A $9,000 House and the Three Terrible Monsters

I had never been in a $9,000 house before this weekend. It came on the market a few days ago in Oronoco, with the caption "House may be a tear-down." But we thought, well, what the heck...

Tara and I went on Saturday morning, taking with us the two little ones and leaving the "bigs" at home. When we drove up to the home, we noticed it was in one of those areas of either lake cabins (not fancy) or houses on the lake (very fancy, but still rustic). The garage was nice and solid, the lot was a double, and the home... well, it wasn't so good. The short story is that it would have taken a lot of work to get it to livable, and then you'd still only have a one-bedroom, one bathroom cabin-sort of thing. Also there was a huge workshop / shed in the backyard that had been through a fire and would need to be torn down. Also there was some issue about the septic being non-compliant. Also there were dead appliances strewn throughout the yard. Also...

Had my wife said, "Go for it," I would have figured out some way to get it. But she didn't. She said, "It doesn't fit your plans at all. Even if you tear down the house and start over, you don't want a double lot near the lake. You want acreage in the country where you can grow... whatever it is you want to grow."

We also visited a reasonably nice property in town for $35,000 that would easily meet our needs... after we eradicate the mold. Please tell me, how do you get mold on the floor of the bedroom without getting any in the corners or the ceiling?

So right now we are waiting for the tax return money to come back so we can decide what our next move might be.

One of the things I teach my children about finance is the story of the three terrible monsters.

The first and worst monster is the Credit Card Monster. He is green and brown and sort of slimy and gooey. He only visits people who have credit cards and who have not paid off their balances at the end of the month. He pretty much hates everybody and would like to eat as much of your money as he can in one sitting. You should never begin a relationship with him.

The second monster is the Mortgage Monster. I picture him as black and not quite as angry as the Credit Card Monster. The Mortgage Monster visits just about everyone, since few Americans own their homes outright. Most folks are on friendly terms with the Mortgage Monster, feeding him just enough to keep him away until the next month. They don't realize (or don't want to realize) that after 30 years, they will have fed him probably more than twice the value of their home. Though I have had something like a 14-year relationship with the Mortgage Monster, I am ready to call it off. He can seek a new lackey elsewhere.

The final monster, and one that we probably won't be able to shake, is the Tax Monster. I picture him as red because the federal government is always in the red. Besides making us do mountains of paperwork, the Tax Monster also wants his share of yearly income. He has little cousins like City Tax, Sales Tax, Vehicle Transfer Fees, and Social Security. I also dislike his obese uncle, Property Tax. Although you can't get rid of the red monster, you can minimize his effect. Live in simple properties. Buy cars that are more than ten years old... and not from out of state! Give generously to church and charities. And finally, have lots of children!

All Lenders Are Warthogs

Once upon a time many different animals came together to form a community.

Jim was a muskrat. He was married to Tara, also a muskrat, and they had a litter of four together. He taught at Meadow Campus school, and he was tired of so much of his earnings going to Owl Mutual Bank. He and his family scoured the fields and the village, and they found some mighty nifty foreclosures. One was only a hollow log, but Jim and Tara thought they could probably manage. The muskchildren agreed.

Jim had already talked to the owls about buying an investment log, but they weren't so helpful. They wanted 20% down on the log and wouldn't agree to the idea of it being an owner-occupied log. They figured that there would be no way you'd go back to a log if you already had a hollow tree where the village meets the meadow, which he had. But Jim was less bound by social convention than most, and he was willing to give up the hollow tree and regress to the log if it meant some lasting benefit to himself or his family.

So the middle-aged muskrat contacted a lender that he'd known from a previous deal at Wells & Warthog. They were on the phone for a while hashing out details of a pre-approval letter, interest rates, etc. Lois the Warthog* said she'd run some numbers and then give a call back. A few minutes later she did. She announced that Wells & Warthog wanted cash reserves in the amount of six months principal, interest, taxes, and insurance for both properties. Not to mention closing costs and origination fees. Jim was not sure that he had cash reserves of this size. In fact, he was pretty sure he didn't. So he told Lois that he appreciated her efforts and that he would put things on hold until either the tax refund came back or the first property sold. And he wondered how the woodland creatures would ever get their economy moving again when they couldn't grant a pre-approval letter for a $20,000 loan to a muskrat who'd been doing the same job for 16 years at the same school.

Traveling home that day, Jim the Muskrat considered saving up $20,000 in cash and buying his hollow log outright. No closing costs. No appraisal. No attempts to impress the warthog. This was sounding better and better all the time.

*Lois the Warthog is actually a very nice lady of a quite different name. But the idea of lenders being warthogs appealed to me.

Caught in the Middle

Most people who know me know that I don't really like waiting for... anything. I suppose that could describe all of us, but some people are naturally better at waiting than others.

In our area, the foreclosures have been getting cheaper and cheaper. A few small homes in Rochester are in the mid-20s or a bit higher. Don't be misled; these are not pretty houses and mostly they are not in pretty neighborhoods. But the majority are quite livable, and places like Spring Valley even have teasers selling for something like$15,900.

So here's the dilemma: If we pounce now and try to grab a foreclosure, getting the financing is a battle and we may well be stuck with two properties (not the end of the world, but not Scenario A+ either). However, if we wait for this house to sell, the market may have changed and all of these almost-free houses may have vanished. Like any other investing, real estate is a game that includes risk and strategy. I like playing the game but find myself wishing that I had more capital, since I am actually playing with other people's futures, to say nothing of what's left of my own.

So I feel kind of impatient but probably should wait for the tax refund to be done before we try to do anything irreversible. We visited another three foreclosures today. One of them is very cute and just a few blocks from Silver Lake. We also noticed two houses up for auction, but honestly, house auctions scare me. I'd do something wrong and end up owning a house I couldn't pay for. Or something.