In the Summer of 2008, we planned to turn our first house, a still fairly new 4-year old, from a tremendous liability into an asset by refinancing and renting it out. Before we could list it for rent though, we needed to find a new place to live. Oh yeah, and we had a new baby coming in August!

It was time to make a list of our needs:

• A fixer-upper, something that would end up increasing our net worth substantially after improvements/upgrades, but something that had a solid structure.
• Safe neighborhood
• Eliminate or greatly reduce my work commute from the current 2 hrs round trip.
• Reduce our property taxes from the nearly $6k annual bill of our current home; most areas we were looking met this requirement.
• Needed a minimum of 3 bedrooms since we now had a girl with a boy on the way.

First things first, we made this list recognizing these were bare minimum requirements. Plus, we wanted, strike that… needed, to keep the price as low as reasonable. Why? Shelter is a liability! You pay money to live in your home, even if you pay property taxes only, there is still money coming out of your pocket every year to live there. If our goal was to get off the financial treadmill and stop workin’ for the man, we needed to minimize expenses.

For our needs and considering the housing market collapse that was underway, there were lots of options available. Many homes coming on the market were either in disrepair, in the foreclosure process, or short sales, properties being offered for less than the mortgage owed due to the collapse in prices. These factors sometimes resulted in houses being sold for half their previous value.

Looking back on our search, I felt bad for our Realtor! After missing out on the sale of our current house, she had incredible patience taking us to tens of properties that were frankly a mess, and these houses were usually 30 miles from our current home and her base! On top of that, every property we thought could work, we would have our Realtor place a low offer verbally, knowing it was only a matter of time before someone accepted. Finally, a few months after beginning our search, we placed an offer!

It was a multi-level house with 3 bedrooms and 1 1/2 bathrooms, only two miles from my work, in a quiet residential neighborhood. It also had a huge deck with great views and a large in-ground pool. Of course there was a lot of deferred maintenance, which put it squarely in the fixer-upper category. Besides the deferred maintenance, a major downside is that it was a short sale. The term short sale could be misconstrued so you may think it would happen quickly, but nothing could be further from the truth!

Following the accepted offer, which was about $25k under asking price, we scheduled our inspections. As expected, this process uncovered a LOT more deferred maintenance that wasn’t immediately obvious to our eyes! The inspection found that the HVAC system and water heater were both past their expected life, the roof probably had less than 5 years remaining, the pool plumbing had been rigged and required complete renovation, a retaining wall was on the verge of failure, both chimneys needed cleaning and one didn’t have a damper… the list seemed to never end!

We worked with our Realtor to develop two lists; one of repairs and costs we had anticipated that justified the initial low offer, and a second list that included the newly discovered issues and estimated costs. The result was a revised offer that was lower by another $35,000; $60k under the listed price! The listing agent, who we found out was working both with the current owner and the bank that held the existing mortgage, initially balked and claimed he would have to let it go through the foreclosure process rather than sell it at the new offer.

Talk about an emotional roller coaster! While a traditional sale would only take a day for the owner to say yes or no, our short sale had to get approved by the owner, the listing agent that was also an agent for the short-selling bank, and go through various approvals within the bank. Because of this, we were now about 6 weeks into the process, and after paying over $1000 for various inspections and finding these new issues, we were being told to forget it! I knew we couldn’t eat the $35k of additional repairs, but I requested another walk-through to refine our repair list since the bank was amenable to a decrease, just not the full $60k we were asking.

Along comes inspection day, and once I opened the front door, I knew something was wrong. A strong musty smell that hadn’t been there before slapped me in the face and the entire kitchen floor was covered in water! Looking around for the source, I found the water had come from the dishwasher, and the sponginess under my feet was a sign the sub-floor could be a problem now! Looking in the crawl-space confirmed that the water made it completely through the floor. While there were space heaters setup to help prevent freezing of water lines, clearly it didn’t work! I immediately called my Realtor with an update. I asked her to contact the listing agent, let him know what I found, and tell him that the entire kitchen floor would have to be replaced and we still need the full $60k reduction.

While I thought this might trigger them to accept, a few days later they came back with a counter-offer, $3500 higher than our requested price. Initially I thought they were crazy; I just told them the entire kitchen would have to be gutted for thousands of dollars, and they ask us to raise the offer? If there was any adjustment, I’d think it should be lower! Our Realtor talked to the listing agent and let us know the position he was in; he could either sell it to us at the new price offered, or he would have to let it go through the foreclosure process because he would make no money on the deal and the bank was willing to accept the risk that they would get a higher offer after foreclosure. Not knowing how long the market would be down and when it would bounce back, we accepted the counter and expected we’d be able to close soon, right? Not so fast…

Already months into the process, we were told to expect it to take a couple more months because of the tremendous write-off and associated approvals and paperwork needed. We were repeatedly told to be patient, that we would be able to close, and not to worry; but we worried anyway! Why? Although our initial offer was submitted in September 2008 and following inspections and negotiation the revised offer was accepted in November, the approval wasn’t official with the short-selling bank until January 2009, and paperwork for submission to the title company wasn’t completed until March 2009! On top of the delays, the listing agent left the house on the Multiple Listing Service (MLS), presumably keeping their options open for a better offer, until the short-sale bank approved everything in January! Our learning from this process was to only go into a short sale if you have a lot of time to burn and don’t mind the risk of losing out on a property weeks or months after supposedly having an offer accepted!

As we prepared to close the first week of April 2009, we were facing a new reality… now we needed to renovate a property that was a total mess and needed a ton of work just to move in! This was with a toddler and infant, working on a property that was 30 miles from our home. We soon started separating the list of needs and wants for moving in, and gutting the main level including kitchen was on the needs list now! Fortunately that and replacing a couple windows were the only real needs… or so we thought.

Coming soon: Welcome to Home Renovation