Live/Work

Looks like I was quoted in this month’s Oregon Business Magazine. A Brief article on the merits of live/work spaces. It’s a short piece, and mostly about the concept, rather than specifics.

Left hook from the economy. Right cross from the banks. Multiple uppercuts from the mortgage industry. A 10-round knockout.

For those of you who’ve been following along, it’s been a real treat sharing this process over the last year and a half. As of today, I’m officially abandoning the live/work project. The climate is wrong, the banks aren’t willing to meet us halfway, and the entire process is…well, just exhausting. I could go on and on about things we’d do differently, frustrations with the industry, or the unrealistic expectation the city has for the ADU program.

But for now, I won’t. Instead, I’ll just say thanks to those who deserve it.

Bad news. After reaching terms with the bank, they’ve gone back on their initial commitment. The first terms were not favorable, but if I held my nose, I could tolerate it.

The new terms are just abysmal. They’ve increased their fees to 2 points, are requiring all sorts of new documentation from the builder, and want to up our rate from 6.5% to 8%. All this and they hold the lien on the house - if anything goes wrong, we lose everything.

After some consideration, I made the decision to stop pursuing business with this bank. This was a tough call because we don’t really have any other options. As much as I wanted to make this project happen, it just didn’t make any sense. Here’s why:

Our project costs roughly $165,000 to build. Our current home is worth just over $250,000. In order to loan on the construction phase, the bank requires that that hold first position on the property. This means that they want to buy out the existing mortgage (to protect themselves in case of default) before loaning on the new building. So while it would SEEM like we need to borrow $165,000, when you add in the existing mortgage, interest reserves, bank fees, title, so on and so forth….you get to a “loan” of $447,000.

Since the appraisal of both properties came in at $485,000, the most the bank will loan is $364,000 (75% of the appraised value of the property). The difference between this amount ($364k) and the TOTAL project cost ($447k) is what we, the owners, have to come up with in CASH (just over $80,000).

I don’t know about you, but it’s a little CRAZY to come up with $80,000 in order to get a loan for a project that’s $165,000.

Still, I was willing to give it a shot. I don’t have that kind of scratch lying around, but I do have some savings. Plus, I have a business with a substantial line of credit and some cash reserves. Last, but not least, I had a dear friend who was willing to loan me $30,000 to make up the rest.

It was a stretch, but I could have done it and met the bank’s insane demands. When they changed the terms, it was still possible…

But the reality is what the bank was asking was just too much, and for a cost that was disproportiante to the risk they were willing to take. Calling the current lending climate “unfriendly” would be an understatement at best. It’s a stark example of how the credit crunch is grinding our economy to a halt.

Well, it feels almost surreal, but the city has our permit ready. Meaning, if I put down my money, we could break ground. Of course, this is all theoretical, since the bank is behaving like…well, most banks. More on that shortly.

Received a new appraisal yesterday. It’s better, but still short of what we needed to complete the project. For those of you who are unfamiliar with the lending process, here’s how it works:

Banks will loan you a certain amount of money based on the appraised value of your project. To keep it simple, let’s say your project appraises at $100,000. Most banks lend between 70-80% of the full value of the project. With the example above, that would be $70-$80k.

This percentage is often referred to as “Loan to Value” or LTV. Read the rest of this entry »

Well, tomorrow is THE DAY. The bank’s appraiser will be coming by the house to do a walk-through. This will be the second appraisal of the current home and Live/Work Propoert. The number we need to hit is ambitious, BUT the new appraiser agrees that it’s valid to use duplexes as comparables.

The reason duplexes are relevant is that there are many examples of such properties around the city. Unlike ADUs, duplexes can be found throughout many neighborhoods, and finding recent sales data will be much easier.

If you’re reading this post, send some good wishes our way.

I recently met with Taylor Watkins of Watkins and Associates. Taylor was referred by Beth of Living Spaces Design, as well as Renee and Lorie of Rose City Mortgage. Sadly, Taylor had an emergency come up and wasn’t able to help us with the project. However, once he’s back to full speed, I highly recommend giving him a call.

I recently had the pleasure of meeting Eric Storm and Beth Meredith of the design firm Living Spaces. Eric and Beth stumbled across my site and invited me to lunch to discuss ADUs.

Without going into too much detail, we had a great conversation about the ADU program, it’s shortcomings, and how the city could tweak a few things to improve adoption. We all agree that the city’s code needs some updates, and it’s good to find like-minded folks who see the potential for ADUs in Portland

What I like most about Eric and Beth is that they see the merits of small, efficient design. Their portfolio has some excellent examples of how small, organizational changes can have a profound impact on the efficacy and enjoyment of the home.

In addition to their work, the design duo have some great articles/essays on their site. Here’s one excerpt I found to be particularly compelling:

The fact is that the greenest solution is one that involves the least building possible…

Pretty courageous coming from folks who make their living from building design! Kudos! A while back I wrote an article that discussed the decidedly disturbing trend of “trophy green” - remodeling for the sake of vanity or prestige. Read the rest of this entry »

I’m introducing a new category to the site this week. It’s called “Heroes.” The idea is to highlight individuals, businesses, and organizations that have contributed to the project. Initially, I was going to call this category “Heroes and Villains” but decided that the “Villains” just weren’t worth my time or energy. Focus on the positive!

(and how they can fix it)

Those of you following this website know that for over a year (17 months, but who’s counting?) I’ve been trying to get our ADU project off the ground. We’ve won some major battles (land use adjustments) suffered some small setbacks (NIMBY neighbors) and learned a lot about urban development.

A few months ago the magazine Portland Spaces put out a brief article on the ADU “trend” (”trend” is an overstatement, but the article did make it seem as if ADUs were the next “big thing”) Anyway, one of the points made by the article was that the permit process is so expensive (at least $7500 for permits) that ADUs fees are nearly as expensive as building a “real” house.

Which segues to my main point - building an ADU in the Portland city limits is simply too difficult, time consuming, and expensive. Read the rest of this entry »