In the middle of a property purchase--should I back out?

Question

Full disclosure: I am very, very new to all this. I follow the basic rules: buy 1%+ properties, have significant cash reserves, etc. etc. So far I have 2 rentals that have been doing great and are absolute cash cows.

Property values are insanely low in my city, but the rental market is killer due to having 5 colleges within 10 miles and a rapidly growing city. So the property I'm looking at is a 2 bedroom, newer construction home (2011) listed at 64900 which is considerably under the tax assessment. Offered full price + $5300 in repair credits (the current tenants smoke, so I'm thinking repaint + refloor + install new HVAC, which is unrelated to the smoking) and the seller will pay $1300 of the closing cost. So basically full price, but I get $6600 in cash back essentially.

I would most likely be able to get $700 in rent per month, but that was as of the market pre-panic. And obviously, home maintenance would be next to nothing for the foreseeable future.

Considering the current state of affairs, should I back out? I haven't signed anything yet. Thanks for any advice you can offer.

Paul Sofia · Answer

@ Ryan Thomas, yes.  There will be more opportunities.  There will be plenty of deals out there once we come out of this economic nightmare.  We are still clueless to what the UE rate will be.  I am no economist but when more and more people are out of work, the more that will lose jobs.  Consumer and commercial credit are maxed out.Let's do the math on this.

Kyle Bambu · Answer

I'm closing on a property in a couple weeks and don't even have a job yet. I'll be graduating and starting my job in June. Might be a slightly different story for me because I believe I have a ton of built in equity, and I'm confident I can pay the mortgage even if things get worse. This downturn is likely to get worse at this point. A couple weeks ago I was not too worried, but it's obvious containment has failed. Maybe it would be possible to negotiate the seller down more given the "current climate" so that way you have more equity if you did purchase it.

Ryan Thomas · Answer

So I'm guessing that's a vote for "you should definitely back out"?

Paul Sofia · Answer

Too much uncertainty in the market right now.  If this continues, I see lending to be a huge problem.  Not looking good for the credit markets.  If we had a date that we knew for certain that we are back to business, things would be different.  This whole picture is not looking good right now.  Hate to say it but truth is truth.

Ryan Thomas · Answer

I have enough $$ to put down payments on one property per year (roughy) and max out my IRA contributions, so this will probably be the only property I can afford this year and still have enough cash reserves to be safe (we keep 5k per property and 6 months of our mortgage on hand as a lowest acceptable cash reserve baseline). I am not particularly wealthy and my and my wife's jobs are somewhat vulnerable at this particular moment. We still have them and don't have any clear indications that they're in danger, but all that to say that this cash may be the only capital we have with which to buy something for a while.

Russell Brazil · Answer

This is what Id suggest......if the market happens to get worse...dont worry, but even more then.