Ok how to handle this?

Question

I have a 4 unit that was listed for 142,500 and we agreed on 133,000. Inspection came in and we agreed to him fixing the small things. The town inspection came back and said you need to fix the big things and it's about 10,000$. So he is asking me to go back to list price so he can pay for them. So if I don't he will relist it holding firm at asking. What the hell should I do?

Patricia Steiner · Answer

Do you have a purchase contract on it?  If so - and it's a state BAR prepared contract - the buyer can cancel the contract for an unsatisfactory inspection but the seller cannot.  Once the seller accepts your offer and you have placed escrow, the seller doesn't have a "get out of offer" free card. And, take the time to confirm the property's valuation...the list price doesn't mean that's what it's worth.  You may agree to put more money into the deal, only to later find out that it wasn't worth it.  You're holding the cards; he's just trying to get you to pay for his failure to maintain.

Jaron Walling · Answer

Account Closed  Dude you're in control here. He is lucky you came up $4K. Wait for a realistic counter offer or wait till the contract expires and move on. You'll get the earnest money back. There's a few properties like that in my neighborhood. The owner may sit on it for months until they drop the price. Conventional loans won't qualify and smart investors see a money pit.

The seller is waiting for a sucker to pay full asking price. Don't be that guy. Just my 2 cents.

Patricia Steiner · Answer

Account Closed

Ian, consider this:

1. "The owner has over 50 units and can afford to let it sit..."  He can also afford to fix it.  You know why he's putting this on you?  He thinks you'll buy his problem.

2.  The $10k that's estimated to make the repairs will most likely not be enough.  Often times (if not every), when you go to fix one thing - you discover two more.  When repairs are not made when discovered, the fix is generally much harder. You could discover mold, settlement, more...you won't know what you have until you're knee deep in it.  Will he want more money then?  He wants to be made "whole" - by you.

3.  What if the repairs he makes are substandard.  You would have paid a premium for a property that still "isn't right."  You would be better off buying it in substandard condition - no $4k additional subsidy in it - and making the repairs yourself.  Bottom line: it's not a sound business decision to pay a seller to fix his property.

4.  This is not the best first rental property. I prefer my clients to buy good bones - and spend their energy on sound processes that they can use as a model for the acquisitions to come.

I know there's not on the market for first time investors but that's why it's worth being patient to find the right one. This owner/seller is "unloading" a property that isn't working for him. Owners never sell what is - so you don't want to pay a premium for what is his to solve.

I'll ask again:  do you have a contract to purchase it?  If so, stand firm.  Once an offer is accepted, the buyer is the only one who can bolt for cause. Don't let him bully you into doing what's right for him.  This is business.  You do what's right for you. $4k is more than he would have gotten from me...it's worth walking from than to pay more.  No experienced investor would do what he is demanding of you.

Account Closed · Answer

@Aaron K. Thanks. I offered up $4000 of the 10 needed. But will stand firm on that.

Jonathan Greene · Answer

The seller has no leg to stand on. He can't pass inspections to sell it to you or anyone else without doing the 10k so it's really not your problem, but what did the provision say in your contract. Usually, there is cap out number, like if repairs for code are more than $1,000, buyer or seller can pull out.

I think you are being fair at 4k. I wouldn't go up at all and let them put it back on the market. Technically, they are now on notice that they have 10k to pass it for sale so they also have to disclose that. You are in the driver's seat in this one. Stand firm.

Account Closed · Answer

@Jonathan Greene this is my first rental and it's a 4 unit. Not much in the market that I can afford the 25% down. The owner has over 50 units so he can afford to let this sit till someone pays asking. I don't want to lose this having time and money already invested. Don't know what to do.

Account Closed · Answer

@Patricia Steiner agree but he still is standing firm and I offered to raise my accepted offer up by 4,000$. The house will need the $10000 no matter what, but he is not will to fix anything and if the deal falls through because of it he seems ok with that. The return goes from 16% to 12% still a good deal and everything will be done and a interest rate I would have not gotten from a credit card or HELOC.

Laura George · Answer

@Patricia Steiner

That’s exactly what I was thinking.  Well put!

Aaron K. · Answer

Does it work for you at the higher price and work well?  If not walk away and find something else, I'd probably hold firm and see what happens because if it didn't sell at list before it is unlikely the seller will want to try that again.

Ok how to handle this?

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