Terminated contract due to inspection report

13 Replies

Hey BP community,

Just looking for a little insight / encouragement after my first deal fell through. Im in Chicago, looking to purchase a 2 flat in the Pilsen area. 


I had a 2 flat under contract at 360K with a 3.5% down FHA financing (approved for up to 400K.) I got cold feet after the inspection revealed issues in the bottom unit including the 2 gas space heaters not functioning (going into winter), the flooring caving into a sinkhole in the kitchen without the ability to determine cause, and all the drains outside leading to the sewer were collapsed causing fear of flooding. (the bottom unit is set below the street level although still open all the way around so not a true garden unit). These were the biggest issues on a long list of others including many of the appliances not working and mechanicals way past their lifespan. My real estate agent basically telling me that at that price range anything I find is going to be very distressed and I need to come in with cash reserves to do a lot of rehab. Unfortunately I was trying to house hack my way into real estate with minimal cash reserve. Am I just trying to get in too soon ? Is the Chicago market just really that tough? I plan to keep looking, fighting the urge now to give up and go back to renting for another year.

@Bryce Renicker based on what you are saying, it was probably a good choice to terminate. I am a fan of buying properties that are not distressed. I can quickly rent them out without added expenses. The cost of material is escalating and it is getting harder to find labor. Look for a better property, even if you need to spend a few bucks more.

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@Bryce Renicker

I think you probably made the right decision to terminate the contract, especially if you're a new investor just looking to get started. The price range you're looking at for 2-flats in the area is definitely on the lower end so you should be prepared for some work but what you described is a lot more problematic than making some cosmetic improvements. It might make sense to search a little more west of Pilsen in Little Village or the Marshall Square area to find something in better condition at around the same price.

Originally posted by @Bryce Renicker :

Hey BP community,

Just looking for a little insight / encouragement after my first deal fell through. Im in Chicago, looking to purchase a 2 flat in the Pilsen area. 


I had a 2 flat under contract at 360K with a 3.5% down FHA financing (approved for up to 400K.) I got cold feet after the inspection revealed issues in the bottom unit including the 2 gas space heaters not functioning (going into winter), the flooring caving into a sinkhole in the kitchen without the ability to determine cause, and all the drains outside leading to the sewer were collapsed causing fear of flooding. (the bottom unit is set below the street level although still open all the way around so not a true garden unit). These were the biggest issues on a long list of others including many of the appliances not working and mechanicals way past their lifespan. My real estate agent basically telling me that at that price range anything I find is going to be very distressed and I need to come in with cash reserves to do a lot of rehab. Unfortunately I was trying to house hack my way into real estate with minimal cash reserve. Am I just trying to get in too soon ? Is the Chicago market just really that tough? I plan to keep looking, fighting the urge now to give up and go back to renting for another year.

The market is too expensive and construction costs are high in Chicago. The rent numbers don't make much sense to me. This is probably not what you want to hear.

Honestly,  I would recommend you regroup and forget about investment properties in Chicago / house hacking - at least in good areas,  and Pilsen is fun. There is nothing on the market that excites me, the returns are too low and the risks are too high.  For higher returns you need war zones, I don't care about that.    You can make money flipping high end properties, but not so much as a landlord right now.

If you want a home,  buy a good building in a decent area, buy as much as you can afford and forget about the price.  Buy a three flat and get your tenants soften the blow.  Build equity and enjoy the ride until the market turns, if it ever does.  Save a few bucks, If possible.

However, renting is not bad. It is cheaper to rent in nice areas than to own. You are not burning or throwing away money. It's simply matter of consumption.

Good luck

@Bryce Renicker - I think you are definitely on the right path, definitely, don't get discouraged!  Sounds like you were down in Pilsen one of the lowest points in Chicago.  You'll find a lot of issues with basements, drainage, etc. down there.

One way to pivot instead of panicking (one of my favorite sayings) in that situation might have been to switch to an FHA 203k loan. With that specific loan product, you can get the work completed prior to moving in, and with $40k left on your loan limit you'd probably be able to fix the majority of those issues.

I completely get taking on a rehab from the get-go may be a little bit intimidating, but one of my other favorite sayings is "let discomfort be your compass" - the more difficult the challenge is the faster you'll grow.  

Plus, surround yourself with an awesome team and hard things get made easier.

It sounds like you made the right decision if you were uncomfortable with the inspection report. What is your comfort level on doing repairs? If you could put sweat equity in on projects you could handle, you could force appreciation on a different deal that doesn't have structural issues.

@Bryce Renicker - I agree with your agent.  Anything under $400k in Pilsen is going to require a good amount of work and properties in Pilsen are known for long term deferred repairs.  Have you considered areas like Bridgeport or McKinley Park?  You can get more bang for your buck there  

@Frank S. thanks for the reply and for your perspective. I have heard that cash flow is getting harder to find and this process really opened my eyes to that! Even with this property that needed a ton of work I would barely cash flow with it fully rented in its current as is condition, let alone after doing substantial repairs. I’m hoping to build a little more cash and try again in a less expensive neighborhood like McKinley park 

@Jonathan Klemm thank you so much for your reply and positive words! I will definitely consider the 203K option in the future. I love the pivot mindset.. I realized I was running out of time on my contract and had no contractor contacts to bring in for estimates on repairs which is what made me so unsure and killed the deal. Going into my next deal I will definitely have that lined up ahead of time. It looks like you are a contractor here in Chicago, if you are open to it I would love to reach out to you around this if I do come up with a rehab need in the future! 

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