I definitely appreciate all the wisdom here -- great stuff, keep the experiences coming.

I'm not really all that surprised at the wide variety of views on Realtors. Some people hate 'em, others love 'em. My wife used to work for one, and so she loves them. My parents have been good friends with a number of Realtors, and have seen them change when they left the industry -- they're seriously anti-Realtor. We'll see what it looks like in my case. I had an agent for my first house, mostly because I had no idea what I was up against and I was on a very limited schedule. This time, I have all the time in the world, and I've done it once before, so I'm not completely lost. We'll see how it goes, and what my wife will tolerate.

Re: pre-approval, I generally under-budget what I can afford. I've only been to the bank to ask for money 3 times in my life, and every single time they've asked me to take more money than I'm asking for. I know what I can afford, and I know that I'm not going to spend all of what I can afford on a house. The hard fact is that I will probably miss at least one pretty good deal by not applying for my loan Right Now. At the same time, I have all the time in the world, and the deals are only likely to improve (see Wayne's charts of property prices vs. earned incomes).

Thanks for the garage pointer -- that's a great point, and not just for home buying, but also for keeping my marriage alive. There has to be working space, and there has to be living space, and they have to be separate. One option would be to get a place that has enough unfinished (or un-renovated) space that I can use it as a work space. Another would be to make the garage the absolute first project. I can't afford to pay rent at two places, as well as making payments to the local Home Depot, so living somewhere else and commuting to my construction project is a no starter.

Half-built homes: On my drive home, I see a number of places every day that are half-built, with signs out front advertising So-and-So Builders and luxurious blah blah starting at ungodly prices. Aside from the obvious risks involved in buying a half-built house in a mostly vacant neighborhood full of half-built houses, does anyone have any insight on these?


Dan

A good realtor whounderstands your position can be invaluable. Make sure you're comfortable with who you select and they understand your situation.

I'm not suggesting you get a loan for more than you can afford to borrow but keep in mind there are break points on loans...generally speaking, the more you borrow the lower the interest rates. E.g., if you're only borrowing 100K your interest rate may be 5.75%. But if you go to $125K your interest rate may only be 5.375. Also, the interest rate on a 15 year fixed is lower than a 30 year fixed. Ask your mortgage broker where the breaks are. You'd be suprised how much you can save on a 15 year loan vs a 30 year loan.

The kind of builder situations are not whgat I'm talking about. The situation you describe is a builder that wants to get you in and let you pick the options to finish at a premium. What I'm taslking about is builders who have a number of houses they CAN'T afford to finish. Financing may need to get creative in such situations.

I'm sure it varies by area, but around here adding a garage will only get you about 50% of the money you put in.... especially if you want a large garage to use as a work area. When we crunched the numbers, adding even a small decent garage woudl have cost us ~25k, and I wouldn't have been very happy with it. After looking around, we focused on houses that already had nice size garages. They generally weren't much more than houses without them, maybe 10-15k.

As for RE agents, we bought our house using the seller's agent. I normally wouldn't have felt comfortable with that, but I knew him and I felt he was more than fair. Explained all the pros and cons, and was very explicit about his limitations within the "dual agency" role. We were very clear about what we were willing to pay, and what had to come off after the house was inspected. When the sellers hit a "wall" on the price, he cut his commission to make it work.

When we were ready to buy a house, we started looking at the listings every week, reading up on homes and home repair stuff, and driving around neighborhoods we liked. All the advice saiod the same thing: look at as many homes as you can. Sure, sure... we bought the first house we looked at. lol

Chief downside to buying unfinished homes is financing. The best way is all cash. Without deep pockets, you might be able to get a construction loan to buy the home and later roll the balance into fixed financing when you're finished. You need to talk to you local bank to find out what you can do.

I do not recommend a partially finished house, unless it's all cosmetics, particularly if you don't have some experience buying and fixing.

I have no idea what things are like in Virginia, but in TN and MS, if the foreclosure is judicial (trustee's sale), then the owner has no right of redemption. The primary concern for an investor is liens and back taxes. That risk is mitigated with a title search and title insurance.

Jake, thanks for the insight on the garages. It hadn't occurred to me that a simple garage could cost that much, and be that cheap as an existing feature. In this area, it seems like the garage is a feature that doesn't get added until the more expensive stuff is already in place. If you want a one car garage, you're kind of bought in to granite countertops and 4000sqft. If you want a 2 car garage, it'll be a 1200sqft walk in closet and a wine cellar in the basement. From what I've seen, they don't build 1400sqft houses with 2 car garages here.

turbo6bar, thanks for the experience on partially built houses. I've built a couple of houses with my Dad, so I'm pretty comfortable buying a "fixer upper." At the same time, it would have to be mostly finished -- I'm not doing framing or foundation work, and I can't afford to take 2 solid months off work to get a house into move-in condition. (sigh)

Alright, I'll just start exploring every weekend. Thanks again for all the great advice, all.

Dan

Hey Dan,
My wife and I quit counting at 50 homes that we've personally owned.
I'm a construction engineer that now works in Real Estate marketing and development.
Some good advise here ^, so I'll throw in a couple pennies worth for ya 2...

First, homework is a must.
Get the active listings for the areas you're interested in.
Get the last couple years of SOLD stats for same.
Put it all into a spreadsheet were you can calculate costs per SqFt, cost per Acre etc.
Try to determine the land value of each property; put a column in for the estimated land value.
Deduct the land value from the sold or asking prices to get the improvements only prices.
Do a cost/SqFt on improvements only.
Group similar properties together to get some averages. Numbers don't lie.

A good value on a home imo has ALWAYS been based on replacement value.
Forget about the market, keep your eye on the value!

I know exactly what it costs to build a lot (developer)
I know exactly what it costs to build a home (builder)
I might pay a tad bit of profit in a good economy, but to me a GOOD DEAL as you've asked for means paying below replacement value.

Calculate the cost of the lot you're going to buy. "$x" value.
Calculate the cost to build the home in current dollars "$y" value.
(Costs per SqFt to build vary, but your homework will tell you, you can probably deduct some builder profit?) (I am building here right now for $110/SqFt and most builders are charging $175 to $200/SqFt, so the numbers can be outa whack. I'm happy giving a property $150/SqFt for new home value)
For every year the house is aged, deduct 0.75% deprication on the house cost portion.
"$y" value x age of house in years x 0.75% = amount to deduct for depriciation. ""$d" value.
"$x" + "$y" - "$d" = proper value of the property.
If you can buy for that price or less; its a good deal imo.
I would NEVER pay more!

This is my personal formula buddy, so it's likely to ruffle some feathers, but it's worked for me for over 25 years and wholly frickin molly there's a bit 'o fruit on the trees in my own backyard! Ha, ha. (in other words... don't take advise from people who don't have what you want, again, imo)

My 2cents, Good Luck