While flipping the filets yesterday, while it was pouring rain, I was aghast that I had left you with the impression that only a gadzillionaire could afford a vacation home at The Greenbrier. In fact, the Greenbrier Sporting Club is one of the best values in vacation home properties. I showed you a $5 million house, how about one for UNDER a million?
(Editor’s Note: This is the second installment in a fantastic series from Realtor and writer Kathryn Roan. You can read the first part here.)
Finding the perfect farm is best categorized as online dating. You put your criteria into a search engine, and you get a 100 smiling, shiny faces in return. And like anything else, a ranch’s listing online is the best version of itself. Each profile shows only the best angles, and begs the viewer to “Pick Me! Pick Me!” Only the best features are shown, rarely does the listing mention the crumbling shack with 13 cars in the yard across the street. Much like dating, at the beginning farm shopping is somuchfun and there are just so many possibilities (!). And then you turn 30 and it seems like all the good ones are taken, and the leftovers have serious mommy issues. Sorry, I seem to have over-mixed my metaphor…
I am going to be honest with you. If you don’t drink heavily now, you may start sometime during your property search. For one, it will feel like the perfect property is just out of your reach financially. This happens to everyone, and I mean everyone, no matter the price range. Ok, maybe not those with $10 million to spend, but I don’t know any of those people. (If you do, please direct them to Kathryn@TexasEquestrianProperties.com).
The shopping process can be a beating. You’ll find farms where you love the location, and hate the house. Or you love the house, hate the location, and it doesn’t have a barn. Or you love everything, but it’s on the wrong soil. Inevitably, you’ll find several that look great on paper, only to find out that the only reason it’s in your price range is that it is right next to a rail road track and there’s a decent chance the next door neighbor’s a drug dealer. Most importantly, do not shop way out of your price range. If you cannot afford to buy a Lambo, do not (and I repeat, do not) go test drive a Lambo. Everything else will feel like a 1991 Honda Civic with no doors in comparison. You’ll only set yourself up for disappointment.
October 15, 2010 – All of this fencing had to come down
(Hint: That is not the Ranch of the Week.)
So, you’ve gone and bought a ranch in the country. Congratulations, and welcome to your own personal sweat shop. Cancel your CrossFit membership, folks. Things are about to get real.
The above photo was taken in October of 2010. I had just closed on a hot mess. My new little ranchette in Poetry was eight acres of “what the *!!#! is going on here?” and had been sitting vacant for four years. Let that sink in… property in the country, vacant for four years. Dear lord in heaven, what was I thinking?
I had put myself in a bit of a bind. I gave 30 days notice to the landlord of my darling little Uptown loft… 15 days ago. The same with the owners’ of the boarding barns where my horses were happily being cared for by someone else. So there I was, standing in the rock driveway 45 minutes away from civilization, wondering where the safest place was to put my blow up mattress in a house with carpet that smelled strongly of cat pee.
Despite the daunting task of deciding where to even begin, the property itself was beautiful. Really and truly. It’s on a quiet little dead-end private road, surrounded by trees. When I spied on the neighbor’s property, I could see the corner of her dressage riding arena with nicely tilled sand on the other side of the treeline. It appeared I was among friends.
The first thing to go was the carpet. If you have not ever had the pleasure of removing carpet in the country, let me tell you… It just does not get more disgusting. Consider yourself cured of any future desires to lay new carpet anywhere, ever. This particular gem was of the cheap, brown, and stained variety. Once it was up, we discovered that the subfloor was a bit subpar, and surprise! it needed to be replaced.
The actual pile of crud brown carpet
This was my first real lesson in property ownership. When you start a project, you are given an estimate of the cost. Burn it. It’s irrelevant. As soon as they actually start tearing things up, that’s when it all goes to hell. They really have zero idea what is going on under the surface, and as a rule, it’s not pretty. On a farm, “under the surface” almost always involve one of the Four Pillars of Destruction: Insects, Rodents, Mold, or Poop. Often in combination. Left unattended, nature will take over, allowing nasty things to come right on in and make themselves at home.
So while I had “guys” occupied with getting the carpet out and flooring in, I opted to tackle the fencing outside. The entire perimeter was composed of very poor quality bracing, especially noticeable due to the soft instability of sandy loam soil, t-posts, and five strands of barbed wire. (Sidebar: If I make no other contribution to society, yet persuade even one person to not install barbed wire fencing on their property, I shall consider myself a success.) All of the barbed wire had to come down, and smooth coated high tensile electric wire (a lovely product called White Lightening by Centaur Fence) had to go up. If you’ve never had the pleasure, barbed wire is nasty stuff. The strands are attached to brace posts with tension, so when you cut it loose, it springs back towards you in a manner akin to a shrapnel covered slinky. The object of this super-fun wargame is to remove the strands, one by one, from the t-post using fencing pliers, then roll each strand into a redneck Christmas wreath of rust and tiny knife points. Without losing an eye.
The rolling process is especially nerve-wracking due to the fact that barbed wire behaves only slightly better than a herd of cats, meaning it does what you want it to do roughly 0.05 percent of the time. And the rest of the time it is finding every opportunity to scratch you.
100×200 arena and the Best Dog Ever
Fast forward four years, 20,000 laborious man hours, and 90 percent of my dignity later, and I was in possession of a fairly respectable horse farm. Most of the transformation (and my savings account) involved pipe fencing, an automatic gate, automatic pasture waterers, an arena, run-in sheds, and a tack room. I would say I enjoyed it for roughly one year, one month and 12 days before I got The Itch. No, not a raging case of poison ivy, the Is This Really Enough Acreage? Itch.
There is a saying in the country: “Nothing is more attractive than your neighbor’s property.” The grass is always greener on their side of the fence, and you just want your horses to be eating it. There is a constant, persistent desire for a “bigger place” that just never, ever goes away. Another guaranteed factor after purchasing a farm is What’s One More? Syndrome. Absent of the built-in governor of a monthly board check, you buy a farm and start adding to your collection of misfits, er, future Olympic contenders like you’re auditioning for Hoarders: Buried Alive. Any common sense you formerly possessed, backed up by a monthly bill from your barn owner, pretty much just evaporates the moment you sign next to that little sticker that says “Buyer.”
One Olympic Contender, and one Misfit
Farm ownership is a constant carousel of trial, error, and self-doubt. Will a riding lawn mower be enough to mow my pastures? When do I put grass seed down? What kind of fertilizer do I use? Fertilizer cost how much!??! All of this evolves into “Gee, it sure would be nice to just turn the horses out and not have to worry about throwing hay….” Enter: The Itch.
It starts innocently enough. You’re buying your 97th roundbale over the winter, and you pause to think how nice it would be to have seas of rye grass to put the tiniest dent in your hay bill. You brush it off as something you can’t afford, and you move on. You visit a friend’s farm, with all her lovely broodmares and babies frolicking in a 10 acre grass pasture. You go home and punch “20 acre minimum” into the MLS. Again, determine you can’t afford what you want, move on. But, The Itch persists. Soon, you’re obsessively checking the MLS twice a day, and have searches set up on every single website, just in case one misses something. Everything is too far, the wrong soil, has the wrong improvements, or is fantastically over-priced. Then, one day, a little thumbnail photo catches your eye. This could be The One. The One that satisfies The Itch.
Stay tuned for Part 2: The Farm Buying Process, and How To Move The Old Farm to the New Farm without Sedatives aka: “So, you’ve bought a new farm. Now what?”
This may be a great time to BUY a second home, but are banks, who make it hard enough to finance your primary residence, cooperating? The answer is yes, if you have good credit and a hefty down payment. But I have heard so many conflicting stories on the nuances of getting a second home loan, I decided to consult broker extraordinaire Marcus McCue of Guardian Mortgage. Is it true, for example, that the home has to be a certain distance away, and that some banks would rather eat a Listeria-laced cantaloupe than make a second home loan. Raw land? Impossible, Wells Fargo told me — too many underwater mortgages. So I needed to bring in the big gun, aka Marcus. He tells us the biggest challenge is defining just what a second home is. Here’s a secret: even Real Estate agents get confused:
It seems obvious what it means when you tell your REALTOR® or lender you’re buying a second home, right? If only that were true! Many surprised homebuyers have gotten part-way through the loan process and been denied before they discovered that their home cannot be categorized as a second home and cannot be financed as a second home due to the occupancy requirements for second homes.
1. The second home must be located a reasonable distance away from the borrower’s principal residence.
What is a “reasonable distance” can be up to interpretation. For example, if the property is a lake house or beach house, the property may be located less than an hour away from the borrower’s primary residence and still be acceptable to the underwriter as a second home. However, if you live in Dallas and are buying a second home in McKinney, the originator or their underwriter is likely to deny the loan as a second home and will require the loan to be processed and closed as an investment property.
2. It must be occupied by the borrower for some portion of the year
If the property is a second home, then this means the property will be occupied by the borrower for some portion of the year. This could be seasonal for those properties located in ski or beach areas, numerous times per month like weekend visits to a lake house, or periodically during the year like a home grandparents purchase near their grandchildren.
3. Financing is restricted to one-unit properties only
A duplex or other multi-unit property is categorized an investment property by conventional guidelines even if you live in it part of the year. The owner would be occupying only one of those units – with the other units leased to tenants – the financing on the entire property would be categorized as an investment.
4. The property must be suitable for year-round occupancy
A property that is only functional in one season like a hunting cabin with no heat will be denied.
5. The borrower must have exclusive control of the property (no timeshare or split ownership situations)
6. The property must not be a rental property or a timeshare arrangement
7. The property cannot be subject to any agreements that give a management firm control over the occupancy of the property.
Basically, see point #6. If you have an agreement where a management firm controls the occupancy, then the borrower does not have exclusive control of the property and the property is likely to be rented to tenants during the year.
Question: Does this mean you can never rent out your beach house?
The issue here is intent. The intent at the time of closing needs to be that the property will be owner-occupied and not rented. If the property is rented after closing or years later, but the borrower occupies the property themselves at some time of each year, then the loan is not fraudulent.
Question: What if you want to buy a house for your child to live in while in college?
In this scenario, the property is an investment property and not a second home. Your children are not you … so if they occupy it is not owner-occupied. There are very limited and specific scenarios where properties can be financed for family members as owner-occupied properties, but these are limited to disabled children and elderly parent situations.
If a parent is buying a property in a college town because their child is attending the college, then their intent needs to be that they will be occupying this property themselves when they visit the child in college: Not that the child will live as the occupant and they will have a room to stay in during visits.
Question: If you’ve determined that your home is not a second home, what are your financing options?
The options are primary residence, second home or investment property. If a property is not your primary residence and not a second home, then the only other option is investment property. Both primary residence and second home properties are in the “owner occupied” category. If the property is not owner occupied, then it is investment. Investment properties generally require more of a down payment and do not qualify for the same tax benefits as an owner-occupied home.
If you have additional questions about your particular mortgage financing situation, feel free to contact Marcus McCue at (214) 473-7944, firstname.lastname@example.org or find him on Facebook. Or email me and I’ll hook you up!