Would this be a deal breaker for anyone?

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Would this be a deal breaker for anyone?

Jessica Brennan
Investor · Illinois and Iowa · Member since 2020 · 36 posts · 24 votes

I have an opportunity to purchase an off market deal, however I'm hoping someone here has dealt with something similar and can give some advice. The house is being sold by the daughter of the man that lived there. However the son lived with his father. Son doesn't work and is refusing to move out. She is from out of state and just in town to close out all of her fathers business. The house is for sale for well under market value because of the problem that the brother is. He won't let anyone in, and she had to get the police involved to just get pictures of the inside. The house was converted, and now has a full apartment upstairs that is separately metered. The upstairs apartment is in perfect condition, the downstairs needs a lot of work. I called my insurance company to see if they will cover any damage that he causes after the house is in my possession, they said they would but I would need to show it was in good order prior to his 'vandalism', but we can't gain access. This also means no inspection. Does anyone have experience with this? Its an amazing deal that I don't want to walk away from (Cap rate 18+%, IRR 67%) but obviously that would change if he destroyed the house.

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Ned J.Pro Member
Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
5y

You can try and have the deal be contingent on the sister getting him out/evicting the brother first...... offer him cash for keys as part of the deal and have that cost reflect in the offer.

Offer him a couple of grand to move out...... only to be paid when he is out and the property is inspected and has no additional damages.... then finalize the sale.

Its a leverage point to get a good deal.... the sister probably just wants this over and get her $$......

25Reply
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  • Julio Garcia
    Rental Property Investor · Modesto/Stockton/Merced, CA · Member since 2020 · 456 posts · 214 votes
    5y

    You're going to have to evict him, then start your rehab process. Good find, unfortunate circumstances 

    7Reply
  • Lamont Chen
    Realtor · Hudson County, NJ · Member since 2017 · 176 posts · 110 votes
    5y

    @Jessica Brennan

    Without an inspection you would not know if there are any foundation issues with the house which can be costly to repair in addition to any vandalism from the tenant refusing to move out. Also since you cannot gain access it seems like these potential costs could fall in your court.

    2Reply
  • Ned J.Pro Member
    Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
    5y

    More work, but if the numbers pencil out as good as you say, then NO this is not a deal breaker...... start the evictions as soon as you have legal possession of the house.

    My bigger concern would be the lack of inspections..... how confident are you in the REAL condition of the property? How do you know the upstairs is prefect and the downstairs "needs work"? How much work? If its cosmetic then great......if we are talking serious work, then it better reflect in the price....

    2Reply
  • Jessica Brennan
    OP
    Investor · Illinois and Iowa · Member since 2020 · 36 posts · 24 votes
    5y

    @Ned J.I was able to tour the upstairs since it is separate and he doesn't live there. the down stairs needs a lot of work as in it looks like a dirty frat house (looked in through the windows) there is trash everywhere and the walls have years of cigarette smoke on them. the foundation looks good, HVAC too (was able to get into the basement since there is a exterior entrance. however the brother has convictions for "criminal property damage" so I guess my concern is him taking a bat to everything/ ripping out plumbing, and the numbers not working with 70K in damages. I was hoping there was so sort of additional insurance I could purchase on it. 

    1Reply
  • Ned J.Pro Member
    Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
    5y

    You can try and have the deal be contingent on the sister getting him out/evicting the brother first...... offer him cash for keys as part of the deal and have that cost reflect in the offer.

    Offer him a couple of grand to move out...... only to be paid when he is out and the property is inspected and has no additional damages.... then finalize the sale.

    Its a leverage point to get a good deal.... the sister probably just wants this over and get her $$......

    25Reply
  • Chris Trybus
    Member since 2018 · 1 post · 4 votes
    5y

    @Jessica Brennan

    U should just pay him some $$ and help move his stuff out and get him on his way. If it’s a great deal 3-4K to get him out for good and on his way doesn’t sound bad .

    Good luck

    4Reply
  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    5y

    Make the seller removing the problem relative a contingency of your deal as a way to see how bad the seller wants to sell. They may be willing to deliver it vacant at a certain price. 

    If they balk at that offer them a significantly lower price taking into account having to deal with the current situation. Be sure to accurately estimate ALL of the costs because inheriting a situation like this could get very expensive. 

    7Reply
  • Brian Zaug
    Lagrangeville, NY · Member since 2017 · 144 posts · 218 votes
    5y

    No inspection....No inside...No deal....Picture this..You buy the house at a discount because of these known issues.  Then you finally get inside and realize the electrical system is shot as with the HVAC.  Then you go into the basement and realize the cracks in the foundation are not just settling cracks.  A few days later, it rains and you realize the roof is leaking in multiple places.  Ouch

    1Reply
  • Jessica Brennan
    OP
    Investor · Illinois and Iowa · Member since 2020 · 36 posts · 24 votes
    5y

    @Michael Noto I'll try that! thanks!

    0Reply
  • Jessica Brennan
    OP
    Investor · Illinois and Iowa · Member since 2020 · 36 posts · 24 votes
    5y

    @Chris Trybus I'm going to try that!

    0Reply
  • Kevin Hoodwin
    Dallas Fort-Worth · Member since 2019 · 64 posts · 33 votes
    5y

    You could always set up an appointment with Judge Judy.

    It sounds like a hassle and rehabs will be a lot.  Unless you get a STEEP discount, I'd think twice about adding unnecessary stress in your business life.  Just think about the stress of not seeing the inside of the house until you own the property...  Been there, done that; not fun.

    4Reply
  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    5y

    If you like it otherwise, then write the contract that you close with it vacant and let the sister deal with it.

    1Reply
  • John Hinnant
    Realtor · Wilmington, NC · Member since 2020 · 37 posts · 27 votes
    5y

    @Jessica Brennan you should ask the sister to hold half the purchase price in escrow until the brother is out of the home for up to the number of days local laws take to evict. Each jurisdiction may be different in the number days, but family issues are emotional, and often expensive. This way the sister is invested in him leaving peacefully. The escrow amount will be used to repair any damage caused by the brother.

    2Reply
  • Dennis Wayne
    Member since 2020 · 339 posts · 356 votes
    5y

    @Jessica Brennan

    Well You can’t find a motivated seller with a problem then have them try to fix it themselves before closing . If it was that easy they would have already done that . You are getting a discount due to the fact your solving their problem ! Take title then solve the problem it’s ok to learn as you go and be uncomfortable till they are out . It’s part of how we grow in this business .

    Once you learn the art of throwing people out on the street it will present you many new creative strategies to buy up cheap properties from frustrated burnt out landlords tired of dealing with insane tenants . If you can buy at 30-40 cents on the dollar it’s worth dealing with crystal methany and her boyfriend

    6Reply
  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    5y
    Originally posted by @Seabelle McFarlane:

    If you need money for rehab ill be more than happy to provide it. So that’s one less thing you have to worry about.

    Got a $50 I can borrow until payday?

    0Reply
  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    5y
    Originally posted by @John Hinnant:

    @Jessica Brennan you should ask the sister to hold half the purchase price in escrow until the brother is out of the home for up to the number of days local laws take to evict. 

    Still think better to get him out BEFORE close.  If he's a trouble-maker, then he comes over there it's trespassing and one more reason for the police to stop him.

    2Reply
  • Account Closed
    Los Angeles, CA · Member since 2018 · 15 posts · 16 votes
    5y

    @Jessica Brennan have you tried to offer him cash to leave?

    0Reply
  • Jessica Brennan
    OP
    Investor · Illinois and Iowa · Member since 2020 · 36 posts · 24 votes
    5y

    @Account Closed did that today through his sister, he said he would leave "when a judge ordered it and not a minute sooner"

    0Reply
  • Jason P.
    Investor · Bay Area · Member since 2020 · 42 posts · 19 votes
    5y

    @Jessica Brennan talk to the brother. Find out what he wants and Make a deal. Maybe you can work it out for him to live there and him pay you rent?

    1Reply
  • Matthew Haraminac
    Real Estate Consultant · Denver, CO · Member since 2015 · 11 posts · 87 votes
    5y

    I wouldn't want any part of that situation. There's just way too many unknowns for me. 

    First and foremost, there are several inspection issues that could end up costing you a lot of money. If the guy's as big of a slob as he sounds like one of my concerns would be mold, another concern would be meth, but there's any number of other expensive things you could encounter. 

    Aside from that, the guy sounds like he's pretty emotionally attached to the place. We don't know his history and his reasons for his actions but we do know he's experienced a loss and has obvious emotional ties to this place. His dad was probably his whole life. Even if he leaves, you can't guarantee that he won't be a nuisance in the future. 

    The sister seems to have her head on straight from what you've said. I'd ask myself why she isn't dealing with the situation herself. If she can't get him out without property damage you might not be able to either. Or maybe she knows things she isn't disclosing. 

    Personally, attending an emotional dumpster fire of this caliber would require much more certainty for me to make it worth my while. This seems like inviting trouble into your life, IMO. 

    4Reply
  • Jessica Brennan
    OP
    Investor · Illinois and Iowa · Member since 2020 · 36 posts · 24 votes
    5y

    @Jason P. I couldn't rent to him as he hasn't worked for 3 years and refuses to get a job. He said he won't leave without a court order. 

    0Reply
  • Jessica Brennan
    OP
    Investor · Illinois and Iowa · Member since 2020 · 36 posts · 24 votes
    5y

    @Matthew Haraminac I agree, sadly I think I will have to walk if she can't get him out. 

    0Reply
  • Edmund Isas
    Rental Property Investor · Houston, TX · Member since 2019 · 4 posts · 2 votes
    5y

    What if you cut off all the utilities? How long can he live there without water and electricity? Just a thought.    

    0Reply
  • Mark Cruse
    Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes
    5y

    How could you possibly know if it's a good deal or the cap rate without knowing what's in there? Let's say you have a baseline of expenses that makes that calculation work. For the sake of argument lets assume that is 35k. It's possible that there is 100k in damages, then what? The entire structure could be damaged. All electrical may need reworking. All the plumbing may be inadequate. Let's not talk about mold, lead, rotting wood or water proofing. There could also be damages that impact the the operation of the other. If all those sewage lines are corroded out you wont be able to rent the other unit. It sounds like it could be a deal but there's is potential to be something that sinks you as well.  Also, I'm skeptical in relation to what the insurance company is saying but who knows. Sounds like a game of roulette or blackjack. 

    1Reply
  • Jason P.
    Investor · Bay Area · Member since 2020 · 42 posts · 19 votes
    5y

    @Jessica Brennan work out a deal. Will he be getting money from the sale? Work out that depending on the amount. If you do decide to pass on this deal please let me know. I’ll take it off your hands.

    1Reply
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