Just Give me the Three-Quarter Inch

I've mentioned before that most of the single family residences (SFR) that we've owned have been brand new. We did this for a variety of reasons: warranty, everyone likes to live in a new house, community amenities, good schools, the prices were the same as resales.

Once we had a sales contract, it was time to visit the sucker--, I mean, showrooms. The first home we bought was on a Z-lot in a gated community in the heart of Temecula (as I explained before, the eves of one side overlap with the house next door--average lot size 2,500-3,000 square feet). The sale price was $185,000 for 1,985 square feet of living space. On this house we spent over $7,000 in upgrades, which by today's standards, isn't much, but as a percent of the sale price, it was expensive.

We upgraded the carpet, pad, and put laminate wood floors in the high traffic areas. It was beautiful--unfortunately, we wouldn't be living there. We spent money, which could have been used toward another rental, on depreciable assets instead, like flooring and window blinds (even though we bought the cheapest we could find). The next home we bought was in the same neighborhood and we knew a little better. We switched out the laminate wood for cheap tile, which left white marks when the coating was chipped off.

We were determined that the next new house we bought, we would only upgrade the carpet pad in order to make the carpet last longer (I wouldn't even do that today). Unfortunately, it was a KB (previously known as Kaufman Broad) home. They have levels of homes. Something like A, B, and C. When we sat down to sign the contract, we didn't know that the development was considered an A, which we found meant that nothing extra was included in the sales price. By extra, I mean little things like the fireplace and microwave, which, in California, are usually included in the price of the home.

We always thought of resale when purchasing a rental. Do you know of many homes these days that sell without a fireplace? I don't. So we had to add the fireplace. It also needed a built-in microwave. The stair rails were metal, so we needed the wood. Since it was phase one, that upgrade was free. But for the exact same home we bought in phase twelve, we had to pay for it. Also, the master bath has to have a double vanity (but the hall bath does not). The home would be more valuable with a gas hook-up for the dryer. And you can't have a garage without a utility door (the door that goes from the inside of the garage to the side yard). This utility door issue became relevant when we bought a resale home without it. We really wanted to sell the home to the last tenant we had, and he wanted to buy it---except for the fact that it didn't have a side door. Bummer!

Anyway, I digress. By the time we added in the three-quarter inch carpet pad upgrade and window coverings, we paid an extra $18,000 for the home. It ended up costing us $217,000 (this does not include the landscaping on a 9,200 square foot lot--we were thinking "resale"). Today the house is worth just under $375,000 in this market, so I guess it doesn't matter now. We plan to hold until the prices rise again. Comps for the area were over $450,000 at one time.

By the way, within a year after we bought, the same model went up for sale across the street. The owners had failed to put out the dough for a fireplace and the house languished on the MLS for what seemed like a year--in the height of the market, no less. Meanwhile, as the market hinted at a slowdown in 2005, we sold our phase twelve in weeks for $405,000. Everyone laughed at us for buying the same house on a smaller lot for for $41,000 more ($258,000). We laughed, too--all the way to the bank. (Actually, we traded it for an apartment--and they laughed at us again. Rightly so that time.)