Sagging top floor of a duplex. Potential deal breaker or not ?

21 Replies

I have made an offer to buy a duplex which was built in 1940s. During the inspection, the inspector pointed out the sagging of the top floor to us. Picture is linked

https://imgur.com/a/w5BhAXs

As you can see that it's quite noticeable. My initial thought is that the added weight of the bathroom, water heater etc. during the renovations made the top floor to sag over the years. There might have been a column at downstairs unit which was removed at some point, we couldn't tell.

So, my question is what would I need to do to remedy this situation ? Should I just back out ? This is my first house and everything else in the house is in okay condition requiring minor fixes. 

Additional info: 

- Sale price of the duplex is 299 K (Seller paying 7 K towards closing)

-Sale 'as is' condition

-Property in an A neighborhood, property condition probably B.

-It currently rents for $ 2450/ month. 

You need good data to make good decisions.  I would get a trusted handyman to take a look and see what it would take to correct the issue.  Lastly, $299k is too much for $2450 in monthly rent.

@Jacob Sampson, I agree with you that it's not a great rental. I plan to househack the first year. The top unit will be empty. I have been looking for few months and currently there are no other good deals in an area where I would be comfortable to live. I did some conservative estimate and if I manage the property I will get around $200 / month in cash flow, which again is not great  but okay in my mind. 

Promotion
BiggerPockets
The one-stop-shop for REI
Find Local Home Improvement Pros!
Check out our network of trusted, local contractors for all of your home improvement projects.
Find a Contractor

IMO there is no true long term cash flow in that deal.  How are you calculating your cash flow?  I calculate cash flow as rent - 30% vacancy and maint - principal, interest, taxes, and insurance = true long term cash flow.

I assigned a 15% value ( includes vacancy + Cap Ex+ Maintenance). I also have the potential to increase the rent to 2600/ month. It's truly hard to get a duplex property which would follow 1% rule and I would want to live at. This is at a great neighborhood and may increase in value in future. That's my justification. 

Do the doors below open and close properly and is there noticeable ceiling cracks?  What type of floor is upstairs and can you notice the bowing upstairs?  You sure its not the ceiling itself sagging?

@Mohammad Nur

I hope you put contingencies in your contract. I would obtain a quote for the cost to fix the floor issue. Then, I would go back to the seller and try to negotiate a lower price based on the quote.

Honestly, the price is high for the amount of rent the property generates.

Just my 2 cents.

Canesha

@Mohammad Nur

If you decide to proceed with this property, a structural engineer is going to be your best resource. They will be able to assess the current state as well as potential implications of the sagging ceiling. They aren't cheap and will likely run $300-$500 for their professional opinion. That will at least help put any worries you may have to rest.

To remedy the issue, a contractor who specializes in these repairs would have to open the ceiling, jack up the sagging joists and sister them to new ones. Look up "sistering joists" on YouTube to get a feel for this process. From my understanding, this is something that could run a few thousand dollars, plus the refinishing of the ceiling. Good luck with your decision.

Originally posted by @Anthony Rosa:

Do the doors below open and close properly and is there noticeable ceiling cracks?  What type of floor is upstairs and can you notice the bowing upstairs?  You sure its not the ceiling itself sagging?

 The picture that I linked is from bottom floor. In the top unit you can feel that the floor is slanted towards the middle. So, the sag is noticeable from both floors. I assume that the beam support is not enough and we need to do something to fix that

@Brandon Roof, thanks for the suggestion. I talked with a structural engineer friend of mine and showed him the pictures. He said pretty much the exact same thing that you did. I feel much better about it. 

Originally posted by @Canesha Edwards :

@Mohammad Nur

I hope you put contingencies in your contract. I would obtain a quote for the cost to fix the floor issue. Then, I would go back to the seller and try to negotiate a lower price based on the quote.

Honestly, the price is high for the amount of rent the property generates.

Just my 2 cents.

Canesha

I will get a contractor out there and definitely get a quite. I agree with you that the price is too high for this rental. I just couldn't find any other better deal where I would want to live.  

Originally posted by @Dennis M.:

your deal is no good . I have no idea why you’d do this much less a property with such issues involved . No meat left on the bone

I know based on the numbers that this deal wouldn't be an ideal deal for most people. This would be my first property and I am just looking for an "okay" deal as my first investment. In last few months, the only other desirable duplex that was sold went for 240 K which was renting for 1800 / month. I even made a 220 K offer on that but it was no good. Based on the current condition of the market, this is the best/ most suitable deal I can find within my criteria. 

However, I am not so determined to make this deal work and would walk away if it doesn't make reasonable sense. 

@Mohammad Nur I owned an older duplex that was converted from a single family home in the 1970's. I had to replace a shower in the bathroom upstairs and found out that when they converted, to make space for drains, they just cut out the supporting joists. There was no effort to add support. So the joists were cut and a bathtub was put on top!! This particular property was built on a rubble foundation and not a single floor in the property was level. Right before I sold the property, settling caused one of the plumbing stacks to crack in the wall. 

What you learn with older properties is a ceiling can sag for 100 years and never be more than a cosmetic problem. On the flip side, every floor that ever collapsed, was a sagging floor before it collapsed! 

My opinion is you don't need to undertake issues like this on your first deal, especially if you are not getting a major discount. 

@Joe Splitrock, thank you for your valuable insight. Just to give you a little more info. The property was listed for 353 K, then it was reduced to 325 K and then at 299 K. The seller did a professional appraisal before listing and the appraisal for the property came out to be 325 K ( seller shared the appraisal with us).  This property is in a historic district and has strong rental. I do agree with you that, it was lot more than what I first anticipated when I made the offer on the property. 

I took a structural engineer friend of mine, and he said that the foundation looks okay and the sag is probably cause by the wood over time, but he didn't rule out poorly planned renovation on the top floor which may have caused the sag in the ceiling. I would need to add few more joists (beams) to shore up the ceiling to prevent it from further sagging. 

I am thinking that I need to reduce the price even more to make this deal work, or just walk away from it. 

If you have a structural engineer friend You have probably already saved the cost of inspection and got some validation on the issue. See if you can get an estimate for fixing it and try to see what you can get on the price.

That is market rent for  both units after you move out? any value add potential?  What are your living option otherwise? While you get a lot of negatives here its not a deal, there is a bit different evaluation if you save paying your own rent each month and move out in a couple of years. Just one year it may be a toss up but I don't see the area you are in, rising or falling market?   Are rents and housing prices going up?   that  may factor in.     Not trying to talk you into it but pointing out that I understand living there matters and look at a couple other factors.  

Originally posted by @Mohammad Nur:

@Joe Splitrock, thank you for your valuable insight. Just to give you a little more info. The property was listed for 353 K, then it was reduced to 325 K and then at 299 K. The seller did a professional appraisal before listing and the appraisal for the property came out to be 325 K ( seller shared the appraisal with us).  This property is in a historic district and has strong rental. I do agree with you that, it was lot more than what I first anticipated when I made the offer on the property. 

I took a structural engineer friend of mine, and he said that the foundation looks okay and the sag is probably cause by the wood over time, but he didn't rule out poorly planned renovation on the top floor which may have caused the sag in the ceiling. I would need to add few more joists (beams) to shore up the ceiling to prevent it from further sagging. 

I am thinking that I need to reduce the price even more to make this deal work, or just walk away from it. 

I would plan to take the ceiling down so you can get a good look at what is happening underneath. Replacing a ceiling is pretty easy and looking at it is the only way to know what is going on.

Originally posted by @Colleen F.:

If you have a structural engineer friend You have probably already saved the cost of inspection and got some validation on the issue. See if you can get an estimate for fixing it and try to see what you can get on the price.

That is market rent for  both units after you move out? any value add potential?  What are your living option otherwise? While you get a lot of negatives here its not a deal, there is a bit different evaluation if you save paying your own rent each month and move out in a couple of years. Just one year it may be a toss up but I don't see the area you are in, rising or falling market?   Are rents and housing prices going up?   that  may factor in.     Not trying to talk you into it but pointing out that I understand living there matters and look at a couple other factors.  

 Got a contractor to give us a quote and he said it may cost around 3-4 K. The bottom unit is rented for $1150, the top unit was getting a rent of $1400. But it's been vacant for few months since it was listed for sale. I have made a conservative estimate of $2400 / month after I move out may be a year or two after. Currently living in a one bedroom apartment with my wife. 

The property is in a historic neighborhood. House prices are steadily going up. Rents aren't not going up that much but been holding steady. Getting 1200 for 2 bed + 1 bath would be pretty easy in that location.  I understand that in terms of strictly in the investor eyes, this property isn't a great deal, but it makes it reasonable since I can live there and my commute to work would shorten a bit as well. 

@Joe Splitrock, the bottom unit is currently rented and don't think the seller would allow us to open up the ceiling. Would have to do it either during a turnover or when I own the property. I have asked the seller's agent (seller is out of state) to reduce the price by showing him the quote from contractor. Let's see, how it goes. 

@Mohammad Nur I went through a similar scenario to you just last week. I was thinking of going with an "ok" deal that I could house hack. My return would be meager with conservative estimates pointing toward 5-7% COCR. I feel like we were pretty much in the same boat - I would be able to house hack, commute was shorter, I had been looking for months and there was nothing that was "as good of a deal", and I was anxious to get my first property despite my gut feeling that it wasn't a good deal (I was doing everything to rationalize the deal rather than listening to wise advice and trusting the numbers). Main issue with the house was bowing foundation, but there were a bunch of other small issues.

I got some pretty helpful advice that I think might apply here too.

1) settling with an "ok" deal leaves no wiggle room for errors in your calculations/estimates. If the return is low but acceptable to you and there is some bigger expense that you didn't foresee, that can eat all your cash flow or turn it negative. For a first property, you can almost guarantee that you are going to miss something, so keep this in mind.

2) negotiating against yourself sets you up for failure in the future. It creates bad habits of going with your emotions rather than the numbers. You'll just be digging a deeper hole for yourself.

3) "analysis paralysis" and patience while waiting for a good deal are very different things. If you come across an actual good deal and you don't act on it, then that is where the analysis paralysis is kicking in. It can be tough to be patient, but it's much better to wait and find an actual good deal than to tie up your time and money in a bad one when a good one might be around the corner.

4) there are always deals to find. If you can't find one, you may need to look in another market (even though you might not be able to house hack) or get more familiar with your own market

To me it seems like the numbers on this one don't work and I think that seems to be others opinions as well. I would pass and keep your head up, be patient and persistent and keep looking. Good luck either way!

@Daniel Claroni, you are absolutely right that, we are pretty much in the same month. I have been looking for almost 3 months and looked in to deals that happened in last year. Very few that would make money and I would have liked to live there. As a matter of fact, I made an offer of 220 K on a property that was listed for 239 K and was making 1900/ month. That property didn't even have central air / heating. 

I will go back to my current deal once again, and will ask another friend (who's been an investor for a while) to look at my numbers again and give me his honest opinion. I need a fresh set of eyes to look at the deal. You are right that I am rationalizing to make this deal work. Inspection period is almost over and need to make up my mind soon. Thanks again for your valuable input .

Just an update to everyone. I ended up buying the property. After some more investigation, it seemed that the sagging wasn't a big concern and could be fixed with relatively cheap (3-4 K) effort. Thanks to everyone for your suggestions. Now, the life as a RE investor and Landlord begins.