PA real estate question

A real estate mantra my uncle and father-in-law both chanted was: Buy the cheapest house in the best neighborhood.
It sounds like youare doing the opposite. Be careful, and good luck.

 

That is the problem, if it is above any other house then there is no comparable house. If 250 is comparable without the upgrades, the appraiser will factor the value of the upgrades.

It sounds like the owner tied alot of his money into it and is trying to recoup 100%. Factor in the extras (furnishings) with what an appraiser says, and go from there.

 

although I know alot about UK real estate, I'm not entirely sure how much of it translates to the US.

That said, the best advice I'll give is: look into how much it would cost to bring a property that is comparable in terms of size, and location up to the same standard (in terms of size, location, quality and features) as the one you are looking at. Where there are no comparable properties, this is usually the best rule of thumb to use - from your post, it seems as though the property you are looking at is already above the accepted 'ceiling price' for the area, so you need to ensure that the premium is justified. However, in many respects, there is no formula to apply - a house is only worth what a buyer is willing to pay for it, and only you can decide whether that house is worth that price for you - IMHO what someone else is willing to pay for it is not really the issue here - the value you place on the work done and the features provided is what matters.

 

Never buy the nicest home in the area if you are hoping to realize the best asset appreciation and ROI on your money. The nicest home is always dragged down by the homes surrounding it. As you indicated that it is a new subdivision, that is even more true. Sometimes you can buy the nicest house in the neighbourhood and make good money with it if you are buying the first house in a neighbourhood undergoing a rejuvination/redevelopment. They need to sell the first few houses at a discount in order to get the rejuvination/redevelopment going and make their profits on the subsequent sales. That isn't your case however.

In your given scenario you won't be making money on your purchase, but you may be able to mitigate your loss a bit on resale if the right market conditions exist where you are buying. For instance, where I live house prices have been increasing approximately 5% per annum over the last 8 years. That performance is not typical and your area may not be experiencing something like that. Contact some local realtors, chamber of commerce, city hall etc... and see what your new area is doing vis a vis housing pricing trends. If your new area is trending upward and the forecast is for that trend to continue, while you won't likely gain any equity on the asset appreciation, the asset appreciation may help you cover some of the $100K differential should you have to list at a lower list price in 5yrs time.

For instance, you buy for $350K today in a market where average homes are $250K. You are overpaying by $100K (granted for extra features but extras rarely pay off when in the nicest house in the neighbourhood). So if your area is experiencing a good real estate market and seeing, let's say a 3% per annum increase in housing prices, in 5yrs time the average house price in your neighbourhood will be $289,818. At 5% in 5yrs the average house price will be $319,070. At a 3% per annum increase if you list your house at market price and do not charge a premium for the upgrades, you would be out $60,182. At a 5% per annum increase if you list your house at market price and do not charge a premium for the upgrades, you be out $30,930.

Only you know the calibre of the neighbourhood and how much superior your house is to the others in the area. But at 3% annual increase you would need to list your house for $60,000 more than market to break even on your purchase. $60,000 over market might be a tough sell in a middle class neighbourhood. If your area is closer to a 5% annual increase then you would only need to list your superior home at $31,000 over market. Would some buyers be willing to pay $31,000 more for a far superior property? Quite possibly.

Naturally, you are totally foregoing any increase in personal equity and net worth by virtue of the asset appreciation in your house.

Again, all of the above assumes that the market you are moving into is experiencing any kind of uptick in market values for houses. If the area is stagnating or seeing declining market values then your potential purchase is all that more unattractive as you will not only be out the $100K but any potential decrease due to asset depreciation.

And of course, the final addage I'll leave you with is this: There is a buyer for everything at almost any price. After all, you're considering the purchase right? So who is to say that in 5yrs time there may not be another "you" out there willing to do exactely the same thing? It just might take a lot more time to find the next "you" than it would to find a buyer for the house down the street that isn't as fancy and you have to factor that in to your decision as well in case you ever need to "sell fast" for whatever reason.

Whatever you decide, good luck!

 

No one should expect to get 100% of their upgrades back at sale time. Ask your agent what the normal return is on improvements in that area. Also, I used to live in Jersey and seem to recall that on the EC property taxes are higher than here in CA. Might want to ask about that, esp. since you're looking at 100K higher basis.

 

Casey.

Reading is a good stable market, less likey to run up or down with a bigger market like Philly.

That being said, and extra $100K on a $250K house is a 40% premium. Push the number up for comparison, would you buy a $1.4MM house in a $1MM neighborhood?

Corner lot isn't necessarily a plus. Swimming pool in the NE US is not a plus for sure. Gonna make the property harder, not easier, to sell someday.

If you love the house, work the guy down. How long has it been on the market? Just because he wants the extra $100K doesn't mean he's gonna get it. Offer him 80% of the asking price. Now you're at a more reasonable number, and maybe not inside out down the road.

If he's had the property on the market a long time, try for some owner take back financing at a reduced interest rate with a 5 year balloon. That way his loan expires at about the time the next interest rate cycle hits, and you can save some bucks along the way.

$350K is a fair amount of miney in the Reading market. There are bound to be some other properties at that number that are as attractive.

I live 45 minutes away, I have a little familiarity with the area.

DM

 

It sounds like you know what you should do, but you don't want to do it (classic head vs. heart). Are similar homes (minus upgrades) available in the same neighborhood? If so, you'd likely be better off buying one of those and adding any upgrades yourself. You'd get in at a much better price and not pay someone else a premium for putting in the upgrades.

The rule of thumb that I was always told: never own the cheapest or most expensive home in a neighborhood (for financial purposes). Good luck.

 

+1000 on DM and stuff.

Find another house.

I have seen this mistake made more then once by west coasters moving to PA.

You can get A LOT of house for 350,000.

Be very picky. 350,000 is well above the mean here. You should be getting something nice with a decent amount of land or a VERY LARGE MCmansion type house(that's the easist way to describe them) if that's your thing. I have a friend in reading and 300+ should be in the best neighborhoods in the best school districts.

Pool is a big negative.

BEAT DOWN whoever you do offer. Houses do not sell fast. TAXES will likely be double or even triple what you are used to.

Houses don't appreciate much in this state.

 

This guy will be stuck with this place for sure. Just wait him out and tell him that you are concerned about comps and properties ability to appraise This guy needs a dose of reality in a tanking market. The only way that will probably happen is time to pass by and prices to continue down.