For several summers Nancy Krtous and her family shared their second home in Michigan with mice and chipmunks. When Krtous slid out the bathroom’s pocket door, dozens of acorns rolled into the hallway.
Because homes of any kind were rarely available in the area of Pentwater, Mich., Krtous had willingly bought this “distressed property” in 1999 to gain a waterfront lot on Bass Lake.
“The place had no heat, so we only went there in the summer,” said Krtous, a United Airlines flight attendant from Park Ridge. “It was a shack, but it was exactly where I wanted a second home to be, in the town where my family vacationed when I was a child.”
Buying a 1920s summer cottage, a falling-down Victorian farmhouse or a barebones hunting cabin isn’t for everyone. But with patience, determination and imagination, those who decide to take the plunge are often rewarded with a house that’s just right.
Location ruled Krtous’ second-home choice. The right price convinced Larry Shawver to buy what he calls a “hard lived-in” house in Three Oaks, Mich.
When Shawver first walked in he didn’t want to stay. The “trashed” property wasn’t on his real estate agent’s list and two scary dogs were barking in the back yard. But a friend who’d accompanied him to the 90-year-old house convinced Shawver to take a closer look at the excellent condition of the lovely, original woodwork.
Shawver bought the house for a song in October 2003, hired contractors to do some basic repairs and plans to continue making improvements on his own over the next couple of summers. He’s pleased with the town’s antique stores, restaurant and art movie theater.
“I hope the house is close enough to Chicago, big enough, and fun enough that friends and family will use it, too,” said Shawver, who lives in Evanston. “In fact, two of my grandkids already have Three Oaks library cards.”
Dan Coffey, broker/owner at Re/Max Harbor Country Real Estate in Union Pier, Mich., said people like Shawver who are willing to buy property as much as 6 miles from the beach can find fixer-uppers for under $100,000. Distressed properties located just over a half mile from Lake Michigan, in Bridgman or Union Pier, are more likely to sell for $320,000 and up.
Houses in move-in condition in Bridgman start at $400,000. Three or four blocks from Lake Michigan, in Union Pier, and in Grand Beach, Mich., and Michiana, Ind., they start at $500,000 to $600,000, Coffey said.
“The total cost of building a decent new house out here is getting closer to the cost of buying a fixer-upper, if not in some cases cheaper,” Coffey said.
There is no formula to determine how much you should pay for a distressed property, said Nadra Kissman, broker/owner of Nadra K Real Estate in New Buffalo, Mich. She advises buyers not to over-improve a property in comparison with other nearby homes. If you should have to sell quickly, you want to avoid selling at a loss.
Before buying what architect Chris Turley of Turley Architects in Evanston calls a “dog ugly” property, wise buyers hire experts to look them over. Architects can determine whether a house is structurally safe and whether it can be renovated to meet a buyer’s needs and expectations, Turley said. They also can supervise renovations.
If a sagging floor, bowed wall or foundation crack is causing you sleepless nights, hire a structural engineer to look at the property. Find one through the state’s structural engineers association.
Virtually every older building will have cracks, said Harry Kuchma, structural engineer and partner in KRW Consulting Group in Elk Grove Village. But that doesn’t mean the building is going to fall apart.
Have the property inspected by a licensed home inspector. Home inspectors, listed with the American Society of Home Inspectors (www.ashi.org), specialize in finding signs of wear and tear, such as leaking windows and insect damage, that indicate possible problems.
“People buy cottages that were built for summer use and want to winterize them,” said Jamie Dunsing, Illinois market executive for Inspectech Inc. in Libertyville. “Frequently the people who have owned them haven’t hired professionals to do repairs, so you find a lot of electrical problems and jerry-rigged stuff that makes for safety hazards.”
Next, investigate loan opportunities at your own bank and at a local bank. For homes in need of major repairs, a Fannie Mae or Freddie Mac renovation loan is the most likely option, said A.W. Pickel, president of the National Association of Mortgage Brokers in McLean, Va. These loans are first mortgages based on the eventual value of the rehabbed house as determined by an appraiser. Another option is a home equity loan based on your primary residence.
In either case, the lender will have the potential second home appraised. Make sure your contract to buy the home is subject to the appraisal, have the appraiser give you both the value of the property “as is” and the value it will have when improved as planned, Pickel said.
“It’s not a primary residence so all lenders will look at it a little more strictly,” Pickel said. “As a lender I want to loan people money where they’re going to make the payments. I don’t want to see them default. That’s a lose-lose situation for everyone.”
Pickel recommends against using local banks. Because they are small, they may not be as willing to make the loan, and if they are willing, such loans typically cost more than Fannie Mae and Freddie Mac loans.
On the other hand, Kissman said a local bank is probably your best bet for finding a loan because they know what’s going on in the area and “that the value is there in the location of the land.” If you plan to do the rehab immediately, one loan can cover the cost of the house plus construction costs.
If you have neither the time nor the skill to wield a sledgehammer, find a licensed contractor through friends, local home improvement centers or the National Association of Home Builders (www.nahb.org). NAHB lists state home builders’ association Web sites, which in turn list their members, all of whom must be state-licensed to appear on the rosters. Local builders’ associations also have information on permits, inspections and code compliance requirements that apply to your property.
Real estate agents can help, too. Kissman’s office distributes a resource booklet, “Getting It Done in Harbor Country,” listing plumbers, electricians and other craftspeople.
Supervising work from a distance can be a challenge, said Honore Frumentino, a sales broker with Koenig & Strey GMAC in Deerfield, who owns a second home in Lake Geneva, Wis.
“It’s always a good idea to bring a distressed property in a good area back to the condition of other homes in the area,” Frumentino said. “But you have to be there, which can mean living in a mess. And if it’s really a gut job, you may not be able to live in it.”
To be sure her contractor was on the job, Krtous occasionally dropped in at her property unannounced. One day she caught the contractor’s unsupervised work crew using her boat to fish for lunch, and her Weber to grill their catch. Krtous tried to reach the contractor, but he never answered his phone and never returned calls.
When Krtous discovered after a call to a local lumber supplier that the contractor was double-billing her, she fired him. She then became her own contractor, working with reliable subcontractors whom she had met on those same spur-of-the-moment visits.
“I looked for 15 years before I found this house,” Krtous said. “It was in bad shape, but now my whole family loves it and despite the headaches, it’s worth its weight in gold.”
