Trying to close a deal should I back out and how if so

Buying & Selling Real Estate
9moFollow

Trying to close a deal should I back out and how if so

Shane Hofmann
Member since 2025 · 4 posts · 3 votes

Hi, I am a new investor to real estate. I'm 22 and I'm looking in to doing a house hack for my first deal using an FHA loan with 3.5 down at a 6.5 rate. me and my fiancé had recently found a property in Baytown Texas on the east side of Houston. The main house is a three bed two bath, and it has a studio on the backside. The asking price was 258. We offered 245 with all closing cost covered and sellers accepted offer. we continued with our buying process getting our home inspection and everything was coming out great however when we went to get home insurance, we realize the rates were outrageous. Nothing like we were expecting in our underwriting. In our underwriting, we were expecting around 2000 to 3000 range and the number still worked. So far we have tried multiple different home insurances and more than half are saying, our property is uninsurable and only have gotten two quotes which was 8000 and 6000 a year not including the flood insurance we would have to get. And now the numbers just don't work on this deal as a house hack as even when I move out in a year and rent the other property I still don't think it's going to hit positive cash flow and insurance only goes up so who's to say in 2 to 3 years if I can even afford that. My monthly income after taxes is roughly 6400 a month and realistically with what the mortgage and insurance will be and all other expenses I just don't think this deal works out anymore, but I'm past my option fee. What are my next steps is my earnest money going to be completely gone. I feel stupid for getting this far into the process to just have to back out now but I just don't know what to do and I don't know if I'm worrying myself. All advice is great like I said I'm new to this Please help.

0Reply
145 views

Most Popular Reply

Caleb Brown
Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
9mo

I am not familiar with your contract but if you want to back out you will most likely lose your EMD and you are opening yourself up to the seller pursuing you/lawsuit (very rare). In my area insurance is mentioned during the inspections/due diligence part. Once you are past that window you waive that. If the insurance is insanely high your lender might be able to provide a loan denial which would help but you need to speak to your agent and go from there. Be careful taking advice on a forum with a sticky situation.

1Reply
See this reply in the discussion

10 Replies

Jump to latestLatest
  • Caleb Brown
    Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
    9mo

    I am not familiar with your contract but if you want to back out you will most likely lose your EMD and you are opening yourself up to the seller pursuing you/lawsuit (very rare). In my area insurance is mentioned during the inspections/due diligence part. Once you are past that window you waive that. If the insurance is insanely high your lender might be able to provide a loan denial which would help but you need to speak to your agent and go from there. Be careful taking advice on a forum with a sticky situation.

    1Reply
  • Holly BrownBusiness Member
    Real Estate Agent · Houston, TX · Member since 2019 · 190 posts · 137 votes
    9mo

    Hi Shane, 

    I am a realtor in the Houston area and am happy to connect you with my preferred insurance agent in Houston to see if she can help with a lower quote. If you send me a direct message, I will send over her information to you.

    You are absolutely thinking about the right things when it comes to long term holding costs. When I purchase properties to hold, my goal is to keep monthly carrying expenses as lean as possible. That means closely evaluating factors like property tax rates, HOA dues, MUD taxes, insurance premiums, and ongoing maintenance. In the Houston market specifically, insurance can vary widely. Many properties require flood, windstorm, and standard landlord insurance. However, there are also areas on the north side of Houston, farther from the Gulf, where properties fall outside both windstorm zones and floodplains.

    Its a tough situation, but you have not closed yet and still have an exit door.  While it may be more expensive than you would prefer, that option does exist. Caleb is spot on with stating you are likely to lose your earnest money unless your lender can deny your loan AND you are still within a financing contingency (that can be found in your Third Party Financing Addendum in your contract). He is also right that terminating without a valid contingency can expose you to potential legal risk. While that risk is generally low, the assessment itself is accurate.

    If I were in your shoes, I'd work to figure out if you have a financing contingency and when that ends. From there, speak candidly with your lender to figure out if you still qualify for the loan given the higher insurance expense to carry the mortgage monthly. In parallel, get as many insurance quotes you can (5 at minimum) to see if you can lower that premium. That said, I do not expect insurance premiums to level off in the foreseeable future, so it is important to factor in the likelihood of continued increases over time.

    Lastly, no matter how this plays out, do not let this first experience discourage you from getting started. I see many first time house hackers and investors lose momentum when their initial deal does not go as planned. I began investing in 2014, and I truly cannot imagine the life I would be living today had I not taken that first step.

    281-250-0650
    Invest In Houston Real Estate Team
    WebsiteView Page
    0Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    9mo

    What’s the cause of the high rates? My rates have risen lately but we’re talking from $600-$900/yr up to  $800-$1,200/yr for $500k homes with 500/500 limits. 

    Can you walk the neighborhood and ask the closest 10-20 neighbors who they are insured with and what they are paying? You have to be able to find “reasonable: rates. I refuse to believe people would pay more than 1% of the property’s value in annual insurance. It’s just insane. 

    1Reply
    • Dan H.Pro Member
      Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
      9mo
      Quote from @Bill B.:

      What’s the cause of the high rates? My rates have risen lately but we’re talking from $600-$900/yr up to  $800-$1,200/yr for $500k homes with 500/500 limits. 

      Can you walk the neighborhood and ask the closest 10-20 neighbors who they are insured with and what they are paying? You have to be able to find “reasonable: rates. I refuse to believe people would pay more than 1% of the property’s value in annual insurance. It’s just insane. 


      I recently placed an offer on a sierra cabin of $475k. My insurance was $5.2k ca fair for fire (no other possibility) and $1200 for everything else (including STR coverage). Note $5.2k had zero other options.

      The prices reflect risk.   In the case of a sierra cabin, it is fairly likely to burn in the next couple decades.  Cost to build a 3000’ remote cabin with nice finishes is not cheap.

      We use to have a duplex in Gulf Shores.   We sold it long ago but my insurance was $6k/year when we sold it but I collected in back to back years when it was hit by hurricanes.   I could only imagine what insurance cost is today.

      In Houston storms are the risk (versus fire in the sierras).   I find those quotes to be fairly reasonable if the property is in a high risk area.

      1Reply
  • Wale LawalBusiness Member
    Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
    9mo

    @Shane Hofmann

    To begin with, there is no need to feel sorry for yourself, this issue is the one that inspections and contingencies are designed to discover and Baytown is indeed the area where insurance shocks are very real at the moment. In case you are still in your option period, you can cancel and forfeit just the option fee besides, if the property is considered uninsurable or if there is a significant change in the coverage, your agent might also be able to use the financing or insurance contingency to safeguard your earnest money. I think bad deals only get worse over time and walking now is an investor’s smart move, not a failure.

    Good luck!

    [email protected]832-776-9582Podcast Guest on Show #469
    NETWORTH BUILDERS5236 Reviews
    WebsiteView Page
    0Reply
  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    9mo

    How much is the EMD?

    [email protected]
    Brick House CPAs53 Reviews
    WebsiteView Page
    0Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    9mo

    Think of everything at the very least as a learning experience and don't beat yourself over it.

    You are very young and this will only make you stronger and smarter.

    Has the agent you been using been able to provide you more insurance providers for quotes?

    What did the insurance companies say that this property is uninsurable? Is it the roof? Is it something that if you replace the roof, the rate will be much less?

    What was the EMD?
    What was the option fee?

    [email protected]917-280-8544
    Basit Siddiqi CPA4.979 Reviews
    View Page
    0Reply
  • Ying Tang
    Member since 2025 · 322 posts · 121 votes
    9mo
    Is the contract contingent on loan approval? If the insurance is that high, would your lender reject your loan approval?
    0Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    9mo

    Don't thow your hands up yet. The first question is why are the insurnace quotes comming in so high? Find an insurance broker who can help you understand why they are giving you such high numbers. Insurances are always a bundle of different risks, each one has a limit and so it's like an a'la carte menu. 

    Insuring 258k for 8k per year does not make sense. Even 2-3k is expensive!

    0Reply
  • Jules Aton
    MD/DC · Member since 2024 · 1k+ posts · 1k+ votes
    9mo

    Not that this helps OP but I’m surprised this wasn’t a discussion with the Realtor while looking at properties. 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free