Updated: Mar 4
In February 2020, I changed jobs and joined my husband in the fully remote working world. We lived in a 3-bedroom house, and we used those 3 bedrooms as follows: master, spare bedroom, and office. Historically, we’d been able to share an office because neither of us was working from home all the time. With my job change, we knew we’d need two offices to keep our marriage intact. Unfortunately, our second and third bedrooms were both too small to house both a workspace and a guest space, so we had two options: have no guest space at all or start looking for a new place to live.
At first, my husband protested. Then, he joined in my thinking: other than two offices and a guest space, what would we want in a different home? On days we were both at home, we would immediately want to get out of the house at 5:00. This would usually mean going out to eat, for a walk, or for a bike ride. We had originally loved the location of our home, with equal commutes to downtown St. Petersburg and Tampa. Now working from home, the location didn’t have the allure it once did. Often, we would end up on the busy road near our house during rush hour. We added other criteria to our wish list: walkability and access to bike trails.
My husband and I have both written and spoken about our real estate journey. We are low-level real estate investors. When we were considering a move, we owned our primary residence and a duplex, which we rented out. One thing we’ve learned is it’s hard to buy an investment property by financing it in this area. We made at least a dozen offers including financing before we finally had enough cash saved to buy the duplex outright. What if we were able to buy a primary residence with a conventional mortgage that had a rental unit on the property? We would be able to kill two birds with one stone: move into a new place that worked for us and finance rental income to help pay the mortgage. We were paying $2100 per month to live in our house. That’s over $25,000 per year. If we could offset that a bit, we would reach our financial goal of retiring around age 40 more quickly.
We focused on location first, knowing we could look for a larger place with a rental option once we found a town with walkability and bike trails. We mostly considered small towns in our county with cute downtowns and bike trails: Safety Harbor, Dunedin, and Tarpon Springs. None of these towns were as ideal for a commute as our current neighborhood, but they were all within 45 minutes of Tampa International Airport, which we would need for work and personal trips. We biked, walked, and went out to each multiple times in each town.
Eventually, we decided on Tarpon Springs. The Pinellas trail runs right through it, which is a 46-mile paved bike trail. It has a tourist destination in the Sponge Docks, including a handful of restaurants on the water. It has two beaches and many waterways. It has a separate downtown area. The prices are very reasonable, potentially because it is basically as north as you and be in Pinellas county, which is about a 40-minute drive from the county’s biggest city, St. Petersburg. Dunedin and Safety Harbor have experienced significant appreciation in recent years, why wouldn’t Tarpon Springs be next? And even if the town didn’t experience a lot of appreciation in home values, we could still decrease our payment and add a rental unit.
We started looking at homes in February 2020, and there were two properties that matched our criteria: walking distance to entertainment, access to the Pinellas trail, enough room for two offices and a guest space, and rental income potential. Valentine’s weekend we booked two nights at the Tarpon Inn, so we could make sure we truly liked the area.
We looked at the first property on Saturday. It had two lots, with a 4/2 home with a pool (built in 1910), a pool house, and a 3-car garage with an above-garage 2/1 apartment. It was located very close to a bayou, thus requiring flood insurance. The list price was $569,000.
We looked at a second property on Sunday. It was run as a Bed & Breakfast. The main home (built in 1901) was a 3/2.5, with the second bedroom being large enough for a full office and full guest space. It had two small rental units in the back and a place to hook up a trailer. It was a single, small lot, and was listed at $336,000.
I wanted the second one, and my husband wanted the first one. So, we went under contract on the first property for $542,000. Eventually, we came to our senses and realized that was too much to spend and we would be working and generating rental income just to pay the bills. For more information on that, please read or listen to Real Estate Deal Gone Bad.
After a slight cooling off period in the middle of the Covid-19 lockdown, I approached my husband to talk about the potential financials of the Bed & Breakfast:
$300,000 purchase price
Vacation Rental Income $2100
Cottage A: 50% vacancy at $60/night: $900
Cottage B: 50% vacancy at $40/night: $600
Travel trailer: 50% vacancy at $40/night: $600
Once he saw the numbers, he came around. Rather than explaining every single step in this process, here’s a timeline of events. As one of my favorite podcasts likes to say, hold onto your butts. It’s a doozy.
August 22, 2019: Property listed for sale for $374,900 on income section of MLS, but not on Zillow or anywhere online.
Price changes between listing and when we looked at the property:
Price change to $364,900.
Price change to $349,900.
Price change to $336,900.
February 16, 2020 (Valentine’s Day weekend): We looked at the property for the first time.
Late February 2020: We went under contract on another property in the area, and eventually opted out. (Again, please see Real Estate Deal Gone Bad.)
March 4-13: We started negotiations on the Bed & Breakfast.
Offered $300,000 (see numbers above)
Seller countered at $330,000
We countered at $320,000
Seller stayed at $330,000 and we agreed to that price. Seller agreed to leave some furniture.
March 16: Entire country started shutting down due to Coronavirus. Bad timing.
March 17: We canceled the contract before inspection (which was scheduled for March 18).
Early April: Seller started representing herself and put the property on Zillow. She would continue to show the property almost up until we closed.
April 13-17: Negotiations led to being under contract again, this time at $310,000. The seller kind of brought her realtor back in and each side was only to receive $2,500 on this transaction, which is why she agreed to lower price.
April 20: Inspection ($660) revealed new roof, siding, and paint needed. This was in addition to new kitchen and refinishing the floors, which we were aware it needed. Two AC’s and two water heaters were also at/near end of life. Obviously, there were some electrical and plumbing issues as well, although not as many as you’d expect for a 1901 home. Somehow, we were not deterred.
April 24: Contractor visited the property to assess. Total work needed adds up to about $100,000.
April 24-27: My mom and I designed the kitchen layout with online software.
April 27: Last day of inspection period, we asked for one-week extension to get structure looked at. Seller miraculously agreed very quickly.
May 1: Structural inspection ($100).
May 4: New last day of inspection period. We received structural quote for $26,000. We asked for lower price, and seller said no, so we sent the cancellation. As soon as we sent it, the seller texted our realtor and re-started negotiations.
May 5: Seller realized she had not 1 but 3 mortgages, so she negotiated lower payoffs for loans 2 and 3, which expires May 25th.
May 6: Seller agreed to new price of $285,000 with $5,000 in closing cost assistance.
May 7: Appraisal ordered and paid for ($600).
May 11: We had lunch with contractor, finalizing scope and negotiating prices.
May 11-13: We had 3 insurance agents figure out how to insure a 1901 house with a roof at end of life with two short-term rentals in the back. Only 1 actually succeeded, but the roof was uninsurable until replaced.
May 14: Appraisal site visit.
May 15-17: We prepared to list our home. I cleaned out closets and the bathroom and packed up personal pictures. My husband pressure washed the house and driveway. We scheduled cleaning service for May 19th and pictures for May 20th. We also scheduled a tree trimmer at the new house for May 27th, and the roofer immediately after that.
May 18: We received the appraisal for $245,000. The seller would also have to put in closets and fix a railing.
May 19: Seller told us our options were to contest or cancel. We contested appraisal and asked that a new comparable sale be added.
May 21: Seller agreed to extend closing date until following week, but addendums weren’t signed.
May 22: “Close Date.” We received appraisal back again including new comp. It still appraised at $245,000. We then heard that the appraisal company conceded that the appraisal was deficient. A second appraisal was approved by underwriter and ordered. We extended close date to June 3rd, contingent upon both an appraisal and seller getting extension on the lower paydown for loans 2 and 3 (which was set to expire May 25th).
June 2: Second appraiser (with more expertise in this area) visited the property.
June 3: We extended closing to June 5th with the understanding that we’d have the new appraisal June 4th.
June 4: Nothing happened. We didn’t receive the second appraisal.
June 5: We received the second appraisal in the morning, and the property appraised for $300,000 as-is! Recall that we were under contract for $285,000. The seller didn’t even have to do anything to the property! We extended to Monday, June 8th, to ensure the lender had enough time to finalize the packet (ha ha) and the insurance agent had time to secure a binder. We got the insurance binder by the end of the day.
June 6: We re-scheduled tree guy and confirmed with contractor we’re going to close and start work ASAP.
June 8: Final walk through was scheduled for 1:30 and closing was scheduled for 2:00. I spent an hour or two setting up the electric and the internet in the morning. We needed the closing documents to get water and garbage service, so I was unsuccessful for those utilities. We were pleasantly surprised when we walked in during the walk through that the seller left over a dozen pieces of furniture, most of it antique. Due to the lender not providing the title company with the closing documents until 11:00 am, we didn’t get the wire amount until 2:00. I scheduled the wire while we were at the walk through and we headed to closing at 2:30. By 3:30, we were done signing the documents, but the wire never came through. We scheduled pictures on our home for Friday, June 12th.
June 9: I got a call at 10:00 from the title company asking what was going on with the wire. The seller wanted her money! I called by bank and they said it was approved at 7:00 am and would enter the escrow account between 11:30 and 12:00. (I have never had this happen where it takes 22 hours for a wire to go through.) Eventually, the wire cleared and by 1:00 we were officially owners. I sent the city what they needed and set up water and garbage service.
In our almost 4-month journey, we had supporters and detractors. Some of our friends and family saw our vision of having living expenses paid by the property itself. Others may never understand why we’d pay $285,000 for a 1901 home that needs $100,000 worth of work. Thus far, we’re standing by our decision.
I’ll leave you with this picture of us, full of hope and pretty sure we’ve made the right decision. Stay tuned for details regarding the renovation to the property.