BiggerPockets

I've had an accepted offer on a 4 unit in WI since Dec.
Purchase price=$160k Fully rented gross rent=$2900, repairs of $5-10k needed, earnest money=$3k

I had a local bank lined up that was willing to loan 80% on appraised price as opposed to purchase price. We thought that the appraisal would come in over $200k, however, appraisal came in at $160k due to some repair issues as well only 3 units currently being rented. In general the bank just isnt' interested in this area due to there being a lot of other REOs in the area.

I had a 90% financing contingency in the offer. My bank plus all the other banks in town will not loan on the property unless I put 20% down. So I have been trying to get my earnest money back since I could not meet my financing contingency. The asset manager is refusing to sign the CAMR and is instead trying to offer me financing.

I am not interested in financing the property with the asset management company and want to move on to another property since this one is not as good of a deal as I once thought. I've already sunk $750 into an appraisal and inspection.

I've already contact an attorney to help. He is on vacation till next week but has experience fighting against the asset management company so I am willing to wait till he gets back. I was hoping to avoid spending $600 to get my $3k back.

Wondering if anyone has any other ideas or suggestions. I'm all ears. It's amazing how much you learn from finally jumping in and trying to do a deal as opposed to just reading about things.

Jon
The loan commitment deadline was the closing date, which was Jan 25th. I have thought about asking for a reduction in the loan price. However, I doubt they will fund 100% of the deal. With a new baby and my wife deciding to stay home, I would rather keep extra money in my savings account than fund a deal that I am not as confident in. The extra insight from the appraisal and bank has made me think twice about the area that this property is in. I think I would have to get the property for a bigger discount to feel comfortable putting 10% down.

Jon-
To clarify since I don't think I was clear. I delivered to the seller a notice from my bank denying the loan before the loan commitment date. The seller offered financing over 10 days later but did not state the terms of the financing. The contract is a standard WI real estate OTP which specifies "liquidated damages" and "specific performance".

The attorney I spoke to did a quick review and was confident he could get my money back. I was just hoping to avoid the fee.

I guess in the end I have the feeling that it would be better to lose a small sum of money than stick money into something that I now feel is not as good of a property. Trying to stick with the numbers and not emotions.

The WI contract actually allows for 1 or the other or both. Yes, we have requested the earnest money twice and have highlighted the fact that we were not able to meet the financing contingency and therefore should get the earnest money back. We threatened an attorney the first time they didn't sign but were told by the listing agent that we would be going overboard, no problem, they would sign. Well, after a second try to get them to sign we are probably at the point where an attorney would help.

David-
You bring up some good points and they are related to some of the lessons learned on this deal mostly related to due diligence.
1. Increased DP would increase cashflow, but decrease Cash on cash return
2. The additional vacancy did have an affect on the appraisal. But so did the fact that the rent in the units was slightly above market. Should have known this.
3.Yes, the goal was for a long term hold with minimal cash out of pocket. $5k was needed immediately for repairs, the rest were going to be done over time as rents came in. I liked the idea of keeping a solid reserve fund in case extra repairs were needed. Putting the 10% down would wipe out that reserve and put me in a position I would prefer not to be in.
4. Yes, there were some discounted properties in the area. Some that sold for more and some that sold for less. The current ones on the market are for sale for a significantly higher price that $160. Could have done more research here.

You are correct that in hindsight this may not have been the best deal. However, for a first time investor, you can't always get into a property in the ideal location. This property is in a low/low-middle class neighborhood with an improved strip mall next to it, a new community center, and a block from the elementary and middle school. I was hoping for the neighborhood to turn around in the next 5-10 years.

Overall some important lessons were learned. I got a better idea of how an appraisal works on a multiunit, and built a relationship with a local bank. Now I just need to figure out how to fund my next deal. Either private lender or join forces with other investors. My realtor is also an investor so there are some opportunities there. Thanks everyone for the input, keep it coming.

Agreed Greg. While I am a new landlord, I plan on hiring a property management company to take care of the day to day business. With a full time job, family, and MBA program in progress, I don't have time for tenants. :)

Your offer had a 90% financing contingency on a 4-unit, and it was accepted by an Asset Manager?!

:rock:

Originally posted by Bill Andrae

Putting the 10% down would wipe out that reserve and put me in a position I would prefer not to be in.
4.

Bill, it sounds like the limited capital reserves, loss of income due to the joyous occasion and etc, etc may have meant one large expense and, to be frank, kaput.

Sometimes, we win when we "lose."