Last week I got a call from young friends who wanted my opinion on whether or not to buy a particular house. It was a simple two bedroom one bath 943 square foot (87 square meter) cottage that was built in 1895. The location was in a fashionable small semi rural town in Sonoma north of San Francisco. It was on the market for $600,000. I said I couldn’t make that choice for them, but I could give them my interpretation of the pros and cons.
I started by asking them if they could reasonably afford the house. They said they could pull together a 10% down payment, take on PMI (mortgage insurance for less than a 20% down payment) and their monthly mortgage would be about the same as their current rent. They were comfortable with those numbers.
Then they sent me the official inspection report. The roof was well past its expiration date with active leaks. The electrical and plumbing systems had various code violations and required health and safety upgrades. There was dry rot. There were termites. The water heater and furnace were at the end of their life cycles. The windows and doors didn’t function properly. There was lead contamination. The list went on.
I told them that I’ve bought several homes over the decades that were in similar condition. All these things could be fixed. It’s just a matter of time and money. I personally love tinkering with old houses even with all the inevitable complications and unpleasant surprises. I find great pleasure in renovating and gardening and I’ve done well financially as an accidental side effect. I also like owning real tangible physical things that will keep me warm, dry, and fed. But that’s just me.
Then I explained that back in 2010 in the aftermath of the 2008 financial crisis I almost bought a very similar house directly across the street. I dug up my old photos. I’m a big fan of buying the worst house in a premium location at the bottom of an economic cycle. I ended up buying a different house instead, but looking back I would have been happy if I had chosen this place. It sold for $179,000 so if I had bought it I probably would have made a lot of money even if I didn’t do much improving. The value of the dirt under the house has risen tremendously in the last decade and the Covid surge only pushed up values even higher.
That brought us to the question of market conditions. Will property values continue to rise forever? Or are we in another bubble right now? I don’t know. No one does. It’s all a mystery. You pay your dollar and you take your chances.
Read the rest of this piece on Granola Shotgun.
Johnny Sanphillippo is an amateur architecture buff with a passionate interest in where and how we all live and occupy the landscape, from small rural towns to skyscrapers and everything in between. He travels often, conducts interviews with people of interest, and gathers photos and video of places worth talking about (which he often shares on Strong Towns). Johnny writes for Strong Towns, and his blog, Granola Shotgun.
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