Rental Property Investor · Shoreline, WA · Member since 2016 · 42 posts · 8 votes
Looking at a duplex deal. One level is fully remodeled and rented. Other level is only partially remodeled & unfinished But has supplies being sold with house to complete remodel project. The exterior of the home still needs Low maintenance landscaping installed as well as partial fencing. Sounds like the contractor/owner stopped midway through because he ran out of money.
We are looking to make an offer on the deal, with the contingency that the owner/contractor will complete all work necessary to make second unit rentable and have exterior landscaping completed.
Has anyone dealt with a situation like this before? How can I make a solid contract/offer that covers me in the case that the contractor/owner falls through on his promise to finish project before funds are released? Any other suggestions?
Write the offer based on current condition of the property. I wouldn't trust them to finish it or that the work would be done correctly to your satisfactory. Find your own contractor to finish the project figuring the cost plus cushion in ahead of time before making offer.
Write the offer based on current condition of the property. I wouldn't trust them to finish it or that the work would be done correctly to your satisfactory. Find your own contractor to finish the project figuring the cost plus cushion in ahead of time before making offer.
Are you financing? You may have trouble financing and getting through the appraisal if what you're describing is the case.
I'd be inclined to reduce my offer and just take on/manage the work myself. If the project is not capable of being financed in its current state, you may need cash to close.
I see some risks associated with letting someone finish the work.
For one, what happens if the schedule pushes way out? In that case, you have to have money earmarked there and maybe something happens where you don't close.
What happens if the contractor finishes, but to a really dismal level of quality? It can be really hard to define quality expectations and most of the time when people ask for concessions in negotiation, from my experience, the work is poorly defined and done to the bare minimum level of quality
And lastly, how might you ensure that things were signed off on with regards to permits, rental inspections, etc. That is risk more born by the contractor/current owner than you - however it may impact the schedule, and it may impact the rent ability.
@Kari D. I agree with the other advice given. I'd add that basing your offer on the current condition gives you the opportunity to add forced equity and achieve a higher return on your investment. Key for you is if you can manage the work necessary to complete the rehab. If you're confident enough in yourself to take on that kind of project, then that would definitely be the better path. If not, you may not want to pursue that property. It's just too risky and doesn't make financial sense to require it to become turnkey before buying it. Best of luck to you.
@Jim Goebel all valid points! Exactally what I was thinking. Figured I would post on here and get more feedback on the subject. Yes, I would be financing.