Hi all. I feel like I need to formally introduce myself. My name is Emily Bowser, henceforth called “Bowser” as to not confuse anyone! I am a stylist and a creative producer here at EHD, and I’ve been lurking for almost three years now. I first came on as an assistant stylist on a project by project basis around the same time I bought this hunk of junk income property you’re about to hear allllll about. I clearly remember having to leave in the middle of a shoot to deal with one of the many “the sky is falling down” moments while renovating. Emily was very understanding and I was really trying not to cry at work (something I do more openly now, ha). The past three years have been a whirlwind, I figured out what I wanted to do when I grow up and pretended to already be grown up and bought a house at basically the exact same time. The reason you haven’t seen me doing Makeover Takeover is that I’ve been financially and emotionally in reno recovery (keep reading). During this trauma, I would have given anything to have someone give me real actual numbers, timelines and facts surrounding the insanity that is the Los Angeles real estate world, someone who would make me feel less crazy and less alone. If you’re looking for that person, or you just REALLY like to look inside of someone’s private financial dealings (same, same), you’ve come to the right place. Sh*t is about to get REAL.
Sara recently wrote a lovely and informative post about buying a house in LA. What follows is my slightly different path of being wildly more naive and frankly, reckless, but that pretty much describes the difference between Sara and me anyway :). Mine is a tale of TWO houses (because being reckless with one wasn’t quite interesting enough for me). That’s right, I willingly bought two unlivable houses (on one lot) for $22,000 down, zero savings, in Los Angeles, with hundreds of thousands of dollars of work that needed to be done and I’m still alive (and live in one!) today. I’m getting ahead of myself though, read on for the whole story…
Buying a house in LA: Is that even possible?
Good question. Yes. It is. You’re about to hear all kinds of crazy things. Numbers and decisions that don’t really make sense—BUT—I want to say this right at the beginning, the purpose behind me writing this isn’t just a warning (although it’s not NOT that), it’s more an “if I can do it, you CAN do it, too. And maybe you should, but maybe also you shouldn’t?” What you need is information, and then you need to know yourself (or selves) and make a decision based on your gut (is it obvious I’m a 9 on the enneagram yet?)
A tiny bit of my history.
My husband Andrew and I have been together for a long time. I’m throwing in that little fact because honestly, you should be in a good place relationally if you are buying a house with anyone. We started dating in 2000, married and moved to LA in 2009 (he would want me to note he moved here in 2007 ::insert eyeroll::) and decided to start “looking” for a house in early 2016 at the urging of my wonderful and entrepreneurial grandmother and supportive parents. This somewhat surprised me because my dad is also my CPA and he knew our financial situation very intimately. Regardless, I didn’t think it was possible and their excitement about it made me start looking into it and ultimately have laser focus until the deed was done.
We wanted to own for all the obvious reasons but mainly: 1. the stability of a mortgage in an increasingly expensive city and 2. as people who came into adulthood during the recession, a way to invest and make some money as quickly as possible (retirement who? what?). Los Angeles is known to be a fairly safe housing market, if only you can get into it. Specifically, income properties do well because when house prices flatline here, rent generally goes up. This is the first of a few disheartening things you will hear me say in this post. “Capitalism! It’s great if it works for you; let me show you how!!”
FHA loans and investment properties, a somewhat educated layman’s guide.
My research brought me to a 2-hour phone conversation with a mortgage broker after going to exactly one open house and falling in love and moving in in my mind (first of many times, turns out). What I learned is this: you can barely have any money at all and qualify for a loan IF you have good to great credit and a few years of showing that you’re bringing in decent money. You don’t have to save that money per se, you just have to make it, keep your debt low, and pay things on time.
At the time of applying for a loan, we had to use our 2015 tax returns. Luckily, in 2015, I had a full-time job. Ironically, by the time I was applying, I had quit the job but they did not care SO tip #1: have a full-time job the year before you want to buy a house and then promptly quit because finding a house is about to become your full-time job (I’m joking). My husband also had a salaried job for a few years. In 2015, our gross income was $120,000. At this rate, you’re going to know my social security number by the end of this post…KEEP READING.
Obvious decision #1: FHA Loan
In Los Angeles, in order to have a conventional loan with an income property, you have to put down 25% (20% for a single-family home). I don’t think I saw one house sell for under $600,000 in my year of looking. 25% of $600,000 is ONE HUNDRED AND FIFTY THOUSAND DOLLARS. Also, your $600,000 home is probably a POS and needs work. I found out that with an FHA loan, I could put down as little as 3.5%. That was more our speed. We could handle a little bit of a higher mortgage payment because of mortgage insurance, what I was not going to have any time soon is $150,000+ sitting in a bank account.
Obvious decision #2: Income Property
A $600,000+ FHA loan breaks down to about $4,000/mo (including taxes and mortgage insurance). I technically qualified for a loan this large but I knew the reality of paying twice as much as I had been paying for rent was insane. Just because you “qualify” doesn’t mean you can “afford” (read and repeat). You need to take your lifestyle, comfort level and the city you live in into consideration when making a decision this large. I was okay with paying a little more than we were renting, but I knew anything over $700 more/month was going to get uncomfortable fast. I needed help paying my mortgage. Enter: The Income Property.
Here’s a quick low-down on why this was an option for us (and can be for you):
When you buy an income property, they take the rent you will make into consideration and think of it as a part of your projected income, therefore making your overall loan you can take out larger OR if you stay on the lower end of “what you can afford,” it makes your loan less risky.
For example: at the time of buying our house, we “qualified” for a max $630,000 mortgage if we were buying a single-family home. Depending on the income property we looked at, that number shot up, sometimes over $200,000 more. Here’s how that breaks down in a real-life scenario:
- There was a triplex (2 two bedrooms, 1 one bedroom) on the market for $830,000 in the neighborhood of Atwater Village. Two of the units (the two bedrooms) were occupied and already bringing in $3,700 combined (way under market value at the time but nothing to scoff at either). $3,700 x 12 = $44,400. That number gets added to our projected income: $120,000 + 44,400 = $164,400! It’s like having a third person in our marriage that is bringing in $$ (isn’t that what we all want/need??). Also, an $830,000 FHA mortgage at the time was around $5,700/mo.
- Factoring in the rents we would be getting upon moving in, that means we would only have to come up with $2,000/mo, so the mortgage company was comfortable that we would be able to handle the responsibility of the monthly mortgage. The somewhat tricky part of this is that each and every property was different so the mortgage company would have to input all of the information each time depending on the number of units, if they were occupied, how much rent was either coming in or projected to come in, etc. etc. and sometimes made the process a little slower. In general, I knew if I looked at places in the $650,000-730,000 range for duplexes (or two-on-a-lot) I was pretty safe to assume I could make an offer if I wanted to.
Reality check: Buying with an FHA loan in 2016 in Los Angeles.
On paper, it made sense. We qualified for a decent loan because we make okay money monthly and don’t have any big expenses (ah, the good ole days) but the reality of being in such a competitive market without cash was NOT an easy one. I’m happy to talk about the process of looking for an FHA income property in the comments, but let’s CliffsNotes this thing so we can get to the actual buying of the house/income property:
- Assemble a supportive and reputable team. When you don’t have cash, you need to look legit. Make sure your people are LEGIT.
- Competition is an obvious hinderance. Expect it. The lower end of the market is the most competitive and income properties are flipper territory in LA. We lost out on many houses because we didn’t come in $100,000 over asking with all cash. There is hope: there are still people out there that want to sell to actual people.
- Trying to buy a house is (at least) a part time job. If I wasn’t filling paperwork, I was dropping everything to look at whatever house came on the market that was in the general area I wanted to be in, within $500,000 (RARE) – $800,000, and was an income property of any type even if they weren’t zoned as such (think Airbnb opportunities). I saw a lot of places by myself and would take Andrew later if they were worth looking at because he had a normal day job. I even made an offer on a house when he was out of town and he had only seen crappy iPhone pics. It took seeing the places as soon as possible, before the weekend open houses, so that you could get ahead of the crowd.
- Income properties sometimes (almost always) come with people living in them and no, you cannot raise their rent if the house was built before 1978 (which is most of LA). This fact SHOCKS people. I saw so few properties that came vacant that I think I could count them on one hand. We have intense renting laws to protect people from being displaced. This being the case, you have to consider when buying a property: Are you cool if they never leave? Can you get a good enough price that you can afford to pay for them to leave (around $30,000 in most cases and yes, that is a thing and all renters in LA should know it)? If you don’t have the cash, can you negotiate the sellers paying for them to leave? Are you a horrible person that’s displacing people? Maybe don’t buy that one then? AND FINALLY
- Expect heartache. We put in a lot of offers. Some were long shots we didn’t expect to get but others hit a little closer to home (pun intended). Home buying is emotional and it should be, you’re looking for your home, if you didn’t care that would be weirder.
Found the house!
I was in a bad place emotionally when I first saw our house. I was alone, again, looking at an overpriced dump. We walked through and it smelled weird, they didn’t even try to clean it up, the ENTIRE lot was concrete, THE ENTIRE 5,000+ SQ FOOT LOT. Trees popped out of holes just big enough to fit their trunks through, “How are they even alive??” I think as I walk from the front house to the back house. My negativity was so dense that I barely heard my realtor explain that the back unit tenants are in the process of moving out, so it may be a bit in flux and different from the pictures online.
The thing about seeing a house when it’s furnished is that you don’t see how they have maneuvered all the furniture to cover the holes in the floor because of termite infestation (which it turns out was the case with the front unit). The back unit had less furniture which you would think would make it look bigger but instead just showed more of its flaws. I left feeling blah. We’d “never have enough cash to do what needed to be done to that property,” I tell my husband on the phone (in retrospect the most truthful statement I’ve ever uttered). However, a few short hours later, my mortgage broker is convincing me on the phone that I should really consider this property…I was shocked! He assured me that because the house was on the lower end of my budget that I could then most likely get a renovation loan tacked onto my mortgage. It is surprising even to me, now, even after knowing myself for 35 years, how quickly I can become optimistic about almost anything.
The house is a two-on-a-lot fixer for $600,000, in a good investment neighborhood in the east side of LA. Both units are 2 bedrooms, the front unit is a little bigger at less than 900 square feet and the back unit is under 700. The way the lot is set up, there is a front unit, a small backyard and then the back unit with its own small (gated) outdoor space. I liked the idea of separate spaces with no shared walls, a luxury I had not enjoyed since I lived with my parents. There were also 2 one-car garages and with the spaces not being huge, it was a big plus to have storage space.
A barely educated layman’s guide to buying a house with an FHA + renovation loan (somewhat, but not totally, successfully).
This is how I remember everything working (read: maybe consult an actual professional and fact check me). First, you make an offer on the house and they accept. That’s kind of important. Then you spend the next five months of your life doing nothing but sending random people your personal financial information, signing papers, meeting 1 million different contractors and inspectors, paying them money, appeasing angry sellers by giving them extra money to help pay their mortgage because the process has gone on way too long, send more financial information because the initial ones are out of date, do that three more times, find out while on the toilet that your sellers put the house back on Redfin (illegally), angry cry in the aisles of Target on the phone with your broker, give them MORE money, eventually sign more papers and then you own the house.
I wish I were joking.
The slightly more official/told in plain English process is this:
- Find a contractor (this is a blog post in and of itself) and walk through with them and explain your renovation plans. They will give you an estimate of projected work to be done (about how much it will cost you).
- The appraiser will calculate how much value will be added and based on that, how much projected rent you can get in the area you live in and come up with a new appraised value of the house.
- Based on the appraisal, your mortgage company will decide how much of a renovation loan you can afford and it gets tacked onto your mortgage.
Sounds simple right? It was the most not simple, frustrating experience of my life. The appraisal you receive for the reno loan is NOT the same as the one you have done at the beginning of the buying process, the one that says “the offer you made on this house either matches or doesn’t match what it is worth.” That appraisal came back just fine. They wanted $600,000, we offered $600,000, the appraisal came back at $600,000. We were moving and grooving, everyone was happy! We started all the inspections and I found a contractor, all that takes awhile in and of itself. Later, when the second appraisal (different guy) came in, the one described in the above paragraph, THAT is the one that screwed us.
Buying in an up-and-coming area, I understood as a renter in LA, that I would be able to fix up the back unit and rent for at least $2,000. There was parking, a storage space, no shared walls, 2 bedrooms, private outdoor space and I was fully renovating it and adding a dishwasher, washer and dryer. Our appraiser said I would never get over $1,300/mo in my area and his opinion was that if I bought this house for $600,000 and put the $100,000 of renovations into it, it would be worth…$600,000. You may be asking yourself, “HOW IS THAT @#(*&@# POSSIBLE??” Same. Saaaaaaame. He would not reconsider his appraisal even after my realtor worked hard to get him rent comps in the area.
This is where my life started unraveling and maybe a different (smarter?) person would have walked away. I would like to say it was “too late” because I had spent thousands (I had) and countless hours (I had) but it actually was really just this: I had set my mind to the thing and this house was mine. I have no one but myself to blame for what transpired after the moment I decided to push through…and it really was ME. You may be able to tell by the way I’ve written this, but my husband was along for the ride on this one.
Life: “Emily, NO.”
During the phone call when my mortgage broker convinced me that this fixer would be worth it because of the reno loan, he was assuming an extra $100,000 or close to it, would be possible. After the bad appraisal and the back and forth, that dropped…a lot. For reasons that I still don’t fully understand, I didn’t know until I WAS SIGNING FINAL ESCROW PAPERS that my reno loan was only for $38,000. There was a miscommunication that I am going to go ahead and take responsibility for, but that was a lot lower than what I thought I had agreed to. Everything took forever and then went SO fast the last few days. I was convinced I just wasn’t understanding all the paperwork when I saw “$38,000” on the page. If you haven’t done it, you can’t imagine the amount of signing you do on closing day. It was just me, my husband, a notary, and my cat in a carrier (long story) in my husband’s office at 10 pm (also long story). I tried calling someone, anyone, to get some answers. No one answered, it was late! Here is the craziest thing: I SIGNED THE PAPERS ANYWAY. I told you, laser focus, only myself to blame.
Buying a lemon: How it’s possible and why you maybe should(n’t?) do it and how to (kinda) avoid complete and total financial ruin.
Alright, whether or not I should have been in this situation, this was the situation I was in the morning after I woke up from that fateful evening in my husband’s office: In mid October 2016, we bought a house for $600,000, our reno loan was for $38,000 for a combined $638,000. I received my first mortgage statement 10/27 (not due until 12/1) and here is the breakdown:
- Principal: $863.26
- Interest: $2,219.13
- Escrow (for taxes and insurance): $1,174.74
- Monthly Payment: $4,257.13
My interest rate was 4.25%. Small note here that about a year later, they lowered my monthly payment by about $85 (to $4,171.60) because they realized they were charging me too much for taxes and insurance.
The money we put down, combined with the money we spent while in escrow on inspections, etc., and the money we needed to pay the whole mortgage until February when renters were able to move in, was literally all the money we had in the world. Smart to start homeownership with literally no cushion? Obviously not. I wish I didn’t have to tell you this, but I had some help from a loan from my family (LOAN, not gift). I realize this is a very privileged situation but I want to be completely honest because I wish I had been able to read how this all really goes down for real people who aren’t very rich themselves (or maybe very smart). We bought the house and had a $40,000 personal loan on top of the $38,000 reno loan. $78,000 to renovate 1,400-ish square feet. Easy peasy?
Finally, the renovation.
I found a contractor I loved during the process prior to finalizing the sale for the reno loan. He was there during all the drama and was steady and encouraging during the process and ultimately what convinced me I could make this happen despite the loan coming in very low. My contractor assured me that he could do what needed to be done in a few months with the cash I had and that afterward, my house would be worth hundreds of thousands of dollars more and I could refinance, pull the cash out and reimburse him for any additional work and reimburse my family the $40,000 I owed them. The math made sense to me. I bought a house for $600,000 and would put $100,000 in. The comps said that my house would be worth $800,000+ when it was all over. Refinancing is a legit and very good work-around but it does take a VERY strong stomach for risk, a patient contractor, and in the end, was not as easy as it sounded coming from him. Will I ever learn? All signs point to NO.
Something new came up every day that cost thousands of dollars. Every. Single. Day. Every wall (and some floors) were opened and the house was exposed for what it was: a total and complete lemon. Turns out a random guy built both structures in 1930 with no oversight and it showed. It looked like I built the house. I don’t know how to build a house but upon seeing the innards of mine, I was pretty sure that this was not it. Everything was “Mickey Mouse” (contractor’s words—still not sure of the origin but pretty sure of the connotation). It would be easier to list the things I didn’t have to touch. The only things I can think of is that we initially didn’t do anything to the yard (front or back), the front steps still need to be redone (look near collapsing), and we didn’t replace the sewage line from the front house to the street (which I’m just waiting to burst) although I did replace the one from the back house to the front house ($6,000).
On a positive note: I know my house pretty well. I learned a lot. It now feels relatively safe and sound with hopefully no other big ticket things for awhile (besides the sewage line…all the crossed fingers and toes). I’m pretty positive I have a better grasp on what things actually cost and can say with reasonable confidence that if/when I ever get to the front yard/stairs/sewage situation, I will need to somehow come up with $50,000, not the $30,000 I’ve been estimated. I can also say with reasonable confidence that this will not happen for YEARS.
THE BAD NEWS: They say that you should be ready for a 20-30% increase from the projected renovation cost. Mine was more than 100% more. ONE HUNDRED PERCENT. By the end of the initial construction, just to get the house livable, we’d given my contractor around $100,000 and owed him around $80,000. I ended up having to ask for an additional $40,000 from my family and give him any money we made just to have enough so that my contractor could finish the work. In fact, that continued, every extra cent we made for the next year and a half that didn’t go directly to life bills, went to my contractor. A thousand here, a couple thousand there. Hello credit card debt. Goodbye Christmas bonuses.
THE GOOD NEWS: By February of 2017, we were able to move into the front unit (we had been locked in one of the back unit bedrooms for months with our cats) and rent out the back unit for guess how much?? $2,000/mo! I am, by the way, in the end always right and everyone should listen to me. Our monthly situation was not bad. We were paying nominally more than we were as renters and we owned (by the skin of our teeth) our house. On top of this, the neighborhood was getting fancier, bars were going in, prices were going up and realtors were starting to leave notes on my door. There was a triplex on our street that sold for 1.4 MILLION one year after we lived there. It wasn’t exactly a comp, but 1.4 million is a lot of money. There are two studio apartments in that complex, which they rent out for $1,800/mo each.
THE OTHER BAD NEWS: Turns out, you can’t really refinance right away, almost no one will do it before you’ve owned the house for a year. My contractor, probably because he felt bad about giving me an estimate SO FAR from the actual, was very patient. Andrew and I flirted with financial ruin, increasing debt and no savings making our credit take a nosedive and therefore became harder candidates for refinance. My more cautious and concerned friend, Lauren, who talked to me practically every day and may be the only reason I remained sane, literally Googled “how to get out of financial ruin” for me while I mused about how I was ever supposed to get refinanced in my condition.
A little while after we finished construction (March-ish 2017, we had an appraisal done of both properties. It came back okay, $750,000. It was definitely less than we could have sold it for, but it was also proof that the house was worth what we had put into it at the time. However, the company who gave us our initial loan denied us and said to come back in another year. We did. They said to come back the following year.
Meanwhile, in the spring of 2018, disaster strikes! The front house has some foundation movement that is NOT normal. We had done a good amount of work to it but it turns out the retaining wall along the back of house was completely deteriorating from all the rain we had in late 2016, early 2017. More work needs to be done. An additional $20,000 to be exact. Debt went from bad to worse but the contractor gets the job done anyway. I realize around this point that my contractor is in a catch-22. If he ever wants to receive the money I owe him, it is in his best interest to make sure the house stays standing and that I don’t go into bankruptcy. This is slightly unsettling as a human being but also somewhat comforting? Like, maybe it’s harder for my life to completely fall apart than I initially thought? It started to feel like a refi was never going to happen. I set up a payment plan with my contractor which was basically paying him $1,000/mo for the rest of my life which he wasn’t stoked on but willing to settle for because it was better than nothing. It definitely was making our month-to-month rough and not helping us improve our credit so that we could refinance.
Refi at last.
A couple of things happened before the refi: I had a real estate agent cold call me in the summer of 2018 while I was in Portland working with the EHD team (how he got my number, I don’t want to know). He asked if he could come see our house because he had some interested buyers. I tried to get off the phone with him by just stating the obvious “oh, sorry, no, my house isn’t for sale” and he asked me “how much would you need for it to be for sale?” I humored him, “honestly, I’m pretty in the pits with this house and in order for me to pay my debts and still make enough to buy another house, probably over 1M” to which he replied, “I don’t think that will be a problem”. I made an appt for him to come by and see the house when I was back in town. I was just curious (and desperately wanted my financial woes to be OVER).
A few weeks later, I had that appt, he was from a reputable company and was obviously excited about the property because of the income property. Turns out most LA people want something just like this for the obvious reasons of offsetting their mortgage but want it to be finished, like mine (kinda) was. He wanted me to list at $950,000 to start a bidding war. He said if I could deliver the back unit empty, he was sure we’d end up selling for 1.1M+. I was delighted that he felt this way but wanted another opinion. I had my realtor, Keely, who I bought the house with, come over. She didn’t disagree with the assessment of the house, however (and this is a BIG however), she told me I should try to keep it. I was in a good situation and getting another house probably would mean I would have to move further out. In her opinion, this was just proof that I made the right decision and should wait (a very nice thing to hear after almost 2 years of flirting with financial ruin). PRO TIP: if the person who could make money off you selling is saying don’t sell, probably don’t. The truth was, we didn’t want to sell. Despite all the stress, I was invested, quite literally, but it was tempting. I could pay everyone off and still make $200,000. That is A LOT of money.
A couple weeks after all of this, we had been talking through the pros and cons of selling daily, a mortgage/refi company called me. This time, even though I had never heard of them, I humored them and explained the whole situation. They expedited me and seemed very excited about the prospect of making it happen. It was a whirlwind. Maybe it was the raising housing prices? It certainly was NOT my credit score, which was hovering in the mid- to low-600s. However, we were making more money than we were before (although it didn’t feel like it). Our gross income was $150,000 now.
In October of 2018, TWO years almost exactly after buying the house, we were approved for a refi, pending an appraisal (my least favorite word up to the point in history) of $850,000. My realtor was SO helpful during this time. Keep in mind that she is NOT being paid for this—she made a folder of comps and a list of what we had invested for the appraiser and then came for the actual appointment and walked through the houses with him. Lauren and I were FREAKING OUT. I scrubbed my house top to bottom, I made cookies so my house would smell good, at the last minute, I put on a Bob Dylan record. An actual record on an actual record player. This is my favorite detail because the appraiser LOVED IT. He was so impressed with my music taste and the fact that I was young but listened to records. We hammed it up and I TRULY BELIEVE IT AFFECTED THE OUTCOME. Call me crazy or call me ALWAYS RIGHT (eventually).
On November 19, 2018, the appraisal came through: $870,000. SIDE NOTE: appraisals are always less than they should be I guess?? Doesn’t matter, it was official, I would receive $100,000—ONE HUNDRED THOUSAND DOLLARS—in my bank account by Thanksgiving. I’m rich for exactly one day. The next day, I write a $80,000 check to my contractor and pay off some credit cards.
January 2019: I write my contractor a $20,000 check for more surprise foundation work, this time for the back house.
February 2019: my husband is let go from his job. IT. NEVER. ENDS.
New Loan (as of July 2019): $735,668.67
- Principal: $976.62
- Interest: $2,835.39
- Escrow (for taxes and insurance): $2,835.39
- Current Payment: $5,096.72
My monthly payment goes up $925.12, my interest rate goes up to 4.625%
In the end, worth it. I can handle monthly expenses. What I can’t afford: $100,000 of debt hanging over my head. As of the time I’m writing this, I’ve put about $230,000 into my house(s). $130,000 more than projected. This includes all labor and materials. About $100,000 of that is just the teeny tiny back house. 686 square feet. Would I have been better tearing it all down and starting new? Probably. Hindsight is 20/20 I guess. However, in the 29 months of renting the back house, I’ve made $61,000 in rental income. At this rate, only a few more years and it will have paid for itself.
Bad news: I still owe my family money and I am literally in the process of setting up an insurance policy in my name in case I die so they get reimbursed. It’s agreed that now that I’m only slightly in financial ruin, that I will start paying them in monthly installments. Good news: I added 2 mini-splits to the back house in January (just threw it in with the foundation work, why not??) and charge $2,500/mo now. “You’ll never get more than $1,300”?? #$*&#*$!!!
Emotional breakdown (as in breaking down my emotions, not having a breakdown): Clearly, I’m not a risk-averse person. I sign very important and expensive papers I barely understand. I mean, writing that sentence out is crazy even to me. I can’t even justify my actions. However, I don’t regret it. Even now, after a couple of seemingly impossible years, constantly working, (still) just getting by, still with no savings to speak of, still owing people money and with the risk of having to carry a $5,100/mo mortgage if things went sideways with a backhouse tenant? I guess I have a strong stomach for it. It’s not for everyone, and that’s okay. I’m an optimistic person. Things will work out because things generally do (with hard work and a certain amount of first world, middle-class privilege). I thought that before all of this and the fact that I still believe it is either a testament to its truth or to my insanity, or maybe a bit of both.
Stay tuned for “How I Managed to Spend $100,000 in Renovations on 686 Square Feet and Lived to Tell the Story” where I break down reno costs, what I would have done differently looking back, and what I still am happy with.
Thanks for the share, a clear information about the constructions and expenses very clearly.
That. Was. Awesome. I want to hear more gory details of your money-pit. It was like a book I just couldn’t put down. I’m a true Aussie – we love to hear tales of an underdog who overcomes hardship. xx
Thanks I haven’t written anything this long since college! I’m glad my woes kept you captivated haha!
Thank you for sharing. I know it’s tough to be vulnerable, but it is appreciated. I’m sorry this was such a long difficult time. Fingers crossed your husband quickly found work.
Wow, I’m stressed just reading this! Crossing my fingers we get to see how you transformed the property!
Ditto everything you wrote!
Wonderful “story” and so interesting! It has everything – reality, drama, mystery – hopefully a happy ending!
This is an awesome (and traumatic?) description of your experience. Thank you for sharing. I bought a house several years back in DC (also a super expensive real estate market). Like you I just had to rely on what other “experts” were telling me: realtor, broker, appraiser, contractor, seller. Like, I didn’t know ANY of you 60 days ago and I’m putting my future in your hands and making MAJOR, life-altering decisions based on what you say? And I have no way to judge if you are legit and know what you’re talking about? Sure, why not. What could go wrong? Mm hmm.
I like your writing, Bowser. I hope you’ll write more on the his page.
Thank you so much! hahahah so truuuuuuuue about working with actual strangers.
I’m from outside of DC and have wondered about that market, seems just as crazy as LA at this point!
I read every.single.word. I am looking forward to seeing the insides. I live in Kentucky and am always blown away by the housing prices out there in LA. Based on some (for fun) open houses we went to on our last visit to LA, our house here would easily go for $5 million. Here it is worth $1 million. That’s mind boggling. Hang in there!!!
Thanks so much for sharing your story! Even though I’m not in a similar situation I found your experience fascinating! Way to persevere! I can’t wait to see where you spent your money! So many exclamation points!
I currently have a tachycardia reading this. I guess I am happy for you that it seems to be turning out. (I’d have used quotations around certain words in that last sentence except more words than not would have been “quoted” and that would have just been weird.) I cannot imagine the stress…holy cow. I think I lack your stomach strength. I am more convinced than ever that it takes a special breed (or incredibly stupid or incredibly courageous) of people to live in CA and I am not that person! (Glad my parents moved when I was 6 weeks old!) Seriously…it just isn’t like that anywhere else! And the capitalism comment…yes – If I read it correctly. I really does work itself out!
It’s actually just like that in both Sydney and Melbourne in Australia!
And one more thing…What about the inspection assuming your bank made you get one. How did the inspector not know about all that was wrong? Were you ripped off? Any ramifications towards inspector? I am never one to sue or threaten it, but this seriously had the potential to ruin your credit/harm relationships considering buying/building is one of life’s greatest stressors for decades, and if a shotty job was done on that person’s part, what can a buyer do?- Honest question! (Australia…I was referencing the U.S. – outside of some of the obvious other money-sucks in this country – D.C metro, etc./most of Florida. I don’t know much about real estate in Australia, but I dream of Assisi, Italy. Friends rent a one-bedroom there for $400/month. As retired people, they watch flights and never fly for more than $400 each and then go for two or three months, twice a year.) 🙂
My dad’s a retired carpenter (midwest). Mickey Mouse is definitely a thing : ) I don’t know the beginnings of the phrase but he’s been saying it at least 40 years.
Coming here to comment the same… I am 28 and while I was in the process of renovating my house, my mom and her sister (65 year olds) would comment “Mickey Mouse job” and I HATED the term and wondered where it came from?! So glad I’m not alone… I definitely laughed when I saw it referenced in this post.
Well. This was a stressful coffee accompaniment.
Thanks for your honesty. Sometimes we look at others and think “how do they afford that?!” Truth is, they maybe can’t, but they make it work.
I held my breath for this entire read!! Write more write more write more!! Also what do you do with termites? Are they ever truly gone? There may a nest on our block and I’m scared to even contemplate what that means…
We had to tent both units! $2000 later…
You’re a lot stronger than I am! I don’t think I could ever do that…I was frightened just reading it!
I don’t really know the origin of the phrase “Mickey Mouse” used in a negative way, but I’ve definitely heard it in relation to sports before–I’ve heard hockey teams called “a Mickey Mouse organization” and it’s probably because most highers-up in hockey teams are overly polite Canadians and don’t want to swear lol.
I really love the honesty in both Sara and Emily’s posts. I would love, however, to see a counter point of someone’s decision to rent rather than buy. There are benefits to being a renter as well and other ways to invest your money. As someone who lives in a high rent area (NYC) where if you buy you not only have a mortgage, but also extremely high maintenance costs, I certainly don’t see myself buying anytime soon.
I actually would love this so very much as well. I read a very informative article years ago from mint.com that was pro-rent and I thought they made great points of why you should rent and not buy and could possibly make more money in your lifetime.
Loved reading every single word of this!
Bowser, this is a great post! Because it’s honest, real, helpful, and told with a flair for good storytelling. That being said, if I were you, I’d sell, rent something cheap, and let go of the idea that owning is stable, because: 1) being able to sell it for $870k in the future (like 2-5 years from now) is not certain even if you could sell it for that amount today (a bird in the hand today is worth two in the bush…), and 2) you’re paying >$2.8k every month just in interest and >$2.8k every month for taxes and insurance minus roughly $2.1k in rental income and minus $2k saved in rent you’re not paying for yourself, so, >$1.5k of your money down the toilet every month b/c (2.8k*2)-2.1k-2k=1.5k. But again, that’s just me. Cannot wait to see the after pics of your reno! All the high-fives!!
I agree….especially with all the shaky ground in LA. It seems to me that you could come out ahead now but a risk in the future!
The only problem with this is the “rent something cheap” part 🙂 We are pretty committed to Los Angeles and our portion of the mortgage is $2598 ($5096-$2500=$2598) is less than when we would be paying for rent in this area and the idea is that number will only go down as rents raise.
Clearly you would have been smarter about this process 🙂 I’m more of a bulldoze your way through , think it through later 🙂 it’s worked for us so far haha
I dont think you weren’t smart, especially by buying something with a rental property! Being an adult is very very hard work and these were big decisions! Sounds like you will come out on top no matter what!
Hahahahaha! I so wish “rent something cheap” was a viable option. It is only possible if you move much farther out and commute back (so $ and lots of time in transpo, plus adding to air pollution) or move to a super crappy, super tiny, less safe, right on the freeway apartment. Even then rent will go up 3% a year, every year. Your mortgage pretty much stays the same – in California your property taxes don’t go up, so the only variable is insurance.
Emily gets $2,500/month for her 686 square ft rental. Use that as your “how much rent is in LA” yardstick.
You’re property taxes absolutely can go up. Homeowners are always subject to new taxes approved by voters, and if your property value is assessed as more at some point that info gets sent to the county assessors office. ANy major improvements that need permits? Tax reassessment. It’s in no way guaranteed to always be the same.
@Adrian: In California, property taxes are basically frozen at the time of purchase. Prop 13.
To be 100, I don’t know too much on the low down on how property taxes work. For FHA they include your taxes (and insurance) in your mortgage payment and then reimburse you if you over pay.
Property taxes in California aren’t frozen, but Prop. 13 put limits on how much they can be raised. Property taxes are assessed at 1% of the home’s value when purchased, and annual increases are limited to 2%, unless there is an ownership change or new construction.
THIS IS SO AWESOME.
I mean, not your stressful life, sorry, that part is not awesome.
But it is SOOOOO great to finally hear a real-life story of what it’s like to buy an income property. All the advice I ever hear is, “Buy an income property! Best if it’s a fixer-upper! Have your handy dad/boyfriend/self fix it up in a few months of hard work, and then watch your retirement roll in!” I’ve been seriously interested in getting into the investment property market, and you definitely have helped educate me A LOT more.
Also, I really appreciated all your comments about white privilege/capitalism etc. 🙂
When can we expect the next installment of your story?
oh geeze, yes, it is NOT easy! The crazy part of how insane this situation was, is that only 3 years later and things are looking up financially. I mean, until my husband lost his job, but after that’s taken care of, I think we’ll be in a decent spot! hahahahaahahahahahaha ::::lays on floor in fetal position::::
Great read. Thanks
I really enjoyed reading this.
Whoa! Thanks so much for the sheer honesty. Very helpful as I consider buying a home in the next year or two.
Best post I’ve read on EHD (along with the other one about someone buying a house). As a potential first time buyer I can’t tell you how useful this. I love how transparent you are!! Really gives me a sense of what is or isn’t possible. Excited for next post.
YOU GUYS stop making me blush! So sweet, Thank you!
I’ve bought houses in southern CA before and it’s a nightmare. Whatever money you have, it’s going to take all of it and then some. Doesn’t matter what you budgeted or what the initial figures were, in the end all your money is gone. Stressful days for sure! I admire your perseverance and look forward to reading more.
Omg you are me. This is like reading about my life from an alternate reality. I do the exact same thing with all major life decisions. “It’ll be fine!” As an outrageous example – I read about this new, less invasive, laparoscopic method of spaying dogs where the vet doesn’t need to take out the uterus and recovery is quicker. I drove my dog 7 hours round trip to the nearest vet who said they do laparoscopic spays, paid double the normal cost, got home, saw “hysterectomy” on the bill, realized I’d never explicitly asked if they remove the uterus. Lo and behold I drove 7 hours round trip and paid double the normal cost and she no longer has a uterus and recovery was just as long as a normal spay!!!!!!! I have many more examples (including several real estate-related) but me having to ask “does my dog have a uterus” probably takes the cake.
I would do this. 100%
I have never commented on a blog post on any website ever. This exact situation – front house/back house – replacing drainage – replacing foundations – draining bank accounts – offers to purchase our property – has happened to me and my boyfriend with our property. The furniture strategically placed to cover problems during your showings. Preach! During our showing, there was a couch placed over a hump in the floor, which ultimately indicated there was almost no foundation under the house. Just like you, we are still in it, but nothing I have ever read on the internet spoke to our situation more. Thank you so much for sharing this! The way you portray your feelings about the house, loathing it one minute and loving it the next, is so accurate for a project like this and I feel these emotions as well, almost daily. Thank you again for sharing and making me feel like I’m not insane for taking this on!
Right?!? It’s fascinating to me how much can be hidden, especially with all the inspections, until you’ve opened a wall or two (or in our case, moved furniture).
I love your writing and appreciate your sharing this! It’s such a bummer that housing is unaffordable in the places with the most job opportunity. And that the only financial safety nets we realistically have are our families – and they can’t always help. I can’t wait for you to get to the makeover stage.
Brave. Maybe too brave?! I’m so glad this is working out for you! I hope you also have short term disability; it sounds like you and your hubs are very lucky to have family help but bc you are living on the edge if either of y’all were to get injured or honestly pregnant (not that you do/don’t want to, none of my business; speaking from experience) you would feel much more secure with that to help. (Also I’m not remotely affiliated with insurance sales, just my two cents.) I wish I had the stamina and courage and financial acrobat skills you have displayed!
I will say, the baby thing has been pushed a lot because of this. Also, we pay a hefty life insurance policy now so that on top of the possibility of something terrible happening to either one of us, we at least wouldn’t have to worry about the house.
“Financial acrobat” ahaha never two words better to describe me. Maybe I should write a book by the same name. “How to be a Financial Acrobat, Do Everything They Tell You Not To Do” Don’t tell Dave Ramsey! He would DESTROY ME.
I think she was talking about disability insurance- replaces income if one or both of you can’t work because of illness/ accident, etc.
Ha, great post, Emily. I’m really glad to hear things are on the upswing for you. I actually was reading this thinking “i really need to tell her about dave ramsey!!” Lol. As a fellow creative, he’s helped me soo much to simplify and outline my financial life. I think you’re almost there, though! Can’t wait to see your design renovations. x
Haha! I’m glad you mentioned Dave. ?. I couldn’t help but sift this whole post thru his principles as I read. I listen to him daily….buuuut can say with confidence he’d destroy us on a thing or two too!
Thank you for this, Emily Bowser! I know it took ages to write and it feels so vulnerable putting your finances out on the internet…but I truly appreciate this. At the end of the day I know our family is just too risk adverse and doesn’t have the safety net needed to do something like this. Watching reno shows on TV just makes it look so easy.
Omg this post was enthralling. I can’t wait to hear more about your home.
My husband and I did a 203k loan in 2015 and it was a wild ride. Now that we’ve been in the house for a few years we are gearing up for round 2 of renovations. Many people have asked about my experience and I’ve never been able to explain it without having a breakdown. Good job!
This was truly fascinating to read and tells you just how messed up the whole real estate world can be at times. It’s so much more interesting to read your story than watch an unrealistic HGTV show where the people seem to get everything they want with simple ease. Life just isn’t like that for most people and it’s refreshing to read someone else’s story that shows the true struggle of home owner.
Looking forward to “the rest of the story” ( this ages me when I quote Paul Harvey!).
Yes! Thank you! I’m also in LA looking at investment property and this was so honest and helpful. Thank you for sharing all the gory details and your salaries and interest rate and all that. That is what’s useful and sets this blog apart! People telling me HGTV isn’t real is great, but not really useful. I want to know the real numbers. Thank you!
Same! Wish I would have had this, which is why I wrote it. Glad it was helpful!
Thank you for sharing your experience with REAL numbers! There isn’t enough information like this out there for first time home buyers. Awesome content. Can’t wait to see photos of the renovated property!
Amazing. I’m dying to buy income property and didn’t even know FHA loans with renovation loan!! Sounds insane but I really want something that creates income for us. Would love a break down of cost and what exactly cost so much money!
This is the best thing I’ve ever read THANK YOU and MORE please!! Such a great writer!! No one ever goes into the nitty gritty like this but it’s sooooo interesting and helpful!
Can we get a tour of your house now that it’s finished? Please!!
Soon-ish! At the moment we have tenants back there but they will be leaving in the not too distant future actually so we are planning on getting some content between them moving out and someone new moving in, BUT my Makeover Takeovers of the front unit will be coming up soon!
I can’t wait to see what you’ve done with it. This was an awesome and truly fascinating post. Yes, it’s a big gamble but odds are VERY good that it will work out. The housing trends in LA are well established. Even if you had sold it for 1.4M, you’d probably be kicking yourself 5/10/20 years down the road because you’d be watching the value continue to climb.
Thank you! For the truth, for the encouragement. We just bought a serious fixer upper with a basement apartment (rental property!) and it’s been overwhelming.
It looks like you put in your impounds incorrectly in the second breakdown but even at $1,300 per month may I suggest you shop around for cheaper home insurance as it appears you are paying a lot.
it includes taxes, insurance, AND mortgage insurance.
This was a great read! Love your writing style Bowser!! Makes our house/income property buying seem like a walk in the park. Can’t wait to hear more from you!
Oh my god!! What a story. Thank you for this totally transparent share. I hope it was at least a bit therapeutic for you?! We own a house, but have been looking at upgrading for a few years. We don’t live anywhere glamorous but still the housing prices have increased crazy over the last 10 years in our city (in Canada). Every time we go and look at a house owned by a baby boomer looking to downsize i get SO MAD AT THEM!!! So many bought their houses for maybe $100,000 in the 80s and have literally not put a dime into keeping it modern, and now they are asking five to six times that amount. GET OUT OF HERE! But the millennial’s are buying them at the price, with totally unrealistic assumptions of renovation costs (thanks HGTV). I bet there are A LOT of people with your same financial story out there. I have been slowly renovating my house for 9 years, and the kitchen is still original so i have a more realistic idea of the actual costs and am very cautious about starting all again. And, that is my rant!
Thanks! Yeah, it was actually very therapeutic!I Slow reno would have been so much better so I’m glad you’re able to do that. Unfortunately our place turned out to be unlivable and we needed the back space to be done in order to start getting rent, in order to afford the mortgage blahblahblah. MORE TRUTHFUL RENO STORIES PLEASE HGTV
I read EHD almost daily, and this is hands down my fav blog post- so much so that I am commenting for the first time! Thank you for being so real and raw, it’s all so relatable and great to know what to be cautious of as I consider entering the LA market. Can’t wait to hear more from ya!
THIS. IS. THE. BEST.
I’m obsessed with this story mostly because there’s nothing I think early 30s people are obsessed with more than buying a house. It’s so hard to hear stories of family member in different cities trying to talk about their process and just making you angry because it’s nothing like LA home buying. Literally a million thank yous for being so straightforward with your experience. And honestly applause to you for sticking with it!
You are a wonderful writer! You had me feeling the stress while enjoying the bits of humor along the way.
Very informative and useful for any first time buyer!
Thank you for being so honest about that entire process! I can’t imagine how stressful all of this must have been for you, but at least there was a semi happy ending with getting the debts paid off at the refi!
I’m an enneagram type 1 and this was giving me heart palpitations. And I am beyond impressed that you didn’t sell—I don’t think I could’ve resisted the solution to all my problems even if it wasn’t the best long-term decision. So excited for the next installment!
SAME Meredith. Same. Bowser and I spent SO much time talking about house buying when I was looking, and hearing her story always made my 1 heart try and arrest.
haha yeah, I’m right next to you but I. AM. SO. NINE.
One really random question, what is a mini-split?
I was going to ask that, too!
Yes, same question! I live in LA, but I wasn’t sure what a mini-split is either.
It’s an individual heat/AC unit you put on the walls of different rooms so you can control it independently.
Its a retrofitted air conditioner- it’s a unit half in and half out of the wall but looks much nicer (and I assume works better) than the old in-wall acs.
Mini-splits are heating and cooling systems that allow you to control the temperatures in individual rooms or spaces. Mini-split systems have two main components — an outdoor compressor/condenser and an indoor air-handling unit(s) (evaporator) 🙂
The commenters answered before I could. I installed this bad boy in the living space and kitchen space. Getting it installed was weirdly annoying but now that it’s working, it’s working!
You have told this story in such a hilarious way! Nerve-wracking, to be sure. But now you own property in LA. Looking forward to reading/seeing more about this.
This feels sooooo familiar, LOL! I bought my house in November 2016 with an FHA loan – a 600 sq ft fixer in Inglewood (the only place in LA County where we could afford to buy) – and my place was ALSO clearly not designed by anyone who’d ever gone to architecture school (hello exterior doors and windows INSIDE my living room wall a.k.a. how NOT to put on an addition to your house). We also only got about $40k from our renovation loan and have since put in at least another $25k of our own funds. We still have, by my estimate, another $30k at least in renovations because our garage is being eaten by termites far more quickly than I’d anticipated; we didn’t have the money to renovate that in the first phase. Perhaps luckily for us, we didn’t have to worry about renovating two houses at once, but we also won’t be getting that sweet, sweet income property money. I daydream about selling, but Inglewood also isn’t Atwater Village – oh how I wish it was…I’m told Inglewood is THE place to be, but I’m not sure I’m patient enough to wait for all the coming changes.… Read more »
Wow that was one of my favorite posts in awhile – loved all the numbers and honesty!.
God bless you Emily Bowser! I just ignored my 20 month old all morning so I could read every word you wrote! You’re an incredible writer, and I’m so glad you’re still married after all this ??. We tried for an FHA/remodel loan for an income property in San Diego in 2016 and couldn’t be approved bc we’re self employed and my husband isn’t a citizen…. so reading this was like being able to see everything we narrowly avoided (except with different tenancy laws). And then your husband’s job?! I’m so looking forward to everything you have to say in this “Money Pit” series… I hope you get a writing/affiliate bonus for all the upcoming posts so we can continue to live vicariously through your trauma! And you can pay back your family ? Thanks again!
Loving these Reno and house buying posts. Thank you so much for sharing your experience!
Just a couple things for anyone else out there wanting to own…just purchased our FHA loan home in June. We are a one income family, but the one with the income had zero credit history. Luckily the non-earner (me) has great credit. But the lenders need the one with the income to have good credit, my credit didn’t count. Very simple solution…I added him to a credit card I’d had for many years and within ONE MONTH, his credit score jumped to over 700 and qualified us for a loan.
The other thing…didn’t see any mention of inspections taking place. This is the burden of the buyer after the offer is submitted. It shockingly isn’t a lender requirement, but worth it if you can find a good inspector who has been doing it for a while and knows their stuff. They don’t necessarily catch everything that is wrong because they don’t dig into the walls or anything, but they will alert you to things that could become major problems and will most certainly catch things that you and your realtor/broker won’t.
That’s a GREAT tip! I love a workaround (obvs)
I mentioned inspections in passing. It was expensive and as you know, with an FHA loan a bit tricky because they don’t want it to look like you’re buying a lemon EVEN THOUGH CLEARLY THINGS FALL THROUGH THE CRACKS.
The main tip I have, is ask your friends if they have recommendations.
Sorry I missed that!
This is the very best! Thanks for being willing to share – your honesty and humour are brilliant and so appreciated. I’m so used to watching/reading about reno’s where it all just works out money wise with little to no mention of the risk/stress involved that sometimes I think I forget what things actually cost. Thank you for the reminder!
This was such a good read! I love your voice : )
I cannot wait to see how all the renovations turned out!
BOWSER! (Yesss! I am shouting at YOU!)…….WRITE THIS STORY AS A BOOK!
EVERY FLIPPIN’ DETAIL!
Seriously, there was a best seller titled “The House On The Hill” in Australia and it is about A. House. On. A. Hill. BEST SELLER=NO MORE DEBT.
You have each and every one of us captivated, on-the-edge-of-our-seats and we’re a great world-wide sample of readership.
DO IT. YOU’LL NEVRR REGRET IT (and writing is great therapy too!)
Wait, what is this book?? I need it! I googled and I’m only finding horror movie stuff!
Oops! Wrong title…I just rummaged on my bookshelf…
“The House at Salvation Creek”. It’s a bio-novel. Actually the second book, after the first was (also) a best seller.
They are BOTH SOOOOOGOOD….everyone went mad for them and couldn’t put them down.
My best friend bought them for me, saying the authour reminded her of me (plus we have a 100 yr old house I restored).
The first book us called “Salvation Creek. ”
This was followed by a lemon cake recipe that went viral!
Get ’em….you won’t be able to put them down and the whole EHD team will go crazy!
Thanks! I’ll check it out!
This is amazing and fascinating! And totally gripping! I could.not.stop.reading. Cheers to being only “slightly in financial ruin.” 😉