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Buying a Vacation/Retirement Home (Part 3)

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[The following is the third part in a series about my adventures to buying a vacation/retirement home. It may make more sense to read it after Buying a Vacation/Retirement Home and Buying a Vacation/Retirement Home (Part 2). There's also a prequel at Time to Buy that Vacation/Retirement Place?.]

For those who elected not to read the earlier two parts, I'll give a brief recap. I feel the time is right to buy a home. There's a dip in home prices, good mortgage rates, and the slow winter market, which usually has fewer home buyers. In part one, I looked at how the majority of the homes in Newport, Rhode Island were old, making it very difficult to manage as a rental property from San Francisco. In part two, I explained how we saw a couple dozen places over two days and narrowed down the options to two.

With only two homes on the short list, we decided to start day three with a search for more potential homes. Our agent sat down with us as we attacked MLS. I am ruthless with a decent search engine. I found that you could add some criteria in an advanced-type search. I found 2 criteria that really helped cut through the clutter. I looked for homes built after 1980 and with a listing price to square foot ratio below $140. This gave us about a half dozen places, but only one was enticing. I gradually raised the square foot ratio until we had about 6 more places that looked promising. We had a couple of left-over places from the previous day scheduled. It was time to hit the road and check out the 8 places.

We liked both of the places from yesterday. They were nicely updated and had almost everything we were looking for. The problem was that they were asking $260/sq foot. We'd have to talk them down 30% to get them competitive with other places we were looking at. My wife really liked them, but I couldn't see the value in them. I don't believe in signs, but one of the two was on lot 666, had a cemetery behind it, and the owner died young. Nonetheless, my wife coerced me to add them to the short list.

From my bargain sort, we found two more places that looked promising. One was a 5 bedroom behemoth. My wife described it as the Barbie Dream house. I was equally smitten by it. At a price just under $200/sq. feet it was one of the best bargains we've found too. The search would be over and we'd go after that house, but it is priced little out of our price range. We could try a low-ball bid in our range, but it wouldn't stand a chance. We thought it better to put it on the list to review when we got back to California and checked our finances.

The other house that made the list is probably the most interesting of all the houses we've seen. It was the biggest house we saw. At an asking price of under $130/sq. foot it is one of the best bargains on the market. We expected it to be a mess on the inside, but having been built ten years ago, the inside was quality. So what's the problem? It is very much like the Winchester Mystery House. That's a house in San Jose that was built by the widow of the man who invented the Winchester rifle. She lost her husband and her daughter. Depressed, she went to a psychic, who told her that the spirits of those who were killed by the rifle caused the deaths. The only way she could avoiding being next on their list, was to build a house for them. With 20 million in 1860 dollars, that's exactly what she did until her death. She built stairs that went nowhere, doorways on the second floor that went outside - a nice 40 foot drop. The house was never "finished". And that's kind of what this Newport house is - the couple divorced before the house could be finished. The wife won it in the settlement, moved to California and has been renting it out since. This house has the same door to nowhere in the master bedroom. I imagine it would go to a balcony... if one built a balcony. It has an in-law apartment - kind of. One side of the house has a bedroom, living room, on the bottom floor and a kitchen and dining area on the floor above. For some reason they never connected them with a staircase. There's a place where a staircase could be, but it simply isn't there. Then there's the deck with a railing on one half of it - clearly unfinished.

I see great value in this Winchester Mystery House. It is in a great location and at the end of a dead end street (great for kids). It has a solid rental history, probably due to it's large size. The rent would come extremely close to paying the mortgage, taxes, and insurance. If we actually spent a few thousand to finish it, I could see a scenario where it could be flipped for quite a bit. My wife doesn't have the same view of this Winchester Mystery House. She has something that she calls the "cup of coffee" test. She tries to imagine herself in the home, drinking a cup of coffee (picture a Maxwell House commercial with the sniff and everything). This house fails that test. I can't imagine living in such a big place myself. With just the two of us, what would we do with an in-law apartment?

When my wife mentioned the coffee test, I realized that this house search wasn't going to be as easy as I thought. The house has to be a good value for rental purposes... and we have to like it enough to live in it some day. Finding a place that satisfies both requirements is tough.

However, we did find a place that was worth putting an offer. More on that tomorrow.

Last updated on February 18, 2011.

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