Which is a better purchase? A home that needs a lot of work for $90k or a home ready to be moved into at 150k?

Question

I'm in the process of purchasing a new home. The home I'm currently in the process of buying I can get for $90k, but there's a ton of mold in the finished basement, it needs a new roof, and a hole on the side of the house (it's in the attic, so you wouldn't know it was there unless you were inside the home. Yesterday, I saw a home for $150k, that has been updated and certified by the city in good condition.

I already have been preapproved for a home loan at 125k, but that's b/c I elected to include my wife on the application (who makes more than me and her credit is just as good).

One more thing, the 90k home has a 3 car garage and is on a bigger lot (not much bigger). It has the potential to be the better home, but is it a good idea to get a home improvement loan right out of the box?

Answer 1

ALL of the people who first responded are DEAD WRONG and here is why. NONE asked if you have any construction experience. NONE asked if you have any project management experience. NONE asked if you had any experience appraising houses. NONE asked what the REAL NUMBERS were. ALL just shoot off their mouths giving advice that was not thought out and did not take all factors into consideration.
BEFORE you decide which house is the better purchase YOU need to have REAL numbers to compare. FACTS and FIGURES are what matter in situations like this.
FIRST; call 6 to 12 construction companies and have them INSPECT and give you a bid on repairs needed to the 90K house to see what the REAL costs of rehabbing it are and not wild guess by somebody who does NOT know the location of the house, costs for labor in that area, taxs or regulations for rehab in that area. Rebuilding a house in LA, CA is GREATLY different that doing the exact same work on the exact same houses in Detroit, MI. Once you get these estimates and checkout the customer satisfaction of the companies giving them to you; then you need to see what if any of the work you can do, what that work will cost you to do, the timeline on the work being done, and see how much you can lower the costs of rehab.
I have NEVER seen a city "certify" a house as being in good condition yet NOBODY questioned that in your post so just who in the city did that? How was the inspection done? If you are approved for 125K then how is it possible for you to buy a 150K house PLUS closing costs, plus deposits, plus moving costs?
Once you get the TOTAL costs to make both houses ready for living in and can realy compare total cost, THEN you need to compare cost of living in each, cost of commuting to and from work for both you and your wife, taxs on each property, crime rate in both neighborhoods, any HOA fees on either house? age of each house, appreciation of each house, population growth , schools, resale numbes, and more of each neighborhood to see what it will cost you to buy, rehab, move into, live in, and manage each house.
Once you have TOTAL cost of living and owning each house for 5 years, and a projected number of what each house will be worth in 5 years THEN you can decide which is a better purchase.
Or you can take the easy way out and take the advice of the first 2 or 3 offered here and then complain in 6 months when you find something that wasn't thought about.

Answer 2

Personally I would buy the 90K home. Bigger lot, more space to expand if wanted and make own improvements. The other house wouldnt give you as much leway.
The mold in the basement can be treated and is not all that hard to get rid of. The roof - I would see if its still under warranty if not thats 5k to 10k to invest in the house. At the price you are getting it for thats not a bad investment. The whole on the side of the house can be fixed easily and for about 30 dollars if you got to home depot and do it yourself.
If you get the 125k loan approval and buy the house at 90k and with closing costs at about 5k (95k) you still have 30k to improve your home.
Which is still 25k less than the other house which was not your first choice, has less space and is on a smaller lot which gives you little to no chance of expansion or making the place more to your liking.

You don't want to buy the 150k house which is in good condition to only find that it has some problem areas that are going to need money and attention after you have paid this this high price and may need to take out more money to make those extra repairs you werent expecting.

The 90k house you have a cushion to work with and you already are expecting to fix it up - so your not gonna go gunho on your money and spend it on something else.

So with all that said buy the 90k house fix it up and be happy.

Answer 3

I'd stay away from the mold house unless a reputable home inspector is confident that the issue is not too bad. I've heard that mold can be a serious problem if it's inside the walls. Plus, do you really want to wonder what kind of spores you're breathing in your home?

I'd also advise getting a home inspection on the $150k house as well. I had some friends who were going to buy what looked like a beautiful home. They decided to get a home inspection and it turned out that the roof would need to be replaced in the near future. They were out a few hundred dollars for the inspection, but they didn't buy that house.

Answer 4

I would go into this assuming the better house. If the 90k the mold in the basement and new roof are going to be very expensive fixes. Anytime you buy a home there is going to be work that needs to be done that you don't think of at the time of purchase. That 90k home could easily turn into 175k home depending on the rates and amount of work that needs to be done. I'd go for the 125k one. That's just my opinion though.
Unless you are an expert handyman and can do the repairs yourself.

Answer 5

I'm going to take exception with the others here, and advise you to at least check into the $90K home. Before you make your choice, ask the seller of the $90K home for permission to get several estimates of costs of repairs needed to bring the home into proper condition. You will never know unless you inquire about it, and you might be surprised to find out that the costs are not as high as you may think they are. (Or you may find conversely that the costs are downright prohibitive.)

In either scenario, the problem I see here is that you are not approved for enough money for the $150K home, and you may not get enough money to properly repair the $90K home.

If you elect to forego the $90K home due to costs, then also avoid the $150K home and start looking for a $125K home which is in good condition.

Ehhh.....I just saw Jerrold's reply, and he's right on the money, even if he was a bit direct in telling you what's going on here.

Answer 6

You cannot afford the $150,000 home. The $90,000 home has potential. I would get an appraisal and a home inspection. You need to have the appraiser determine the opinion of value "subject to" the repairs being completed. He will be more accurate if you provide him a copy of the inspector's report. This will give you an idea of the property's value when you are done. You will also need to determine your actual costs and how you are going to complete the repairs. Obviously, you will need a professional to abate the mold. Mold is gold, I would look into paying less for the home than the $90,000 being asked. Determine what skills you can utilize to cut costs by doing repairs yourself. I will leave you with some advice on buying new versus older needing repairs. You always make your money when you buy. It is always a good idea to buy a property with equity already in it. This is practically impossible with a new home.

Do not get a home improvement loan if you buy the existing home unless you can borrow the money you need and still have at least 30% equity in the home. When I buy rehabs, they need to be 70/30 debt to equity ratio WITH all repairs completed. It is the only way to make your property an investment. You also need to include your wife in this. If she isn't on board, you need to buy a new home for less than the $125,000 you qualified for. In fact, you need to have a monthly payment that is 25% of your TAKE HOME pay.

Answer 7

To answer the title question, which is better depends on the cost of repairs to the 90K home. If you have estimates on the work for the 90K house and they come to less than $60K (also allowing some wiggle room for projects to go over budget – they usually do) the 90K is a better deal, but I have no clue what the kinds of repairs you need might cost in your area. If you’re under contract on the 90K house, hopefully you already have your estimates. I bought a fixer upper five weeks ago, and we got estimates for everything we thought we might fix during the time that we could still get out of the contract.

Answer 8

I would definitely run as fast as you can from the 90K "mold house." Here's the deal: mold remediation is an iffy proposition at best: it's expensive and it often doesn't work. Getting rid of existing mold is (relatively) easy, but solving the problem totally (so it doesn't come back) can be very hard.

Also, new roofs are not cheap, and a hole in the attic could be expensive to fix, depending on the size and exact location.

Answer 9

If you can handle the repairs yourself and save a bundle then it might be worth the extra effort. On the other hand if you will need to hire professionals for the work you might not be saving a whole lot and it might not be worth it. And how patient are you and the wife when all these repairs are in process? And don't forget the home improvement loan would be at a higher rate of interest and with the mortgage you might be dishing out more per month than if you just got one motgage for a home that doesn't need repairs.

Answer 10

That depends on your meddle. I bought a fixer and could not be happier with the results. I did all the work and am good at it, however. Mold was not an issue for my home and is probably one I would not want to deal with.

Location is such an important part of valuing a property and all homes eventually need work. If it is a long term purchase, choose the property and not the house. No reason you cannot continue looking at other properties as well.