Why Buying The $64,000 Hoarder House Was Worth It

In 2023 my oldest son bought a $64,000 house about 2 miles down the road from us.  This price was unheard of in this area…and for good reason.  The property was in bad disrepair and full of JUNK. No rational person would think, “Yeah, this is where I want my kid to live.”

The Numbers:

The house was listed at $58,000 and we knew that the seller had already received a cash offer.  Our son’s bid was for $64,000 with no inspection and the seller could leave what they wanted behind. The only contingency was financing.  The appraisal came back low at $55,000 (which was a joke), and he needed to put up more cash to make up the difference.  He ended up needing to come out of pocket $16,000 to close and ended with a 30 year mortgage of $53,350 at 7.125%.

We spend 4 months of solid work rehabbing this house and he spent 9,000 more dollars, all in cash, for a total of $25,000 of cash invested into the home.  We gifted $5,000 towards this plus all of our labor for the rehab.

How Did He Have The Cash?

When talking about a 20 year old having $25,000 in cash, I can understand people being skeptical.

He started working at 18 the summer before his senior year in high school. He worked full time in the summer then part time during the school year. He then lived at home and worked full time upon graduation.  This property came up for sale a little over a year after he graduated.  He saved roughly 80% of his after tax income.  50% of his income went into his Roth 401K and the rest he piled up in cash.  When he got the house under contract he dropped his 401K to 10% and put all his savings into cash from then onward.  He also had little expenses during the 4 months we were rehabbing the house and a lot of the expenses for the rehab he paid out of the cash flow from his income.

I can’t stand the “Check your privilege” feedback about it being an extreme privilege for a child to live at home a year or two out of high school.  This is a “privilege” that costs virtually nothing to the parents.  Literally nothing changed. He lived in the same bedroom he had been in for years.  There weren’t additional expenses incurred by us.  Any parents can do this.  The truth is the vast, vast majority of young adults who do stay at home for a year or two, even if they are working full time, save nothing.

Feedback At The Time:

Most people thought we were nuts for pursuing this.  This house was too far gone. There was too much junk. There was a snake in the house! The property couldn’t get a loan. He was too young to buy a house, he should rent…(While the cheapest rent for an apartment was $900/mo). This was a big rehab, even by our standards.

To be fair, these were not outrageous thoughts.  If he did not have parents who rehabbed houses routinely, then it would not have made sense. Even with our ability to spearhead the rehab, this was a stretch to make happen. Even with a conventional loan financing was difficult.  The first lender turned the property down for a loan, and the 2nd lender had us perform several repairs prior to allowing closing.

Where he is now: 

He moved into the house in December of 2023 and has now lived there for 18 months.  His Principal and Interest house payment is $359 per month.  Property taxes are $53/mo and insurance is $71/mo for $483/mo total.  He also pays an additional $100/mo on the mortgage which will take over 12 years off of his loan and save $35,000 in interest payments.

This payment is easily affordable with his gross income of around $3,000 per month. NOBODY has a house payment under $500.  Rents have increased over the last 2 years, and right now, the main apartment building in Benton Harbor, MI is charging $965/mo.  A 3 bedroom house for rent in this area, if there were any, would be around $1,500 a month.

With all the work we did and looking at roughly comparable sales, while adjusting for condition, his home is likely worth around $140,000 today, giving him roughly $90,000 in home equity.

His girlfriend from New York was able to move in with him here. He has a place where he can play his guitars without worrying about the noise effect on neighbors.  He greatly enjoys having large bon fires and we have nicknamed him “The Fire King” off of Sid from the Ice Age movies.

Comparisons:

The house next to his is a double wide modular with a 2 car garage. It is dated to its original construction in the late 80s or early 90s. This property is on a similar sized lot. It was listed for $229,000 and was under contract in less than a week. The numbers on this house payment are VERY different.

A 10% down payment would be $22,900. Add in closing costs of $5,000 and total cost to acquire would be $27,900. This is more than the down payment and rehab that our son had to get into his house. The resulting mortgage would be for $206,100.  Current interest rates are about the same as they were when he bought his house. On a 30 year mortgage the principal and interest payment would be $1,389/mo.  Property taxes on this higher valuation would be $220 per month. Insurance costs should be about the same given the properties are about the same square footage.  This brings us to a total house payment of $1,680.

Our son is paying $483 next door. They are paying 3.5X as much every month, for the next 30 years as our son pays for his.  The sweat equity and problem solving was absolutely worth it.  He would not be able to afford $1,680 a month based on income.

Learnings:

This was our oldest kid by 5 years, so we had a lot of learnings from this experience that we can apply to the other kids.

Working while living at home is the biggest factor in building wealth and being able to buy a home.  Starting our kids with employment earlier will drastically improve their economic outcomes.

Required, automated savings is important.  We rarely discussed the money going to his 401K because it was automatic. We only looked at the money after that to save up for big goals like cars and houses. I have seen several of my friends have children enter adulthood while living at home without required savings.  Guess what? They don’t save anything.

Rehabs Are Temporary: The rehab took 4 months, but then it was done.  It is in the past.

Use Lowes Delivery: I typically go to Lowes and pick up what we need for a project and in isn’t uncommon for me to make 2 trips a day for an entire rehab.  On This house Mrs. C. made a list of most of the things we needed and ordered through our pro account, not only did they deliver to the house, they brought all the supplies into the living room.

Always be looking: Even if the timing isn’t perfect, always be looking at the market. This property was only listed for 2 days.