Should I close? Rents aren't what was stated and barely meet 1%

Real Estate Deal Analysis & Advice
8yFollow

Should I close? Rents aren't what was stated and barely meet 1%

Tiffany Norte
Investor · FL · Member since 2016 · 2 posts · 0 votes

I have a contract on a duplex in Independence, MO. We've done the inspection and appraisal and everything looks good, just the roof is a little old, no big deal. The contracted price is $110k, appraisal came back at a value of $111k. My problem is this. Normally I prefer to make sure I have room for maintenance, vacancies, management, etc and I look for a purchase price around rent x 70. When I first looked at this property, the rents were stated at $675 per side. During the due diligence phase, the rent rolls came back with $675 and $600. Now I have the leases in hand, and they are only $615 and $600.  I'm really just not sure that it's worth the purchase price of $110k now. At these rents I would only be looking to pay $85,050 for this property. 

So my question is do I move forward and spend an extra $25k over what I would like to spend on this property or do I cut my losses (about $2k) and cancel the contract? I'm out of the due diligence phase now, so I'm not sure that I can renegotiate. Is my rent x 70 even a reasonable place to be looking? I'm afraid I'm limiting myself only to run down units, and this one is in pretty good shape...

0Reply
9 views

3 Replies

Jump to latestLatest
  • Brandon Battle
    Real Estate Agent · Buena Park, CA · Member since 2016 · 743 posts · 424 votes
    8y
    "An investment without profit,is no investment at all" Rule of acquisition #18. It only appraised at 111k and you have to pay 110k with an old roof as icing on the cake? Yuck,simply yuck. Unless you have big plans to expand it into something bigger and potentially more profitable,forget it. The rents are too low and it sounds like you're gonna run into Capital Expenditures repairs why too soon.Tell them you want credits or a reduced sales price to make up for the roof that gonna need replacement and anything else you can find that is old and will need repairs or replacement soon.If they say no,walk away with a good lesson learned for a relatively cheap loss.Just my opinion, I welcome others to chime in.
    0Reply
  • Aaron Brown
    Rental Property Investor · Independence, MO · Member since 2013 · 92 posts · 37 votes
    8y

    Just saw this, have you decided yet?.  110k seems high for a duplex in Independence unless it is much newer.  I'm from Independence and know the area well.  Do you mind sending me the address in a PM?  I've be happy to tell you my thoughts on the deal and area.

    0Reply
  • Tiffany Norte
    OP
    Investor · FL · Member since 2016 · 2 posts · 0 votes
    8y

    I talked to my realtor again about the roof. We had submitted an request to resolve the unacceptable conditions for the roof. I thought that just meant patch it, but she said that it is for replacement. They're supposed to be getting it completed on Monday, so we shall see. I think we might move ahead if it is a complete roof replacement. I re-ran the rest of my anticipated costs. The tenants cover all of the utilities, and the building is in otherwise good repair, so there aren't many regular expenses. One of the tenants is month to month, so hopefully we'll be able to get one of the units bumped up on rent soon.

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