I'm currently under contract for a student rental house that I initially thought would CoC return ~20% annually. The ask was $130,000 and we negotiated down to $120,000 because initially my agent said that it would need a new furnace which was going to cost at most $4000. After the inspection however, it was pointed out that the house needed a new roof ASAP, there was some leakage in the basement, and the framing was also pretty unsatisfactory which resulted in the house sort of concaving inwards a bit, but the inspector believes it may have just settled there and only came up as moderate concern on the report. There were a few other issues such as electrical grounding on certain outlets, insulation concerns, and there were no smoke detectors. If i offer $95,000 for the house and take care of those repairs using $10,000 for the roof and $6,000 for the furnace, it will still return 15.3%, but my other concern is there will already by tenants in the house by the August 15th. Is this too risky with too many uncertain factors? Or could this still be a good deal if i buy it low enough and fix those large issues? Thanks!
P.S. this is my first ever real estate deal
Hey @Charles Giovanniello ,
You have an obligation to provide for yourself and your household. Sounds like the roof and other surprise costs like electric, insulation,... make it harder to profitably own and operate this house.
Don't have the seller fix the items, they don't have obligation to get the best contractors to repair the items.
Renegotiate the deal so that you feel like you win when they agree, and the seller will agree when they feel like selling is a good deal for them as well.
@Nathan Platter That's good thinking, I had another deal in place where the seller would fix those issues but he doesn't have an obligation to get the work done well and will probably opt for the cheapest he can get. Thanks for that advice.
If you go ahead with this deal it may be the last deal you do...ever.
Walk away. Don't bother to renegotiate. The inspection showed that the house wasn't what it was sold as
Lesson to be learned here is this, and it's one of the most important ones you will ever learn.
Sometimes the best deals you make...are the ones you don't.
Agree with @Joe Villeneuve . Deals are hard to find currently but you need to walk away on this one unless you are a very seasoned rehaber. A house sort of concaving inwards a bit is not on my bucket list.
I'm not trying to be rough on you, but it would be a good idea to learn a bit about housing condition before going again. First item if a roof needs replaced ASAP it should be pretty evident even for a layman and your initial offer should reflect that. Second is you figured 4K for the furnace originally in your 120K offer but you added an additional 6K in again as you are now dropping the price an additional 25K.
Based just on your post, you have added an additional 15K for some grounding issues and smoke detectors which in my area are $700 worth of electrician who is slow over charges and does retail. Insulation retail is a couple thousand tops.
Lastly these are student rental units. Most student rental landlords I know replace carpets every 2 years because they are just that bad (look like a ground in 15 year old carpet in a hoarders house). I would guess if you go back at 95K (after agreeing on 120) the discussions will be ended at that point. If you do not at least have a good idea of condition you are going to find that inspection fees eat up $450 a pop and you never end up buying anything.