New York Renovator

I still think real estate is the best investment you can make in the United States. I don’t care what the doomsayers are saying about the housing market. The brokers are biting their nails to shreds, worried that they can’t get Americans to buy buy buy this year. I read some news story (sorry, I can’t locate it the exact article now, nuts) that the U.S. housing market is at its worst in decades. But then I read local stories from around the country where their housing market (and economy) is just fine.

Fargo, North Dakota, is actually seeing a boon. usatoday.com/news/nation/census/2011-03-16-north-dakota-census_N.htm USA Today reports that the population and economy has surged to record levels. I’ve read similar stories for a few other areas, too.

But here in the Rust Belt, the economy is poor because of TAXES not because of lack of home buyers. The mathematics of trying to sustain a top-heavy public sector by an over-taxed, aging private sector always pans out to be a negative. It’s still too early to tell if any of these states (New York, Ohio, Michigan, Massachusetts, etc) will really change their ways. So people are “voting with their feet.”

But the folks who are left are snapping up the properties left behind (although, in urban areas, the governments are buying vacant properties). I was recently talking with an acquaintance who has– in the last 5 years— purchased a dozen properties. He’s rented them all out and become a landlord. And he’s been so successful that he no longer needs to work his regular job anymore. That’s pretty neat.

As for me, I’m just “small fry.” I like owning one home (I have enough to do around here!) but if I ever got a windfall with money left over, I’d probably invest in real estate. I’d probably rent it out to tenants or even as a vacation home (according to Forbes, vacation rental properties are VERY hot right now, especially in cities). It’s an interesting shift.

So I don’t give a whole lot of weight to the constant nay-saying that the housing market and US economy (which is built on the housing market) is going under. People are just shifting priorities. People don’t need to constantly build build build new houses. I am very much in favor of making do with the houses we have. So the “house-building boom” of the late 1990s is over. That doesn’t spell the end of the world. There’s a WHOLE market out there of renovators, people who want to fix up their old homes and spark the economy in that way. But sales and income taxes are too high in some areas. Let’s see what happens….

I haven’t heard a peep about the housing market from the media. Why do they go black on so many important issues?

Anyway, I recently read an interesting article at MSN Money about remodeling versus moving. According to the article, “keeping up a home for 30 years may cost you up to four times its purchase price.” I don’t know if that’s true. It definitely isn’t true for me– although we got our old house at a deep discount because it was in such poor shape. But we have done 99.9% of the work ourselves, and have saved a bundle of money so doing.

But it seems that the housing market is still a little slow. Eons ago (so it seems), owning property was THE bets investment you could make in America. Maybe that is still true, but the return on investment seems to be a lot lower the past 20 years. Here in my area, Zillow.com recently hailed an Upstate city as the number 1 place to buy a home, based on affordability and value. But the housing market here is “eh.” Our entire local economy is based on refugees coming in from the Slavic and Asian nations.

How’s the housing market in your area? Lots of “For Sale” signs, lots of foreclosures or empty houses?

I don’t know a whole lot about the housing market, but like most other things, I figure such issues are easily understood with a healthy dose of common sense. There’s a blog post story in the Wall Street Journal (yes, I guess even the high-brow WSJ folks blog! lol!) blogs.wsj.com/developments/2010/10/12/are-we-headed-for-housing-armageddon Are We Headed For Housing Armageddon? It’s interesting. In a nutshell, the article describes a new twist in the housing market “crisis”: banks are unable to hold foreclosures due to improperly transferred paperwork from banks to homeowners; Apparently, during the housing boom, some banks were a little sloppy with their paperwork in their eagerness to get lenders. Now that banks want to foreclose for non-payment, homeowners with savvy lawyers claim that the absence of mortgage paperwork absolves them from bank foreclosure. Judges may rule that, due to the absence of proof of original lending agreement paperwork, the banks cannot foreclose on the homes.

Wild!

So the chatter around the water cooler is that this will only prolong the housing market bust. According to Amy Calistri of Street Authority, mortgage debt in the United States fell by $99 BILLION in the first quarter of this year. In the second quarter, it dropped again, half that.

It’s pretty obvious that Americans are not buying new homes! This is good. Seriously. For one, I think our economy relies too much on new construction, particularly when there are billions of older homes that are perfectly suitable for use. All this excessive and new construction causes sprawl, eats up rural resources and creates more debt. I think we should change our attentions away from newnewnew, and begin to recycle the very good homes that exist currently. My home, built in 1855, is a fine example of making something old new again. And every single inspector that has looked at my house raves about the strength of the structure– “They don’t make homes like they used to,” they all say. So all this talk about a “housing armageddon” is, I think, a little overstated. It may be a housing armageddon for the banks, but for the average American and the average traditional American pre-owned home, it’s housing heaven.

Another result of the housing market turned upside down is the apartments industry. Again, according to Street Authority:

But the decline in home buying is starting to trigger an increased demand for rental apartments. Apartment occupancy rates rose to 92.2% in the second quarter of 2010, up from 92.0% in the first quarter according to Reis Inc. Rents are also starting to rise modestly, up +0.7% in the second quarter.

Apartment occupancy rates rose 92% ?!? That’s incredible! This is a radical change in the housing industry in our country. Now, I’m sure not everyone can afford a posh luxury apartment after foreclosing on their homes, right? This opens up an entirely new demographic after the housing boom of the 90s. The “experts” say that the backbone of the American economy is home ownership. I don’t know if this is true– is it? As I have already stated, home ownership requires bank loans. So the backbone of the banking industry is home ownership, to be sure.

I am wary of all the Chicken Littles running around, trying to make us anxious about the “crises” that face us, when in reality, most of the “crises” that exist are for the banks. It’s unfortunate that some folks lose their homes, yes. But as far as ruining our economy– I really wonder if this is true. If anything, Americans are focusing on making more with less (not necessarily a bad thing), and people are looking for apartments (which encourages cities and landlords to clean up and fix up their areas). We are, by nature, a resilient people. We will adapt and adjust to changes. I do not think the housing market shifts constitute the end of the world. Perhaps this is as good a time as any to return to the good old Yankee work ethic:

Use it, wear it out. make it do, or do without.

It’s nice to know that all the back-cracking work we’ve been doing on the house provides manifold benefits.

The housing market slump this year really slowed down new construction. As an owner of an old home in the midst of vicious suburban sprawl, I was actually happy to see the new construction slow down. Something similar happened in the late 70s (the economic downturn) after a period of profligate sprawl (in the 50s and 60s), which led to an increased awareness of restoring and renovating existing homes (in the 80s). TV shows like This Old House and Home Again sprouted up from the ashes of a recession. So recessions and slumps are not always bad news. I think it is better to work with what you have rather than create immense waste in building new. Why knock down a perfectly healthy old home, fill up landfills, clogging up rural spaces, and spend millions building new?? The lost art of renovation may be making a comeback.

#1 A New Addition
According to Dave Ramsey (here daveramsey.com/newsletters/online/edition/real-estate-newsletter-september2010?ectid=elprenl_0910_final_online), one of the best returns on your renovation investment is a new addition, such as a bedroom or family room. Such a renovation could give you an 83% return on your cost! I was stunned to read this. For one, I had thought that most homeowners were going “smaller” with their homes, not necessarily adding more square footage (and more maintenance and expenses) to the house.

#2 A New Kitchen
Additionally, the kitchen has always been the prime return investment winner in renovations. I was surprised to see it fall to #2 in Dave’s list (he said that a kitchen re-do can give you about 72% back). I suppose one of the reasons for the lower grade is because kitchens are one of the most expensive areas of the home to renovate. Yes, I would agree. Although, because we did our own work 100% of the time, our return will be much more than 72%. We spent approximately $13,000 to gut and restore the kitchen, dining room, and laundry room… we also insulated these rooms, which make them more energy efficient, and we also redid the entire electrical system and water supply system for the house. Not a bad deal.

#3 The Bathroom
I am not one to splurge on a bathroom. I like it to be a “get in, do your business, get out” kind of room. Dave says that renovators can easily allow the bathroom remodel to “get out of hand.” Appliances and fixtures ARE very expensive, and I guess people are tempted to install things like saunas, whirlpools, towel warmers, etc. I don’t like such luxury, so when we remodel our bathrooms, I don’t expect these to be a problem. But renovating the bathroom came in at #3, which homeowners recouping about 70% of their investment. That’s really still a terrific percentage!

One very important thing to remember when renovating is KNOW YOUR COMMUNITY. If you live in a wealthy area of McMansions, go ahead and build that vaulted wine cellar. But if you live in “middle America” or a small town, you will never recoup your investments in the luxurious hot tubs, custom-made concrete countertops, and silk draperies. I tried to stay as basic as I could with our home. It is so easy to go overboard, especially when the “experts” and magazines are all enticing you to spendspendspend on their expensive products. I tried to keep a balance of getting products I really liked, products we really needed, and staying within the middle-income class of my region. Even so, I do think I splurged a little too much. :-p

And I am gratified to see that all our blood, sweat, and tears actually has value in the community and economy. I knew that our renovations would not only bring us more comforts and energy savings, but that it would boost our home’s value and possible return investment should we ever sell. It’s nice to see this confirmed.

I’ve been interviewed by a realtor in Cleveland, Ohio, Cecilia Sherrard! She runs the You Should Own website. You can go to the site and read the interview here.

I have been reading the New York Renovator Blog for about a year. The updates are filled with humor and reality. I’ve enjoyed following this blog and the work being done to this home in New York. There are many older homes in the Cleveland, Ohio area, and many people buy these old homes to restore. I’ve witnessed amazing after shots and some of the work is stunning. If you’re thinking about rehabbing a century home, you’ll want to check this blog out even if you just need motivation. Also, make sure you read her tips at the bottom of this article. Yes, it’s long, but I think you’ll enjoy her tips and stories. This is my interview with Mrs. Mecomber who is truly a vibrant and energetic mother and wife. She’s now also… a renovator.

I was absolutely floored when Cecilia approached me for an interview. But she said that Ohioans are experiencing much of the same things we in New York are experiencing: a slow economy, high taxation, loss of manufacturing jobs, a slumpy housing market. Lots of us in the Rust Belt states have been unable to buy spanking-new homes (we’re just too busy buying new homes for our politicians, you know) and renovation has become “new again.”

Restoring older homes is not easy. But it is wasteful to junk an old house if it can be restored, and especially if it is less expensive to restore it than to build new. The population booms and busts have left our towns with cavernous lots full of empty houses, overdeveloped acres, and a mess in suburbia. I am one of many rooting for the new class of renovators here in the Northeast!

Thanks, Cecilia, for graciously sharing your webspace with my answers.