1900's multi family small unit in pittsburgh PA area

9 Replies

hi,

I am on due diligence period with one property built around 1900's almost 120 year old for around couple of hundred thousand dollars. During inspection lot of issues are showing

Major Repairs:

Rear Fire escape damaged unsafe to use.

 Exterior Decking:

Exterior Decking damaged unsafe to use with advanced wood decay

Exterior Window and Door Framing:

Active moisture staining rot and termite damage

stone foundation:

significant pargement and mortar deterioration needs stone repointing and parged to avoid potential stone shifting

Environmental concerns:

Basement lot of mold 

Mold Tests

Confirmed cladpsporium and hyphase and pencillium type of modls in basement at unusual level

Pest Tests

Visible evidence of wood destroying insects and dea insects and termite related damage noticed. There is evidence of previous treatment

Lead paint:

There is possibility of lead paint issues as well as older than 1978 year

Inspector who inspected guessed it may cost around one hundred to two hundred thousand to fix(almost purchase price) all above major issues but asked us to talk to 3-4 general contractors to get good estimate.

This is my first multi family property. Now i am scared to get into contract.

My realtor company saying do not worry we are negotiating with seller to get some seller credits. But i am very nervous now. All numbers like NOI and cash on cash ROI cap rate all good on paper which they gave me.

i was told lot of gentrification happening in that area and properties are going to sky rocket to millions but i am very nervous now.

Any one has similar experiences or wisdom to share or advise in this tough situation.

If i back out will my earnest money deposit of couple of thousand comes back to me along with money i paid to realtor company to find good deals(not sure how some one can show this old building with this many issues as good deal by charging me lot of money in out of state area)

Please advise

Originally posted by @Praveen Gudimetla:

hi,

I am on due diligence period with one property built around 1900's almost 120 year old for around couple of hundred thousand dollars. During inspection lot of issues are showing

Major Repairs:

Rear Fire escape damaged unsafe to use.

 Exterior Decking:

Exterior Decking damaged unsafe to use with advanced wood decay

Exterior Window and Door Framing:

Active moisture staining rot and termite damage

stone foundation:

significant pargement and mortar deterioration needs stone repointing and parged to avoid potential stone shifting

Environmental concerns:

Basement lot of mold 

Mold Tests

Confirmed cladpsporium and hyphase and pencillium type of modls in basement at unusual level

Pest Tests

Visible evidence of wood destroying insects and dea insects and termite related damage noticed. There is evidence of previous treatment

Lead paint:

There is possibility of lead paint issues as well as older than 1978 year

Inspector who inspected guessed it may cost around one hundred to two hundred thousand to fix(almost purchase price) all above major issues but asked us to talk to 3-4 general contractors to get good estimate.

This is my first multi family property. Now i am scared to get into contract.

My realtor company saying do not worry we are negotiating with seller to get some seller credits. But i am very nervous now. All numbers like NOI and cash on cash ROI cap rate all good on paper which they gave me.

i was told lot of gentrification happening in that area and properties are going to sky rocket to millions but i am very nervous now.

Any one has similar experiences or wisdom to share or advise in this tough situation.

If i back out will my earnest money deposit of couple of thousand comes back to me along with money i paid to realtor company to find good deals(not sure how some one can show this old building with this many issues as good deal by charging me lot of money in out of state area)

Please advise

If you don’t have experience and not local I would back out. The contractors you use can kill this deal easily. 

Fire escape would be the one I’d most worry about. Repairs/replacement can be anywhere from $6-$40k. Welders are expensive and very in demand. 

Decking isn’t a big deal. Can repair or replace for relatively cheap or remove completely. 

Basement mold is probably from water coming in somehow. Waterproof a basement can be expensive. Probably $5-$15k depending on the basement size. This must be done immediately. Plus you have to get rid of the mold. That adds up if you are using a GC to do it. Quotes for this can vary a lot. 

Treating for termites isn’t a big deal.

Lead is in every old building. Not a big deal. Just have to give waivers to your tenants. 


You will probably spend $15-$30k upfront on capex. Budget for $60-$70k bc things will go wrong. I’d get a price reduction of $50k if you think you can handle the work. 

i am out of state 4 states away. I am software guy do not know anything about construction. My realtor company who charged me money to find good deal is assuring me that they have team there who can handle all the worries for me. I happened to know last week that they have some team in my city also. My realtor company negotiating with seller. Hope i get some word next week by tuesday or so. I will keep you all posted. Thank you for your timely advise

Originally posted by @Praveen Gudimetla:

i am out of state 4 states away. I am software guy do not know anything about construction. My realtor company who charged me money to find good deal is assuring me that they have team there who can handle all the worries for me. I happened to know last week that they have some team in my city also. My realtor company negotiating with seller. Hope i get some word next week by tuesday or so. I will keep you all posted. Thank you for your timely advise

Praveen, I wouldn't buy this place, and I am local to the area and specialize in this kind of property. I've sent you a private message regarding this. I would very much like to know who would push a deal like this as a quality investment at a software guy multiple states away with no rehab experience and no local connections. I am especially interested in where this functionally obsolete property is that's "going to sky rocket to millions."

If you have an inspection contingency in the contract to purchase you signed on this place before you inspected it, and you should, you will get your earnest money (also often called "hand money" here in the area) back when you pull out of this deal. I think it would be ethically unimaginable for anyone advising an out-of-state investor to suggest to you to sign a contract to purchase anything even remotely like the property you're describing without an inspection contingency.

I would review the Agreement of Sale you signed as to what happens to your deposit.  In the agreement of sale I am involved I specifically said: "Buyer may cancel during due diligence period for any reason." And "deposit is fully refundable if cancellation occurs during the due diligence period."

Why did you have to pay the realtor company in advance to bring you the deal?  I never heard of such a thing.

I do agree that any home built before 1978 is assumed to have lead paint.

And water in the basement..... what do you expect... it is an old home in PA, it happens. Although it can be addressed.

i paid this realtor company 8500$ to find good deals in next one year and committed to pay 6500$ on backend when the deal is closed.

For escrow i paid 2000$

For inspection i paid inspection company 800$

Now i do not want to loose 8500+2000+800=11300$

All my family members and friends are scolding how stupid i am

i am trying to find that hellosign document i signed for this due deligence

@Praveen Gudimetla $8500 up front to "find you a good deal"? You need to run far far away from this company. The seller pays the buyer's commission. You should never pay anything to a realtor to help you find a $200k house. I also wouldn't advise getting into such a big rehab for your first out of state deal. Especially if it isn't in a somewhat already established area as that gives you a whole other challenge in itself to deal with. I hope you had an inspection contingency on the contract. 

Praveen, what "Realtor Company" charges you "in advance?" Realtors get paid AFTER the deal is consummated. Something doesn't sound legitimate about this entire deal. Walk away from it. Find something local, within a few miles radius of where you live. And only use a LICENSED Realtor.