not turn up anything too expensive.

 

[splitwdw]

Long term girlfriend's can be hard to find, maybe you could move your mother to an apartment or assisted living near you.

 

[powerplay]

The property under consideration is not all that unusual for a depressed area. Look at it and get an inspection and then if all is OK to you go for it.

Recently a family member purchased a manufactured home with 1400 sq. ft on about 3 acres for a mid $50K price. The property was a foreclosure and had been on the market approx. 2 years. There were a number of things to fix/replace before moving in as people had been pilfering things while it was vacant. It is very livable and is a great 1st home. The property sold for over 3 times the recent sales price back in 2007. This is also a very depressed area and has been for quite awhile.

 

[daylatedollarshort]

I don't know much about home sales in the heartland, but I do really enjoy living near parkland and open space. We like to hike and make good use of all the local trails.

 

[sunsnow]

I own quite a bit of real estate, as a landlord, and actually bought a farm housed along with a couple of acres in an economically depressed area about 20 years ago for $20,000. From that experience, I learned that what you pay for a house doesn't have any relationship to what you may end up needing or wanting to spend to repair it. We ended up repairing plumbing, electrical, and heating systems, as well as the roof, which together cost a lot more than the purchase price. An inspection is definitely a good idea, but even with a clean report, lots of things can go wrong--so if I were going to purchase this property I would want to make sure I was going to feel OK with paying for potential repairs. Also, as far as I know, the purchase price of a home does not in any way limit your liability, so you'd want to make sure to get sufficient liability insurance.

It is risky buying in an economically depressed area. It could be tough to resell the property, especially if you do end up having to sink some money into repairs. We did not recoup our full investment (probably lost about $10,000). Is it likely that the area will get worse? What do you think will happen with crime? I know it's hard to predict the long term trajectory for a neighborhood, but these are things I try to consider before buying.

BTW I think it's really nice of you to consider buying a place to help your mom stay in her house.

 

[HFWR]

I own quite a bit of real estate, as a landlord, and actually bought a farm housed along with a couple of acres in an economically depressed area about 20 years ago for $20,000. From that experience, I learned that what you pay for a house doesn't have any relationship to what you may end up needing or wanting to spend to repair it. We ended up repairing plumbing, electrical, and heating systems, as well as the roof, which together cost a lot more than the purchase price. An inspection is definitely a good idea, but even with a clean report, lots of things can go wrong--so if I were going to purchase this property I would want to make sure I was going to feel OK with paying for potential repairs. Also, as far as I know, the purchase price of a home does not in any way limit your liability, so you'd want to make sure to get sufficient liability insurance.



It is risky buying in an economically depressed area. It could be tough to resell the property, especially if you do end up having to sink some money into repairs. We did not recoup our full investment (probably lost about $10,000). Is it likely that the area will get worse? What do you think will happen with crime? I know it's hard to predict the long term trajectory for a neighborhood, but these are things I try to consider before buying.



BTW I think it's really nice of you to consider buying a place to help your mom stay in her house.

But buying in a "depressed" area has some advantages. For instance, the meth addicts have probably already wrecked out the old plumbing and wiring, and sold it for scrap metal. See, half the job already done, for free!


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