I spent a total of $38,458 on renovating this tiny barn. The total cost since I decided to convert the barn into a dwelling is $31,070. By adding A/C to this barn, the square footage can officially count towards part of the house for resale value (conservatively about $60,000; $150 / sqft). Here are the details of the expenses:
Flooring $1,230: Luxury Vinyl Plank for about 400 square feet (about $3 a sqft after taxes)
Mini Split $1,198: Pioneer + smart device + installation fee (we hired a professional AC guy to vacuum-seal it $270)
Renting a dumpster $445
Paint $528: Benjamin Moore, totally worth it.
Permit $275 ($200 refundable)
Things I could have saved:
I probably could have saved more on furnishing the place if I was patient enough to wait through Facebook Marketplace and am willing to pick up bulky items. Even though most of the items around my area seem very mid-west and outdated on Facebook, once in a while, someone who has similar minimalist taste posts a piece of furniture on Facebook. I got my mirror through Facebook for $25 which was well worth it.
Paint: I went with Benjamin Moore paint and it costed a lot more than if I had gone with Behr. I was priming and painting white onto drywall (as opposed to painting over a previous, darker color), so in retrospect, a cheaper paint probably would have been the same. But I absolutely loved the experience painting in Ben Moore. The paint doesn’t smell horrible, and two coats are more than enough. The paint cured wonderfully against the primer. It is hard to go back to Behr products again… I thought maybe it was just because I paid more money and felt the satisfaction but I found on reddit others have had similar experiences with a mid-range-priced paint. So I could have saved some money for it, but if I were to do it all over again, I’d probably still go with the more expensive paint.
Things I may have to pay for in order to build another tiny house:
concrete slab – this was existing so I didn’t have to pay for it.
barn structure – even though I practically redid the structure, it may have cost me a couple thousand more if I have to build the structure from scratch.
Overall, my budget was about at the start of the project $25,000 and I spent $31,000. I have underestimated how much furnishing would cost. All those $100 trips to Home Depot and Walmart adds up!
I am planning on duplicating this process sometime in the near future (after the price of lumber & other construction materials come down a bit).
If you want the TLDR, you can just jump down to the reflection part at the end.
I’ve been looking at houses for a while. I listen to real estate investing podcasts like BiggerPockets, The Tom Ferry Podcast, ChooseFI, etc. I go through phases of loving them and getting frustrated with them, and loving them again.
3 bedroom 2 baths (at least 2 bathrooms for resale value)
In a decent upcoming neighborhood
In the 150k – 250k range
In Bentonville, AR
Some preferred qualities: 1) no major renovations, 2) have more expensive houses surrounding it, 3) fenced-in yard.
Bentonville’s real estate market has been crazy since the Pandemic started in March 2020, and it gradually became crazier and crazier. Currently, the houses in the 150k-250k range sell within the day it lists on MLS. Multiple offers would come in, and people fight over houses going 50K above asking and appraisal prices. Listening to Tom Ferry’s podcast, I realize that the entire U.S. real estate market is like that.
I have seen so many houses coming onto the market that I thought “this could work,” and in the blink of an eye it’s under contract, off the market, no longer available. So when my friend Hills&Higher told me this listing from Nextdoor, I picked up the phone and called that seller number right away, but I wasn’t hopeful at all. It was Easter Sunday and I asked if I could see the house today or tomorrow (Monday). He said, how about Monday at 4 pm. I thought maybe he was delaying the appointment because he already had enough interest from the property and wasn’t keen on meeting up.
Regardless, I checked out the neighborhood on google maps and also saw the 4 only photos he uploaded to Zillow. It is not an exciting house, which is exactly what I am looking for. I realized after the fact that most of the time, deals are inside the not-so-exciting listings, the mediocre mundane ones.
The house fits ALL the criteria I was looking for:
It was 3 bedroom 2 baths
It was listed under 200k
It was in a very nice neighborhood where surrounding houses are twice as expensive
It was in Bentonville
Has a fenced-in yard
Does not have a pool
I knew if I didn’t present an offer to the seller that Monday afternoon, I would definitely lose this house. I know the house is priced under market value. Based on the comparable homes I ran, the appraisal would most likely be around $173k. I called my loan officer and asked for two different pre-qualification letters for the two scenarios in my head. One is that there is moderate interest in the house, I would offer 185k, and one is this is my BEST offer 200k if there are a LOT of interests. I also tried to draft a contract before going to this showing (which I would recommend people do, a generic one if you can, and just leave the amount blank). I wasn’t able to figure out the contract in time, but I printed out my pre-qualification and drove to the showing.
The seller was super friendly. We got to talking about life, work, dating in Arkansas, swapped ridiculous stories about work. It felt like that he trusted me enough and I asked how much he wanted to sell the house for. He said, well, there’s moderate interest in the house, and people offered more than the asking price for it. Knowing the market, I know he wasn’t lying. So without saying a number, I asked him, what would be the number that would seal the deal today. I was shocked by my own boldness. I don’t really know why I wasn’t more nervous. I just knew at that point if I asked, the worst I would get is a counter-question (like maybe he’d say, well how much can you offer?). And to my surprise, he just gave me a straight answer, 180k. I said DEAL.
We continue to have some more conversations about what it is like living here, the neighbors, and he told me his favorite spot of the house is this one-bedroom and kitchen because the sunlight hit that part of the house first in the morning. I realized I was lucky because unknown to myself at the time, I just achieved the winning bit of getting a deal, to get the seller to like me.
Summary and reflection on buying my first real estate investment:
Clearly define the search criteria: this may take some time to refine and tweak, but it will come more clearly the more house you see.
Be brave enough to pull the trigger: Put an offer on houses that fit those criteria. Don’t be afraid. If you’ve done the homework, worked out the financial part, you need to trust your gut, trust the system you’ve built on the due diligence you’ve done. You NEED to pull the trigger.
Know how much you want to offer BEFORE you walk in: You know what the house looks like (sort of, or ballpark it). You know the location. You know the market. Therefore, there is no reason to go in without having a number in your head.
Let the seller say the price first: Don’t offer up the price you are willing to pay. If I had offered up 185k from the start to see if it was ok, then I would have overpaid.
Play fair: I think this was a hard one for me. The Chinese side of me will always want to haggle. But from living here for so long, I realized that there are prices that don’t matter in the big scheme of things. Could I have bargained him down from 180k? Maybe. But I am taking a big risk in this seller’s market. I need to keep the seller feeling like he’s in control, and that it is his way. Plus, I know 180k is a fair number from the comparable homes sold around there. Ultimately, you don’t want to be known as the shark. The goal of the negotiation is to get your way and have the seller walking away with respect for you that they want to do business with you again and again.
#2 is probably the hardest one for me. I keep dancing around the pool but never want to jump in. I was too afraid to commit to it. I think you will have to see enough houses and miss the deals you really wanted to have to understand how to pull the trigger next time. I have missed a unique yellow A-frame in Bentonville, a nice rental property 2 minutes away from my house, and 2 other houses walking distance from me so far. But without them, I wouldn’t have those data points to understand what is a good deal and what criteria are my must-haves.
Overall, it was such a flurry of events that happened too quickly. I made the oral offer with the seller 5 minutes after walking through the house. I sent him the contract about 2 hours after seeing the house, after figuring out how to write a contract with the help of my real estate superhero. The seller signed it that evening.
We have since closed on the house and are preparing to move in next week!
This book reminds me a lot of Dan Ariely’s book Predictably Irrational. It is a very thick book. I wish I have more time with it but I have to return it to the library soon. Overall, it was a great mind-opener (as always) to realize how your brain deceives your perception of the world.
He had an impression, but some of his impressions are illusions. This was a pure System 1 response. She reacted to the threat before she recognized it. This is your System 1 talking. Slow down and let your system 2 take control.
Attention & Effort: I won’t try to solve this while driving. This is a pupil-dilating task (something that requires deep concentration). It requires mental effort! The law of least effort is operating here. He will think as little as possible. She did not forget about the meeting. She was completely focused on something else when the meeting was set and she just didn’t hear you.
Control: She did not have to struggle to stay on task for hours. She was in a state of flow. His ego was depleted after a long day of meetings. So he just turned to standard operating procedures instead of thinking through the problem. Unfortunately, she tends to say the first thing that comes into her mind. She probably also has trouble delaying gratification. Week System 2.
Priming: The sight of all these people in uniforms does not prime creativity. The world makes much less sense than you think. THe coherence comes mostly from the way your mind works. They were primed to find flaws, and this is exactly what they found. I made myself smile and I’m actually feeling better!
Cognitive ease: Let’s not dismiss their business plan just because the font makes it hard to read. We must be inclined to believe it because it has been repeated so often, but let’s think it through again. Familiarity breeds liking. This is a mere exposure effect. I’m in a very good mood today, and my System 2 is weaker than usual. I should be extra careful.
Norms and Causes: When the second applicant also turned out to be an old friend of mine, I wasn’t quite as surprised. Very little repetition is needed for a new experience to feel normal. When we survey the reaction to these products, let’s make sure we don’t focus exclusively on the average. We should consider the entire range of normal reactions. She can’t accept that she was just unlucky; she needs a causal story. She will end up thinking that someone intentionally sabotaged her work.
Jumping to conclusions: She knows nothing about this person’s management skills. All she is going by is the halo effect from a good presentation. Let’s decorrelate errors by obtaining separate judgments on the issue before any discussion. We will get more information from independent assessments. They made that big decision on the basis of a good report from one consultant. What you see is all there is. They did not seem to realize how little information they had. They didn’t want more information that might spoil their story. What you see is all there is.
Judgment: Evaluating people as attractive or not is a basic assessment. You do that automatically whether or not you want to, and it influences you. There are circuits in the brain that evaluate dominance from the shape of the face. He looks the part for a leadership role.
Substitution and heuristics: Do we still remember the question we are trying to answer? Or have we substituted an easier to? The question we face is whether this candidate can succeed. The question we seem to answer is whether she interviews well. Let’s not substitute. He likes the project, so he thinks its costs are low and its benefits are high. Nice example of the affect heuristic.