Slight change of plans.

Where we started:

So like I said, the plans that came with the house were VERY good.  And they really added some good value to the house while keep the amount of work to a minimum.  BTW the architect is Stuart McFeely who is a great guy.  If you're in Seattle I can definitely recommend him.  http://www.stuartmcfeely.com/

I don't think I posted much about the plans so here:

Basement:

Not much changing there.  We're actually not doing the full family room and basement there.  It's just empty now, but I'll do the family room myself later.

Main floor:

The kitchen layout is changing a bit, the peninsula is going to be great.  You can't see from the floor plan but the dining room roof is changing to let in more light.

Upper:

Heres where the big changes are.  The dormer you can see is added in the upper right, along with a bathroom and closet.  After getting into the space, we decided to flip things and put the bathroom and closet on the OTHER side of the house (left in the floor plan).  This gives us a higher ceiling height in the bedroom. We also noticed there was a view of the water from the dormer!  More on that later.  

To give a better idea of what it looks like here's the side view:

Note the windows above the dining room and the dormer upstairs.

The other thing that's changing in that side view, is the front side dormers.  We're also going to be doing a little peak above the door.

Framing in the additions:

Canright Construction made some awesome progress this week.  

Before:

After:

Inside the dining room:

Inside the upstairs dormer:

Demolition Man

Recap of the last two months:

After two months of coordinating and working with banks and contractors, the house was closed, and the keys were in my hand!

Greg, my contractor at Canright Construction and I got into the house right away and starting tearing things up.  

Tearing up:

The house definitely had some issue.  Nothing we didn't expect from the inspection but it was interesting getting in there an being able to tear up things.

Here was a section where the roof was leaking along the dining room wall.  

Looks a little scary for sure.  But luckily the inspection showed it was localized.  And that whole wall was coming out for a sliding glass door.  

More pressing was the question of if there was Asbestos in the tiles.  Luckily there was no asbestos insulation.  Asbestos sounds scary, but really the worry is "friable" asbestos, or if you're worried about breathing it in.  Solid tiles with asbestos in them are less of an issue.

BTW gorgeous bathroom right?  Pink tiles are definitely my thing.  Either way, there was no asbestos insulation which is good.  So to test the tiles, you take a piece of each tile type, and take them to be tested.  If you find tiles with asbestos in them, you have a few options:

1. Hire a licensed asbestos removal service to remove them.  This is expensive.
2. Simply cover the tiles with plywood or whatever flooring.  Remember the danger with asbestos is breathing it in, so if they're solid tiles and are covered, it's really not dangerous.
3. Remove them yourself as a homeowner.  Your contractor can't do this, but you can.  They must be removed, double bagged and disposed at an appropriate facility.  

So guess which one I did?  #3 of course!  I wanted to help out with certain aspects of the construction so this seemed a great place to start.  After getting tyvek suit, gloves and mask, was all set.  

It took an entire day, and was pretty back breaking work, but took care of all the tiles.  

More pictures from the house demo:

While I was taking up the tiles, the contractors were tearing up the rest of the house.  

Financingly Speaking...

Recapping the last post:

I decided to make an offer on a fixer upper house in Ballard.  I was looking for something of a project.  The interesting thing on this house, was that it came with plans and permits for doing the work.  Here's basically what needed to be done on house:

Good:

• The house was built in 1946, and seemed structurally sound.
• The furnace is brand new and converted to gas.
• Same with the water heater.
• Huge yard.
• The plans for updating it were great.

Bad:

• All wiring needed to updated
• Same with the Roof.
• Same with the plumbing.
• Same with the Kitchen.
• Basically it was an estate sale with plenty of deferred maintenance.

Like I mentioned, there were plans and permits for doing all that work I mentioned above.  Going into putting an offer on a house and seeing all that work to be done can be a bit daunting.  So keep an open mind.  If you have a good contractor, (and if you're looking to do a fixer, you should start that before making an offer) you can walk through with him and get a "spitball" estimate for the work before even making an offer.  This can be really helpful, you know what you're getting into.

Anyway, back to the house...

Here was a bit of what the plans were laying out.  

As opposed to now:

So the roof needs to be replaced, might as well do that dormer to make a bigger master bedroom, and bath right?  One thing I learned selling my previous house, the master bed/bath is a must for many buyers.  And since the roof is off, might as well update the wiring and plumbing as part of this too right?

Anyway after running the numbers, the amount of work + the buying price of the house made sense from a value proposition.  We made an offer and it was accepted by the seller!!!  Now we just have to deal with financing.

Financing a fixer:

There's a few options when financing a house like this.  Some are easier than others.  When financing a regular house, the bank will appraise the house, which they might find some things wrong that they require to be fixed to approve the loan.  For example, the house has to have a stove, heating, good wiring, a roof, etc.  Because of the nature of the house they were sure to complain about a few things.  So the other options were:

1. Do a conventional loan with an "escrow holdback".  This means you would put extra cash in the escrow account, to fix the issues the bank has.  If there were minor issues this is a great idea.  However because of the extensive repairs this wouldn't work here.
2. FHA 203k, Homestyle remodel loans:  These are government backed programs where the bank finances the buying price and the repair price.  You have to submit plenty of paperwork to the bank outlining the plans and what the work will cost.  Most licensed contractors should be able to handle this.  As the work gets done, the bank pays out to the contractor (you the homeowner gets to sign off the checks as well).  
3. Washington Federal rehab loans:  Some banks have their own rehab loan programs, Washington Federal bank is a local one that had a good one.  It's very similar to the FHA program above, but had a few less fees, and didn't require mortgage insurance.  Also, talking to a few contractors, they said WA fed was easier to work with.

I decided to go with Washington Federal.  Normally the closing period after you make an offer on a house to closing a loan is 30 days.  With a rehab loan you need 60-90 days to close.  There's a few things that take time that the loan requires.

1. Plans and permits.  Luckily like I said, the plans and permits were already done when I made my offer.  If you have to do these yourself you'll need more than 60 days.
2. Finding a contractor.  If you don't already one you want to use, you'll interview contractors.  I would suggest walking through the house and getting verbal estimates from at least 3.  More important is talking to contractors and getting a feel of how working with them would be.  I settled on Canright Construction who were recommended by a friend, and came in with a great price.  Also the owner, Greg, is an awesome guy who I immediately trusted.
3. Getting the estimate from the contractor.  After settling on who you want to use, you need to get a complete estimate from the contractor, where they outline on a spreadsheet all the costs.  For example this will say "1000$ for installing carpet".  This is going to be submitted to the bank for the bank's appraisal.  Usually the bank will require info on the contractor like license, insurance, etc.  They want to make sure the contractor isn't going to disappear halfway through the project.
4. The bank's appraisal.  Basically what the bank is going to do is figure out what the house is going to be work AFTER the construction.  They use the plans and construction costs to figure this out.  So then you have the price of the house, which is calculated as your purchase price PLUS the construction cost.  Then they have the appraisal which tells them what the house will be worth after.  They use the lessor of these two numbers to base the loan to value ratio off of.  They also want to be sure the value after is worth more than what is going in.  So if they need to the loan to value ratio to be 80% (this is normal for loans if you want to avoid mortgage insurance) you need to have the loan be 80% of the house + construction.  Here's some real made up numbers for example:  Let's say you buy a house for 300K and the construction is 100K.  If the appraisal is for > 400K, then the loan to value will have to be 80% of 400K or 350K.  So your down payment will have to be 50K.
5. Then closing the loan.  It sounds like alot.  It was a bit of work, especially interviewing and coordinating.  Luckily Canright did a great job of putting together a great plan and estimate and helping with the bank.  So after 60 days, we closed, and could start construction.

Next post, starting construction.

Backgroundish

Back in 2010, I bought a house.

Cool story.  Quick plug for Redfin.  If you're like me and willing to do a bit of your own research and understand what you're doing, Redfin is the best.  The agents are great at negotiating and very efficient.  And did I mention you save money?  Think about it, a traditional agent has little incentive to get you a better price, since they get a higher commission with higher selling price.  Freakanomics did a good study on this.

So with Redfin, I found a nice 4 bed 2.5 bath in the Ballard neighborhood of Seattle.  It was a good deal at a low point in the market.  The house was originally built in 1912.  Recently the lot was split (you can kind of see the townhomes in the back yard) and the house was updated.

There was still a few things to work on, I redid the windows to vinyl, updated the countertops, did some painting myself with friends:

And redid the porch and paint trim.  Well the Seattle real estate market had turned around quite well by 2014.  Especially in Ballard we were seeing houses having bidding wars and selling for more than the asking price.  I decided to take advantage of the market and take some equity out of the house.  And I was looking for a new project as there was limited other things I could do on the house to improve it.  There actually was a few options, like keep the Ballard house and rent it.  But I was looking for a fixer project, so wanted to have the extra cash around to use.  

Of course that same market that was leading to getting a good price selling my old house, was making the buying market equally competitive.  Luckily I think the buying population in Seattle is looking for more of a finished product, not as much a fixer upper.  I looked at a few houses that needed a little work, made a few offers, but was outbid.  

First piece of advice for looking at fixer uppers: 

Get a good inspection!  Know what you're going into.

I used Pillar to Post inspection.  They were on the higher end of prices, but incredibly thorough and complete.  Also if you don't get the house they will refund a bit.

So after looking a bit I found this house that I had actually driven by and passed over.  It was a bit farther north in Ballard close to the Salmon Bay Park, and close to a few of my favorite places, Delancey and Essex, and the Waterwheel.

Looks gorgeous right?  It definitely needed work.  But there was potential there!  And the interesting part is that it came with plans and permits for an extensive, but not complete tear down of a remodel.  After a bit of research and running the numbers on what it would be worth after the remodel, I decided to make an offer.  As an aside... how do you decide the "value" of a house?

Here's a simple metric I came up with:  House Price / Zillow value = house value.

 The nice part about this is that Zillow estimates can be up or down, but they are generally consistently high or low for a neighborhood.  So if you compare the values for a neighborhood, the number computed above should tell you if your house is a good deal compared to others.

Next post... financing and pre closing on a fixer