Advice to a Newbie Under Contract & Stuck

[Kevin Zolea]

Hi Everyone,

I'm in need of some advice! For the past two years I have been studying everything I can on REI, attending networking event, and getting my financial house in order. I finally got to a place where I felt comfortable to take action and I am now under contract on my first duplex which I will be house hacking and stuck on what I should do.

I put an offer in at $149,500 on a property that was listed at $165,000. The seller accepted without any renegotiations. During the inspection period I found two major problems with the property.. some knob and tube in the basement (all new electric work other then that) and an asbestos roof that a roofer gave me an estimate of low end $20,000 to fix. My agent told me to ask for an additional $10,000 off for the roof and get the seller to fix the knob and tube. The seller came back agreeing to take 10k off for the roof but said he doesn’t have the cash to fix the knob and tube but he will take the price to fix off the sales price. Being a newbie I wasn’t expecting the knob and tube fix to be a lot and I was eager to get the deal so I agreed in an email and said I wanted to get an estimate from my electrician. This was before the whole pandemic. Fast forward a couple days I get a $10,000 quote and moreover lost a great deal of money I was going to use , in the stock market (lesson learned). So now I’m at $30,000 in repairs plus an additional $5,000 I had planned in the one unit so $35,000. The downpayment and closing costs are around $12,000.

I reached out to my agent about my dilemma and told him I would like to renegotiate. I thought it was reasonable especially with everything going on in world and the fact that I lost most of my reserves. He said he doesn’t think I should renegotiate and If I try to walk I’ll lose my $2,000 EM(We never signed anything just agreed through email). He suggested sending the estimate first and hoping that the seller decides to walk once he sees he will have to drop the price another $10,000. He also said If the roof isn’t leaking which it’s supposedly not, that I don’t need to replace the roof and I can hold off for the future.

What are your guys thoughts? With the property at $129,500, I will be cash flowing around $230 a month not including the extra $200 for property management which I will be paying myself since I will be self managing and there’s also a detached garage which my agent thinks I can rent for $150. Should I take my agent’s approach, try to renegotiate and get him to fix the knob and tube, or walk ( hoping I can get my $2,000 back). Sorry for the long post but I am so stuck on what to do.Thanks in advance.

[Jonathan Greene]

You don't have a signed contract? If you don't have anything signed, you shouldn't have an EM placed anywhere and it can be returned as the delivery was premature. Just based on what you wrote about the situation, it seems like the seller acted in good faith and gave a credit AND A price reduction and it was you who miscalculated the repair costs. Knob and tube can be tricky and electricians can take you for a ride. Knob and tube has sometimes been capped off and removed and only the remnants remain and are all inactive, but as a novice, we don't understand and can be convinced we need a full redo. Also, some homes do still have it throughout and the 10k is not unreasonable if so.

In short, the agent doesn't want to lose the deal, but his or her advice isn't terrible if there is a signed contract. Even if you have 2k on the hook, if you decide you don't want it, then walk away and lose the money instead of kicking yourself for this for years. Panic is setting in now for new investors and rightfully so, but when you commit to a deal, sign a contract, and the seller acts reasonably, it's on you to close the deal even in these circumstances in my opinion.