Not every little house in an expensive little town like Princeton gets torn down and replaced by a McMansion or a specimen of modern architecture. Every once in a while along comes an owner — often motived by emotion more than economics — who decides to invest tens of thousands or hundreds of thousands of dollars to make the old house viable in the modern day marketplace and immune from the wrecking ball.
But what kind of an investment is it, and how does it compare to the tear down approach? Since I just completed exactly such a renovation project, I will offer my hard-earned perspective.
Here was the deal I faced about three years ago. My three-bedroom, two bath, 100-year-old house at 34 Park Place in the heart of Princeton, which I had purchased for next to nothing ($72,000) in 1981 and which I held onto after I bought the slightly larger house next door, had become vacant after a tenant moved out. The house was in disrepair. In fact, just before the tenant moved out we discovered water seeping into the basement. It was actually wastewater bubbling up from a collapsed pipe leading to the sewer line. And in making that repair the plumbers discovered that the sewer line itself was in bad shape and that the line, which also collected sewage from five neighbors “upstream,” actually ran under a corner of my house and my small attached garage.
What could be worse than that? I’ll tell you what: Princeton Borough announced to me and my neighbors that the antiquated sewer line was not the Borough’s line; it was ours, and the problems were ours, as well.
What to do? I had the experience of overseeing a major renovation and addition to the house next door and I had an idea of how expensive it could be. But unlike the house at 78 South Harrison Street featured on the cover of this issue of U.S. 1, mine was on a postage stamp of a lot: 30 by 70. If the zoning board permitted me to rebuild on the same footprint I had, and if I were permitted to make the new house three stories instead of two, I still would be adding only about 700 feet of living space. And — here’s where the emotion comes in — I would be stuck living next door to a post modern cube that would be an “urban insertion” on a street of small houses with traditional porches.
So I decided to take the renovation plunge, with a teeny expansion. Since I had to tear down the garage and the 10 by 16-foot room above it in order to get the sewer line out from under my foundation, I sought permission to add two stories, instead of just one, above the parking area.
I figured the addition would cost about $100,000 and that the foundation work would be another $20,000 or so. But it didn’t surprise me that the lowest bid I got for just the addition was $150,000.
From there things went topsy, all very logically of course. Since the addition was going to have cedar siding, it also made sense to tear off the asbestos siding that had covered the house since the 1930s and restore the original cedar siding. A new roof was ordered to replace the 20-year-old roof on the main house.
The sewer work led to the idea of digging out the entire basement and giving it a proper floor and headroom. If I did that it was only logical to remove the sagging beam going across the middle of the basement and jack the floor joists up to meet it. The jacking process, taking the sag out of the dining room and living room floors, also cracked some of the plaster walls.
It would have been foolish, of course, to fix those walls without also replacing the acoustic tile ceilings in the bedrooms. Wouldn’t this also be the time to replace the original windows (most of which didn’t work) with modern day insulated windows?
And that old kitchen, with no dishwasher or microwave, and precious few cabinets, had to be upgraded. Of course.
This fall, as I was preparing my income tax, I totaled everything up. The total outlay for this 100-year-old, but newly refurbished three bedroom, two and a half bath Colonial in the heart of Princeton (but with parking for two cars): Not the $150,000 that I had first imagined but closer to $300,000.
Was it worth it? You tell me.
When I started the project the nearly identical house on the other side of my house (in better repair but with no off-street parking) had just sold for $350,000. From that point of view, just to break even, I would need the house today to be worth at least $650,000 or possibly $700,000. By this measure it’s close to a break even and will be when (or if) real estate rebounds.
Here’s another way I look at it. Let’s assume the pre-existing value of the house, $350,000 or $400,000, is something I’m willing to consider a passive investment that will rise and fall with the market and from which I’m not counting on any income. But the $300,000 in improvements is real money, in my case funded by savings (part of which came from deferred maintenance on the old house) and a home equity loan.
To calculate the overall cost, I assumed that all of it came from a $300,000, 30-year mortgage at 7 percent. The monthly payment comes out to about $2,000. Given that the rental potential is about $3,200 a month, that suggests I can more than break even. Except we are forgetting property taxes (almost $1,000 a month after the assessor saw the renovation completed). Add in a few hundred dollars for insurance and maintenance and we are back to break even. (Of course, I could have invested the savings portion of the renovation costs in the stock market.)
Reaching break even is partly by virtue of the fact that I have been through lots of this before, and that I had the help of several friends in the business.
But the biggest rewards are emotional, not economic. I now live in a neighborhood with very few properties that are candidates for tear downs. And, as I know from painful experience, I am right next door to one of the most expensive houses on the block.