Hello and thank you in advance for reading
I’m in escrow on my very first investment deal and desperately need guidance.
This is 2 homes built on one lot in Reno, NV. The first home is brick and built in 1932 with an unfinished basement. The second home was built in 2001 and needs nothing done. Looking to rent the first home for ~$1700 and the second home for ~1500. (Close to University and will be easy to rent). Appraisal competed today - don't have information yet.
Purchase price: 422K, estimated monthly payment with taxes and insurance ~2200.
Here are the problems with the old home…
-Knob and tube wiring with maybe 20% updated wiring: I have contacted several insurance companies and none of them will insure this house because of the large fire risk.
-Cast Iron plumbing with minimal ABS upgrades (Good water pressure /drainage and got hot fairly quickly)
-Chimney is tilting away: Structural contractor states maybe in 10 years would need ~8,000 repair.
-Oil burning furnace: Fire hazard with amount of buildup in furnace and in flue. Sellers will have to fix this for sure. ~1,300 to clean. OR $4,500 to change to gas furnace.
I feel like with this high purchase price, I would expect everything to be updated already. I also feel like I would be unreasonable to ask the sellers to complete all these upgrades. What do you guys think would be a reasonable negotiating?
(My initial thought – have them upgrade electrical prior to closing and ask ~$15,000 cash back credit for repairs.)
How do you ever feel safe buying an old home?
I would appreciate any and all advice. Thank you so much for your time!
Warmly, Amanda the Newbie
You said you were in escrow already. Do I misunderstand the meaning of this term? I thought it was too late to make changes by now. (Don't take my word for it--ask your agent!) But if you CAN make changes, your plan to ask them to update the wiring (so you can get insurance) then ask for cash back credit (not sure what that is, but it sounds good lol) for repairs sounds legit to me.
It might be too late now, but did you run this deal through the Rental calculator on here? It seems like with the upcoming expenses you are going to be needing to set aside a fair amount for CapEx and repairs. Even if it ends up still cash flowing, what about your cash on cash ROI? Maybe I should just be quiet--especially if it's too late. ;-)
As for how I feel safe buying older homes, I actually PREFER older homes. (Maybe not quite that old, but still...lol) They've weathered many storms and aren't likely to be knocked down by the next hurricane or whatever. I feel like they are actually (often) built better than the newer ones today. I had a friend who watched his new house get built and was really distressed to discover he could put his hand through the exterior wall if he tried. It was just dry wall, insulation, and siding. He was not happy.
Congratulations on your first deal and good luck!
Not sure what escrow means in your area but did you do an inspection before going into escrow? It may be too late to change anything now, but ask to be sure.
I would definitely try to get them to change the knob and tube before closing otherwise how will you be able to get insurance? Won't the mortgage/finance company demand proof of insurance to close? If they will close without insurance on one building then definitely ask for some kind of credit or cash back and get the work done asap (The bank may close but require money be set aside for the work with it to be done in 30 or 60 days and proof provided)
Also try to get them to clean the chimney before closing and ask them to bring proof to the closing table for your records. The titling chimney is on you I would think unless it is about to collapse.
Are you buying at market price? These issues would be good points to offer less then market.
You should be able to get insurance on the property but you will need to contact an Independent Agent. Look for one that writes both Personal and Commercial Insurance. They will most likely have to send this to what is called the Excess or Surplus Lines market. These are specialty companies that deal with the policies that the regular companies do not chose to write (vacant building, high hazard Liability, properties with losses, etc.).
You should seek quotes from multiple markets and compare them carefully. The coverage will not be standardized like a homeowners. There can be variances in what caused of loss are covered, what is excluded, etc.
Having two buildings on the same property also means you need to make sure that the policies are structured correctly. Normally, in the situation where there are multiple buildings on the same lot I look to either insure both with the same company or get one policy to cover one of the buildings and all the Liability and the other policy to just cover the other building, Contents, and Loss of use for that building. Because the other house is newer, you may get better property coverage by insuring that separately.
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