Too Much Time

For the first time, during this whole dream, I'm feeling a bit down.  Not because of the price, or the work that has to be done, or the regulations I have to figure out, or the approvals I'll have to get.  The problem is it all adds up to time.   While we were developing our plan today, Nikki told me that she thinks I'll be lucky to close by the end of the year -- and that's assuming the sellers agree to my measly offer quickly and we get all forms and conversations with the city, the contractors, the mortgage broker, etc. etc. moving right away.

Not that I care so much -- I have lived in smaller spaces than this cute apartment for longer times -- but how fair is it to Kanha?  She's about to start 5th grade - she's going to have homework to do and friends that want to come to visit, and, believe me, there's little space for either in our three rooms, plus unheated office area.  This is a girl used to doing cartwheels in the living room and dance routines in the kitchen -- better than TV! -- how long can she live without?  I realize I could move into a bigger space while we work out the purchasing details but that is even more horrifying to me -- another move?  More boxes, and stairs to climb, and apartments to clean, and bodies to crash?  I don't think I can do it but once more, for the final, hopefully, dream house.

In any case, we did come up with a plan.  Nikki's going to write up the details of what has to be included in the offer, I'm going to turn it into a loving, plea-ing letter to the sellers, and she's going to approach them with it and a verbal offer of $500K.  And the laughing will begin.  

Climbing Mountains

Back from vacation, back at my desk (such as it is, on the little "dining room" table in my tiny  - hopefully very -  temporary one bedroom apartment), back in the hunt for the huge and creaky old house with the view.  And still no offer on the table from anyone else.  Me thinks the other real estate agent was stretching the truth a bit.  Or -- I'm feeling kindly this morning after my week filled with sunshine and laughter and very few electronic devices --  perhaps she was misled by her client.  In any case, it seems like better news for me -- perhaps there is no longer anyone else in line to immediately top my measly offer.

So I'm ready to take action -- might as well put my little offer on the table, absorb the incredulous response, the derision, the hilarity, the disdain, from the sellers, let it all run off my back, through our mini-apartment, down the hill, into the Fore River, and, then, wait.  Maybe, just maybe, the offer won't seem so laughable over time.  (Seriously -- I can hope.)

But before action, we need more info, specifically from the city of Portland.  And hurray, today, finally, Nikki heard back from them (Note to self:  build lots of time for their approvals into the offer conditions) and the plot thickens further, which is no longer surprising to me.  The person who wins this house will have climbed the most mountains of bureaucratic red tape among city governments, banks, mortgage companies, inspectors, code enforcement officers, architects, builders, uncomprehending real estate agents, overpromising real estate agents, lovely elderly artist sellers, etc. etc. etc.  

Today's bump has two peaks:  first, it turns out that "my" beautiful old house is known to the city as a two unit, not as the -- whoops... --  FOUR unit the elderly artists have it structured as.  Apparently some time during their thirty years of ownership they exercised their artistic skills on a large 3 dimensional wood-based "canvas" and cut and pasted a few walls and appliances, an effort that produced two more spaces but not the inclination to tell the city about their creation.  Oh well, guess we just fixed that problem.  

Fortunately that bump should have little impact on me as my mortgage guy has pre-approved me for a loan that doesn't take into account the rents that will be coming in on these additional fictional units from the city's POV.  (Not that I could actually afford this gigantic mortgage without the rental unit income -- didn't Congress just fix this problem??  Oh well, it works in my favor this time around).  However, bump number two is a little larger, causing a little more distress to my time and pocketbook.  Apparently the city is open to the possibility of me taking a big chunk out of the 2200 square feet of commercial space and adding it back into the owner's unit in order to make the the residential mortgage equation work -- i.e. shrinking the commercial space to less than 25% of the house's full 5700 square feet.  Terrific!  I'm scurrying up over the hill, hands clapping wildly.  

HOWEVER -- whoops, I'm starting to slow down... -- prior to making that determination, they must see an architectural plan -- hmm, architect, that word seems to flash big $$$ in front of my face -- that lays out exactly how the commercial space will be reconfigured -- I'm slowing to a walk -- and details how it will meet the city's code -- I think I just tripped over the bump and my butt has hit the ground.  Yes, this can happen after I've agreed on a price with the sellers but it won't be approved until AFTER the plan is developed and, of course, paid for (to those high-priced architects flashing those dollar signs at me).

Still, I'm undaunted.  I'm a girl who can leap over hills, hike up mountains, scale cliffs -- well, figuratively at least.  I know how to ask the right questions, find out details, follow up, organize and prioritize, find the right people to do the right work, budget and scrimp and save -- I've done it for years for pay on projects that still, strip, and stop my passions so it is only right, even wise, to do it for something that thrills me.   

Nikki and I meet tomorrow to cook up our plan.  I can't wait to see what it is.    

Looking Out for Me

Now it's Thursday and the supposed other buyers have not been heard from and the seller's agent has headed to Acadia for vacation.  So all the drama appears manufactured, which is neither unexpected nor upsetting.  The calmer and cooler we can stay the better deal I'm likely to get is what I think.    

Unfortunately I'm not sure my real estate agent Nikki and I are on the same page.  She's made it pretty clear she doesn't think it's smart for me to buy this house and every piece of feedback she gives me is twinged with the negative  - we have to get the electrician and the city and the structural engineer and the inspector in before we can agree to a deal, it's uncertain the city will approve the shrinkage of the commercial space, we'll never know what other offer comes in so we won't know what to offer.  Sometimes I feel her goal is more to protect her own position -- cover her ass, as it were -- than to help me buy the house I want to buy.  Which is a bit counter-intuitive since she'll only make money if I buy something.  When it comes time to make the offer, I'm going to have to give her a big pep-talk about making sure she's presenting things in the best way possible for me, and not letting her personal feelings seep into what she says.  I appreciate that she thinks she's looking out for me, but I'm not sure she knows me well enough to see what to look for.  

Still need to know whether the city will approve the smaller commercial space -- but after that, I think I'll put an offer on the table -- $525K?  Or even less?  

Best Offer

On vacation this week, in another house with a view -- my parents' place on Kezar Lake in Lovell.  Sunny, warm, green leaves, a flat lake, hanging out with my family who I really like -- great time so far.

In the meantime, back at the other beautiful house in the big city, another offer is being threatened, although apparently not until Wednesday, which my advisors here (my niece, Becky, and her boyfriend, Jonathan, who recently bought a condo in Cambridge) say sounds fishy but I guess the competition is on vacation until then.  So what to do?  I just found out from Nikki that if we make an offer in response, we never know the content of theirs.  So all I can do is make my "best" offer possible and see what happens.  I suppose that is a bit freeing -- you let go of the consequences - very Zen.

Everyone -niece, boyfriend, Nikki -- is recommending I offer no more than $500K but I seriously doubt that that's going to do the trick.  But what if it could?  And is it worth the gamble?  For some reason, $525K is seeming more saleable, but am I being a fool?

Becky also suggested that I have to make other terms of the offer very appealing -- reasonable downpayment, quick closing, and my story -- that I love the house, want to live in it, bring my daughter up there, create new memories and maybe even a new artist.

I think Becky is right -- make the offer the absolute best, and then let it go.....

Old Age

Back from the visit -- unfortunately I continued to love it while the others from my village weren't so enthusiastic.  Lots that need to be fixed -- roof, deck, electrical, chimneys, shingles, a section of the foundation -- OK, I know it doesn't sound good.  But Craig, my contractor friend, said he saw potential -- after he told me it would cost $100K -- yes, I do understand the conflict of interest implications.   Mary Ellen, on the other hand, is acting cautious and Nikki isn't acting at all -- she just thinks it's a mistake, which she has pointed out in the nicest way possible.  

The question comes down to -- is it a house that deserves to still stand?  Because either you do all this work -- you invest in propping it up and patching it and bringing it, not back to life as it clearly has life, but up to standards.  At risk of over-anthromorphizing a 121 year old building, it feels unloving and ignorant of potential to imagine giving up on it, now that it's old and a little wheezy.  A little surgery and a little face paint won't make it young again but perhaps vital, just as vital as it ever was.  Isn't that a worthwhile value?

Smack in front of my beautiful old dream house is a brand new 5 story condo building with perfectly symmetrical brick siding, front balconies from each apartment looking over the water, and a full footprint roof deck.  I can see its appeal, from afar, both physically and mentally -- it looks impressive when you ride across the bridge from South Portland, its commanding view of the water is hard not to desire.  And the idea of it appeals:  everything -- materials, appliances, paint -- shiny new, every view available.  But it replaced something, I'm sure, something no longer good enough, no longer of value in our 21st century economy, no matter how historic or unusual or unique it was.  Should we - should I -- allow that to happen to another Portland property, especially one I've already been seduced by?  

Now I can hear my village reminding me of the funds I'll need to retire, which I will have to think about, but later.  

A Village Visit

Today I go to see the house again, with my friend, Mary Ellen, my real estate agent, Nikki, the seller's real estate agent, Francine, and an old friend and contractor, Craig -- who knew that it takes a village to buy a house?  Craig is there to protect my finances - to make sure the necessary repairs won't break my bank account -- and Mary Ellen is there to protect my future -- to make sure I haven't entirely lost my mind such that I'll be stuck with a house I hate and can't afford and am faced with a life I definitely didn't want.  Only your closest friends can tell you that, and truly only a subset of those -- I know Mary Ellen is up to the task.

I've done a little more research on the issue of a commercial loan.  Yes, it turns out, I can get one. Apparently you don't actually have to run a commercial enterprise, they'll lend money to pretty much any fool who wants to take on the challenge AND - and this is a big AND -- can prove that the commercial enterprise is commercially viable, i.e. it can actually make money.  Which, it turns out, in this case is not so easy to prove.  

When they do the loan analysis, they look less at your income - kind of nice that that isn't the biggest issue for once --  but more at the total revenue you can bring in from the property.  So the apartment that I'm dreaming of living in, to them is just another place that can generate rent, even if that's not my plan, along with the two one bedroom apartments and the big chunk of commercial space.  Once they have that revenue number -- in this case it comes to around $50-$60K per year -- they subtract out all of the expenses, and not surprisingly, those, from the bank's point of view, are a lot larger than what the seller's agent printed on her glossy brochure.  The bank needs to think beyond just taxes, insurance and heating costs to the expense of having a unit vacant and keeping the building maintained and all the other little expenses that I can't even imagine but they're paid to remember.  In the end, those expenses come out to more than $20K per year, making the building's net income in the $30-$40K per year range.  

Sounds pretty good to me, I thought -- should be enough to cover the principal and interest on any loan I need to take, especially if I can get the house for less than $695K.  But -- you knew it -- there's another problem -- well, actually, two more.  First, the terms of a commercial loan are far less attractive than those for a residential mortgage -- more than 6% interest rate, twenty years at the longest, has to be adjustable, etc.  My monthly payment, no matter how much the house costs, would be a chunk bigger than I first imagined.  I won't be living for free any time soon.  

Second, and quite a bit more important, the bank will only make a loan based on how they value the property, not the value that the lovely elderly artist sellers see in it.  It's a cold hard calculation for them, based on a capitalization rate (or cap rate), which the bankers I'm talking to are setting at 10% -- here's the formula:

I did go to business school but I'm not going to try any fancy explanations -- suffice it to say that the bank wants to make sure they're loaning money on a property that is at least making back 10% of its value every year.  

It doesn't take a math genius to figure out that, by this calculation, from a banker's unemotional, mathematical, dollars and sense perspective my dream house is worth at most $400K, more than 40% less than what the seller's are asking, which is already a price that's come down 30%.   One banker said perhaps he could go to $450K, thanks to its beautiful location, which could push the income up a bit.

Ouch, $450K.  Hard to imagine making that kind of offer to this lovely couple -- I know, I haven't actually met them but in my dream scenario they're eccentric and lovely;  it's likely that this is their planned retirement money.  I don't want to turn them into the old lady with the cats and canned food that I first imagined in the house.

However, I realize there's a silver lining in all of this news:  this is not a personal problem, just for me, owing to the skimpy size of my bank account or lousy credit rating or anything else less tangible.  Perhaps someone will arrive on the artists' doorstep with several hundred thousand dollars in cash and buy the house without a loan (although personally I suspect anyone in that cash-rich situation would be taking their money elsewhere, not to a house that is more project than living space);  but anyone else who wants to make an offer will eventually end up in front of a commercial banker who will be offering the same bad news.  

I understand -- it still makes my dream all the more complicated and daunting and seemingly impossible.  But I'm looking at it as good news -- why not? -- for the time being at least.  

Off to meet my village...

Money Always Complicates Things

To buy this house turns out to be a little more complicated than I might have imagined.  First of all, it's expensive -- right now they're asking $695,000, a price that has fallen in $50K chunks from just under $1M since January.  (The dramatic descent is nice but it's just barely dropped the price into a level I could consider.)  Moreover it's obvious there's a lot of work to be done on the structure -- just walking by you can see there are shingles missing from both the roof and the clapboard siding, and that's before an inspector starts digging around inside.  So I know I will need lots of $$ to make this happen.

However, the problem goes beyond the amount of money I need to buy and fix it;  I also have to find someone willing to give it to me.  Obviously this wouldn't be a problem if I had the cash myself - I could make an offer, negotiate a price, hand over the check, and walk off with the deed, and my dream.  But I don't.  I'm just a working single mom, with a decent down payment from selling a house in Cambridge, MA, a job that will cover a reasonable mortgage, and an appetite for both a great place to live AND a challenge.   But my assumption that all I need is a standard issue mortgage to fund this project -- what I would need if I was buying most any other house I've looked at in the past several months -- turns out to be a bit spurious.  Well, in fact, very wrong.  

It turns out you can't get a "reasonable" or "standard issue" or any other type of residential mortgage for this house.  If it was just apartments (up to four total), you could.  But because there is commercial space in the house -- that adorable little artist's studio/shop filled with old books and dust -- that takes up more than 25% of the total square footage (2200 out of 5700), I cannot -- nor can anyone else -- qualify for a residential mortgage, one of those 4.5% interest rate deals that bankers say we'll almost surely never see again.   Because this house houses this "big business," it will only qualify for a business, or commercial, loan.

I first get this report from my mortgage guy who I used to see more often than my plumber, and for much better reasons -- he helped me refinance my Cambridge house at least three times for better and better rates.  So I trusted his report, and then I heard it again from an insurance guy in Portland, and then finally from a commercial loan broker himself.  Apparently there are no creative angles around it.

So, she - a girl not to be daunted in her quest- thinks to herself, why can't I get a commercial loan?  Next question to be answered.