At what price point should I walk away?
Here is the property I am purchasing in Santa Fe, New Mexico:
https://www.biggerpockets.com/calculators/shared/5...
The asking price was 340k contingent on inspection. I have already done 1. inspection, 2 sewer scoping. Quotes came in at 100k so I adjusted my offer to 240k where seller finances 210k of the deal. Now appraisal came in and this tri-plex has value of 275k based on her analysis.
It so happen that I have contacted the seller with 240k revised offer and I do not know his response yet. My wife wants me to work away but I still want the cash flow that I am projecting.
Please advise!
Here is a part of the letter, I sent to the seller:
The home inspection was completed on September 29th (please see attached) and the following issues were pointed out:
- 1.The wooden floor frame in the middle unit is deteriorating due to either prior water leak in the bathroom or due to moisture infiltration through the walls and foundation.
- 2.There is evidence of significant settlement under the middle unit bathroom and north closet.
- 3.The settlement of the floor and walls has also resulted in settlement of the roof frame above this area, ceiling shows cracks.
- 4.There is an obvious depression on the roof – water is ponding on the roof above the middle unit, which adds excessive weight on the roof and potential for leaks.
- 5.Asbestos containing material has been found.
- 6.The current bedroom heat installations in the north and south units pose a safety hazard from carbon monoxide, fire and oxygen depletion.
- 7.An electrician performing upgrades did not use ‘arc fault breakers’ in the north and south unit breaker panels, which is required by the national electrical code.
- 8.Upgrades to the electrical system, promised by a real estate agent, have not been completed yet. Major appliances are still connected to ungrounded outlets, some switches and outlets do not work, a kitchen breaker for the middle unit gets tripped for no apparent reason.
- 9.An electrician has also damaged exterior walls. There are openings in the upper west exterior walls where electrical conduit was removed.
- 10.The stucco in these areas has not been repaired to prevent moisture penetration and deterioration.
- 11.The front unit has issues flushing the toilet, which was confirmed with a tenant, so camera scoping of the drain pipes was performed that revealed damages and blockages in the pipes.
- 12.Deferred maintenance on multiple items: cracks around windows and pipes, gas pipes are not supported, pilot lights in heater units were not lit, a water heater unit has no ventilation.
I hired a plumber to scope the pipes (please see his report in the invoice attached and photos); a roofing company was hired to assess the damage to the roof above the middle unit only (please see proposed work sheet); a general contractor has inspected the settlement of the wall in the second unit due to the damaged frame. They all confirmed the issues noted in the home inspection report. Here are the costs to address the issues uncovered by these experts:
- 1.Wood floor and wall in the middle unit: $44,000 + tax + $2,800 for permit, but engineer report is needed for a formal quote.
- 2.Roof above the middle unit: $8,000 + tax + $800 for permit + ply wood;
- 3.Sewer line outside the building (see estimate): $7,365 total;
- 4.Sewer line inside the building (see estimate): $21,663 total;
The total cost plus 10% contingency is equal to $100,000 in repairs that I cannot afford to pay and still be able to fulfill my obligations to you and to the tenants that will have to be displaced for the duration of repairs.
In addition, the appraisal came in at $275,000 that is considerably below the $340,000 number.
Proposed solution:
- You will complete all the electrical repairs and ensure all three units are brought up to current code including the outlets.
- You will have the stucco repaired on the exterior that was damaged by the electrical proof.
I will purchase the property “as is” for $240,000 with $30,000 down. I will use the reduction in the down payment to take care of the immediate sewer issue.