Q: My husband and I are first-time home buyers. We have located a 2-bedroom, 1.5 bath townhouse in Cary, NC, a location which has steadily grown in popularity in the past few years.
The townhouse needs updating. It could really use a new kitchen and bathroom remodel as well as new carpeting. The only major problems with this property are that it has sat on the market for nearly a year and the homeowner’s association assessment is $152 per month.
Do you think this would be a good “sweat equity” investment for us? We are thinking about buying and holding the property for the next five years. We’d live there and use it as our primary residence.
A: From where I sit, it’s hard to know whether the specific block in your Cary, NC, neighborhood of choice is going to appreciate in value over the next five years. Is this a second home location? Do local folks like 2-bedroom, 1.5 bath homes or do they prefer something bigger?
Does the development offer recreational opportunities such as a clubhouse, swimming pool, tennis courts or something else that would attract future buyers?
The fact that the property has been on the market for nearly a year is troubling. Did the sellers get a divorce? Was the home originally priced too high? Is there something physically wrong with the home that comes out during inspections?
And, paying $152 per month for the Homeowners’ Association dues seems a bit out of whack. What are you getting for that money? Is there a special assessment that is ongoing? What does the assessment cover and is it in line with other similar condominium properties?
I think you need answers to these questions (and any others you can think of) before you decide to make an offer on this property. Take a look at what else has sold in this area, and for how much. Think about who is going to be buying from you in five years. And, try to calculate how much cash you’ll have to spend to bring this place up to speed.
If you can buy this property on the cheap, and then live there while you slowly (and affordably fix it up) then it might be worth doing.
But don’t expect double-digit appreciation over the next few years. Plan for 3 to 5 percent appreciation and then see if the numbers work.
Posted May 1, 2006.