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Buying to Add On

SPECIAL TO THE TIMES

When Jennifer and Stephen Lax decided to start a family, they knew their two-bedroom house would be too small.

They thought about adding on, but their lot wasn’t big enough, and besides, Stephen Lax was adamantly against remodeling.

“He’s an attorney,” said Jennifer Lax, a stay-at-home mom. “He’s not the handyman type.”

So they began shopping for a bigger home in the $500,000 price range in their Sunset Park neighborhood of Santa Monica.

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But after 18 months of frustrating house-hunting, the Laxes still had not found a bigger house, having been outbid time and again by more aggressive buyers.

Finally, a frustrated Stephen Lax told his wife: “I’m sick of looking. We’ll just stay here.”

But Jennifer Lax--not to be stopped in her chase for space-- hit upon another idea--buying a small, old, nondescript house on a large lot and remodeling and enlarging it. Her husband went for the plan.

Less than a year and a bit more than $500,000 later--$320,000 for a 51-year-old house and its 6,750-square-foot lot, and another $220,000 for improvements--the couple ended up with a charming two-story house that has been appraised at $700,000.

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Buying a modest, older house to remodel immediately can make sense, especially in a hot real estate market, and in favored neighborhoods where appealing houses are bid on by three or four people offering thousands more than the asking price.

And plenty of home buyers have adopted that strategy, according to Glen Pickren, whose company specializes in making loans to buyers who want to purchase and then remodel.

“It happens all the time. People want a new house in an older neighborhood,” said Pickren, president of Barron Financial Services in Irvine and a 28-year veteran of the home loan industry.

But established communities with houses on big lots have no remaining empty lots. Buyers must either settle for an older home, buy a house that’s already renovated or undertake a remodel themselves.

Often, the new owners undertake the remodel before ever moving in. Many lenders make real estate loans based on the value of the home after the anticipated remodel.

In fact, Pickren considers remodeling akin to property development and urges homeowners to bring professionals--builders, designers, lenders--into the planning process before a house is bought.

His company, for instance, offers feasibility studies to determine if the purchase price of an old house, coupled with the anticipated remodeling costs, will add up to a wise investment.

In other cases, people who expect to move up in their careers buy modest homes in neighborhoods they like, with thoughts of making the house better as their incomes grow.

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“Some people don’t want the neighborhood to get away from them,” Pickren said. “They stake their claim and camp out.”

According to Westside home inspector Bob Holmes, most people buying a house “of less than 3,000 square feet are considering adding on.”

And if it’s a smaller two-bedroom one-bath house, “it’s a slam dunk” that they’re going to add on, added Holmes, who has inspected more than 7,500 homes in the past 13 years. “People no longer want to live in a house with just one bathroom.”

However, buying a house with the aim of adding on is a venture rich with the potential for misfortune.

“People make so many mistakes it’s unbelievable,” Pickren said. For instance, the house may not be sound. The floor plan may not easily accommodate a remodel. Local codes may not allow adding any more house on the lot. Some codes may prohibit a second story.

Plus, your new neighbors may not want a massive, nearly new house replacing a small unobtrusive bungalow. Some homeowners enlarging a home they just bought try to soften the look of a second story by stepping it back from the front facade.

Others, like the Laxes, add homey exterior features such as overlapping siding. White picket fences sometimes do the trick.

If you decide the risks in buying a house and adding on are manageable, be sure to buy a house that is right for remodeling. Here are some tips:

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* Get professional advice first.

For Jennifer and Stephen Lax, success with their remodel-addition was partly a result of their exasperating 18-month search, when a pregnant Jennifer walked around her neighborhood telling everyone she saw that she was looking for a house to buy.

While the first 100 or so houses she looked at didn’t fit the bill, she did learn a lot about houses, and she met an architect, Scott Prentice, who was transforming his own “hideous” house in the neighborhood into a gem.

During that time, the couple also met a local contractor, Mike Pritchard, who had done a successful interior remodel for friends of theirs, who praised Pritchard’s craftsmanship and work ethic. The Laxes said: “He’s the guy for us.”

So, long before the couple bought a house, they had lined up their design/build team. As Jennifer recalled: “We had a builder. We had an architect. We had no house.”

But when she started looking at older houses, Pritchard was happy to come over and give his opinion. “It’s a piece of crap,” he said of one which had been chopped up and added onto. Of another house, the architect said an awkward addition would be difficult to work around.

“I didn’t know that,” Jennifer said. But after she found the 1946 house on which she had made an offer--contingent on a formal inspection--and would end up buying, Pritchard came over and said: “You did real good.”

The house was well cared for, had not been butchered by previous remodels and it had, Pritchard said, the best foundation he had seen in 32 years of construction.

* Be sure the lot is big enough.

Even a small house with good bones, like the one the Laxes found, has no potential for a ground-floor addition when the lot is also small.

“Size does matter,” said Holmes, the home inspector, explaining that each city has its own ratio for how much house can cover the lot. A call to a local building department can glean that information.

A real estate agent can help you find smaller houses on larger lots in your desired neighborhood by doing a quick computer search.

But don’t get carried away with your expansion, agents warn. An addition that chews up too much of the lot will decrease the value of the house when it’s time to sell.

“Make sure the lot doesn’t disappear,” said Andrew Kinney, sales manager of Century 21 Grisham Joseph in Whittier. “If there’s no lot, people want a new house.”

* Calculate the addition’s cost versus its value.

Gaining $100,000 extra in value as a result of the addition, as did the Laxes, is great. But adding more value than the addition costs is not a slam-dunk.

Some additions--like adding a third bathroom to a three-bedroom house in a neighborhood where all other houses have two baths--bring little, if any, extra value.

However, adding a second bathroom to a three-bedroom, one-bathroom house will generally be a good deal. Kinney offered this scenario found often in an area like La Mirada:

A three-bedroom, one-bath house is appraised at $155,000, while three-bedroom, two-bath houses in the same neighborhood sell for $170,000.

That means that an added bath that costs $15,000 will return its full value upon resale. And if the house lends itself to an economical bathroom addition--i.e., the original bathroom is in the back of the house and the addition can be backed up to it to avoid expensive plumbing costs--a $7,500 addition will actually return more than its investment upon resale.

For Pickren, the lender, a good area for extensive remodeling is a neighborhood where there is a 2-1 ratio between the highest valued properties and the lowest.

For example, you’d look for a neighborhood where small, older houses sell for $350,000, while big, improved houses go for $700,000.

“In that environment,” he said, “remodeling becomes a cash crop.”

* Older houses bring special issues.

If the lot size is adequate, a buyer must then determine if the house is up to a renovation. This is especially important if the house has been sitting in the elements for 40, 50, 60 or 70 years.

“It becomes a question of maintenance,” said Pritchard, the builder, who is impressed with the quality of older homes--provided they have been taken care of over the decades.

“You see water damage from bad roofs,” he said. “You see dry rot. You see foundation shifts from standing water where Bermuda grass grows up and traps water next to the house.”

Even when well maintained, some older homes contain elements that make them more expensive to remodel.

For instance, old-fashioned knob and tube wiring will almost certainly need to be brought up to current codes during an addition. “It’s not compatible (with modern wiring),” Holmes, the inspector, said, “and it’s considered (by building departments) to be a latent hazard.”

Old galvanized pipes will also have to be retrofitted during extensive alterations. From Pickren’s viewpoint, an older house with already upgraded electrical and plumbing systems will be a better investment for a remodeling project than a house that’s all original.

Asbestos, discovered in recent decades to be dangerous when it becomes airborne and is inhaled, can also be a concern during a remodel/addition.

For a standard-size house, it costs $2,000 to remove asbestos from a heating system, and $5 a square foot to scrape it off the ceiling, Holmes said.

For the Laxes, creating a home in which to raise their family in a good neighborhood was worth the risk of remodeling. It was even worth enduring the doubts of friends who thought it was ridiculous for the couple to buy such an old, nondescript house.

“We’re as happy as can be,” said Jennifer, watching her 2-year-old son, Elijah, playing in the back yard. “Everybody’s looking (to buy) this kind of house. Nobody’s looking to buy the house we bought.”

*

Kathy Price-Robinson writes about home remodeling for The Times and several national publications. She can be reached at kathyprice@aol.com.


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