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Hello readers, I’m back…

31 October 2005

The last few weeks have been what I can only describe as a altered-state kind of living hell of overwork and exhaustion. I have been either working too hard on Pachyderm, working too hard on comics, or playing too hard with friends. I’ve averaged about 3-4 hours of sleep a night, and I have had no time to write or be creative, much less blog. It’s not that I haven’t had good things to talk about — I’v thought of and had to let go of several very promising very juicy topics for blog entries, but instead of trying to capture them all, or holding myself back because I didn’t blog about that last one I obsessed about, I’m going to acknowledge that life is flow and I have to pick from the stream while it is moving past me, or else just let the thought go and be ready for the next one.

So many things going on in my life, really there are. But what is topical? Well, the house next door finally went up for sale — the previous occupants lived there for years and years (30? 40?), and were on a fixed income, kinda crazy and reclusive, and have definitely let the house go in a major way. About a month or two back, the husband died and left his widow alone and unable to really cope for herself. We tried to be neighborly and help out when we could, but the truth of the matter is, we have had too much in our own lives to manage, much less to help out the sweet but hopelessly clueless and frail lady next door. Anyhow, last weekend I noticed there was a big dumpster out in front of the house, and last Monday a big moving van showed up. During the day (I work at home on Mondays), the contents of the house were pulled out of the house and systematically sorted into ‘that which goes into the truck’ and ‘that which goes into the trash’. Many things did not make it to the former. I went out to investigate, because it was readily apparent that the widow was no longer in residence, and I was interested to make sure she was okay. As I said, she was frail and incapable of taking care of herself, so my concerns were not unfounded.

As it turns out, her kids / step-kids who live in Los Angeles picked her up and moved her down to be with them (which, honestly, was the best thing for her). I can only hope they are keeping her with them, and didn’t just put her into a home. In any case, there was a man out there helping with the destruction of furniture destined for category b who was wearing a shirt and tie, and so struck me as someone of a different status than the average moving company employee. It turned out to be the new realtor, a family friend, and the individual responsible for selling the house. I told him that I might be interested in picking up the place, and got his information. Because, truth be told – the house has been moldering for years, and we had our own little personal morbid joke that one day we’d find the both of our neighbors dead, but since they’re such recluses, they wouldn’t be found for weeks, and the house would go on sale as a MAJOR fixer-upper, and of course, we’d buy it and move our friends into it. Much to our horror and embarrassment when we found out that husband had indeed died. In any case, the house is a fixer-upper and we are more than just a little serious about trying to pick it up at the very least as an investment. I called the realtor on Friday, and discovered the house had been listed as-is for $599k. This is of course, outrageous, considering the house is probably going to take at least $100k in repairs to bring it up to a livable standard. It has dry rot that needs to be repaired. It needs a new roof, it’s unclear if the radiant heat still works, the boiler, range, and oven are all original to the house (1958). Both bathrooms are in need of being gutted and replaced. The fireplace leans to the side, and you can see daylight between the side windows and the brickwork. The floors are completely shot. Did I mention that it needs landscaping?

However, the roof appears to be without a sag in it, and the main bones look structurally sound. $600k for a 1386 square foot house 3 bedroom / 2 bath with garage, bordering on a school — in a neighborhood where comparable houses in decent condition are going for $750-800k. If we were to put $100k into the house, we’d make it back pretty readily. If we hold the house for 5-7 years, we will make a decent return on our investment.

Do we need another project like this? Probably not, but it’d be kinda fun playing ‘This Old House’, and it would allow us to control who our neighbors would be, to a certain extent. Do we have the money to invest in the property — strangely enough, we might. Julie is getting an inheritance from her grandfather that could amount to the $xxx range, and if we go in with our friends on the purchase, we could put $yyy down, and reserve $zzz for repairs and sundries, and bring the mortgage down low enough for our friends to be able to make the payments. After the investment term (5-7 years), we would get our investment back plus our share of the equity. If our friends wanted to buy us out, they could and keep the property. Otherwise, we could sell it on the market for a hefty profit. Granted, the housing bubble could burst, but even if the value stayed static and rose only with the cost of inflation, we’re still making our money back plus at least %16.66 percent, which is decent returns. Chances are, however, that the market will continue to rise before it levels off, and we can expect much better returns. Our own house is worth nearly triple what we initially paid for it in 1999.

In any case, this is what’s obsessing us right now. We have until the 11th to get all our ducks in a row to even make an offer, and there’s no guarantee it’d happen. Our neighbor across the street, who is an agent, seems to think this is a fair price for the area, and that the bids might go over to the extent of $25k or so. Crazy.

So, do we do this? It’s a big step, and might be a little crazy… but it feels like a first step to making the types of financial decisions that could move us out of ‘the rat race’ of wage-earners and into the world of allowing our capital to work for us. Besides, for the time of the investment, we’d have our good friends living next to us, and we’d be giving them the opportunity to enter into the world of homeowners, which in Marin is a near impossibility without an influx of capital.

The difficulty, of course, comes into negotiating the possible conflict of interests between making money in the investment, and doing the best thing for our friends. If we look at this purchase as a mere way-point where both parties will cash out after the term of investment (5-7 years), then there is really no conflict. However, we really want our friends to stay here forever, and I’m sure they want to as well. In that model, they would have to pay us back our initial investment, plus our share of the equity. If the value of the house goes up as much as we expect it to, and for an investment, you want the value to increase as much as possible, that is money that would come directly out of our friends’ pockets at the moment the investment term matures. That’s money they can either take out of the house in equity (and increase their debt burdon accordingly), or they’d have to pay in some other fashion (such as the dividends from some other investment). If they can’t make the pay-off on our scheduled moment, what then? Do we foreclose? Do we just ride it out and let our investment stay tied up in the house in favor of preserving having our friends live next-door? These are all issues we need to work out with them, of course, and decide for ourselves. I’m sure there’s a right answer, and a set of agreements we can all be comfortable with. And in the long run, it’s a good thing for everyone. It gets them into the housing market, it allows them to get a huge tax write-off for being property owners, and it allows them to no longer throw their money away in rent. For us, it allows us to increase our own property value, get our own tax breaks, have very good friends be our neighbors for at least the term of the investment, and we get to control ultimately who lives next door. We get to turn that eyesore into a gem.

We only have two weeks to make it all come together for the bid. That means, we have to start working now to make it happen.

Julie’s parents have said they’d help us by covering our part of the investment until Julie’s inheritance comes in. That’s a big step in the right direction. I think tomorrow I have to start making phone calls. I would like to call in a radiant heat specialist to inspect the property before I even decide to make a bid on the house, because — if the heat doesn’t work, it’s probably not worth the investment.

I had no clue I’d be making decisions like this someday, if you had asked me ten years ago. I hope it works out. I feel good about this. It feels like an insane rush, but even if this doesn’t work out, we’ll educate ourselves in the process, and could be ready to make a similar arrangement on some other property, even if this one doesn’t pan out. It’s kind of exciting. I lay it at the feet of the winds of fate, and can do no more than the best I can do.

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