Investing in Real Estate Part 2
September 28, 2019
Hello and happy Saturday! It's a cold and rainy Saturday afternoon and I am excited that I get to blog. I actually really enjoy blogging, I just don't have time during the week with everything else I have going but no worries. I am here now! ;-)
I wanted to update everyone on my house buying progress. We finally found a place we liked and we put in an offer. Initially, the seller countered and then we gave her our best and final offer and she finally accepted! YAY! I went last Monday to turn in my earnest money and last Friday we had an inspection conducted on the property.
Unfortunately, the inspection revealed a lot of major things wrong with the property. The roof only has a year of life left which is going to cost about $15,000 in itself. The garage has no gutters and gutters are expensive to put on and additionally the roof in the garage is damaged due to no gutters so there is mold as well. The chimney is in very bad shape because no one has ever take care of it so it is literally disintegrating, sidewalk bucking and cracked in several places that would need to get fixed right away due to liability with tenants and them tripping and falling. Additionally, the electrical panels need to be replaced and rewired and the floors on the 1st floor are buckling and there are several windows are are old and/or damaged. Those are only the major things, tons of other small things that need to be done as well.
I spoke with my awesome attorney and told him my concerns yesterday so we countered with either a $20k repair credit or we lowered the price $20k. My gut tells me the seller is not going to go for that deal and I have a feeling this deal will be a bust. I hope not, but considering that I had a few conversations with the seller at the inspection and she kept saying things were new that were visibly apparent that they were not new that she thinks the place is worth more than what she paid and it is not because it was never maintained thus, having all the issues that it has now. I know what the seller paid for the property and I think shes just trying to break even and not lose money but she needs to face reality.
We knew that the first two offers she received never closed and now we know why. They probably discovered the same issues we saw, in their inspection reports, and she was probably unwilling to fix anything (just like she is doing to me now) and they walked away from the deal. At some point, she is going to either make the repairs herself or lose money on it and sell it for less than what she paid for it. If she declines our offer, I guarantee she will end up selling it for what we offered her because there is no way a smart investor would pay what she wants, then having to spend $20-40k just to fix the major things as soon as you buy it.
We ran the numbers and if we bought it as is with no assistance to pay for repairs, we wouldn't make a profit for 3 years and that's assuming there are no vacancies or extra issues that come up. Its not a wise investment if she is not willing to compromise. I am comfortable with walking away from this deal if I have to because this is an investment that needs to produce cash flow, if there is no cash flow then there is no purpose. Waiting on a response from the seller to see what they counter so I will keep you all updated on what happens next.
(Some advice: don't let anyone make you feel pressured into accepting or settling for what THEY want. Follow your instincts and look at the numbers, the numbers don't lie. I have a gut feeling they are going to not take our offer but that's okay because I am investing a lot of my hard earned money into this and I would be pissed at myself for not following my gut and settling just because I like the place and just because I want to be done with the "looking" phase of the house buying process. The only thing I am losing in this case would be the inspection money but its completely worth it because I rather lose $450 than $30k in the long run.)
Hello and happy Saturday! It's a cold and rainy Saturday afternoon and I am excited that I get to blog. I actually really enjoy blogging, I just don't have time during the week with everything else I have going but no worries. I am here now! ;-)
I wanted to update everyone on my house buying progress. We finally found a place we liked and we put in an offer. Initially, the seller countered and then we gave her our best and final offer and she finally accepted! YAY! I went last Monday to turn in my earnest money and last Friday we had an inspection conducted on the property.
Unfortunately, the inspection revealed a lot of major things wrong with the property. The roof only has a year of life left which is going to cost about $15,000 in itself. The garage has no gutters and gutters are expensive to put on and additionally the roof in the garage is damaged due to no gutters so there is mold as well. The chimney is in very bad shape because no one has ever take care of it so it is literally disintegrating, sidewalk bucking and cracked in several places that would need to get fixed right away due to liability with tenants and them tripping and falling. Additionally, the electrical panels need to be replaced and rewired and the floors on the 1st floor are buckling and there are several windows are are old and/or damaged. Those are only the major things, tons of other small things that need to be done as well.
I spoke with my awesome attorney and told him my concerns yesterday so we countered with either a $20k repair credit or we lowered the price $20k. My gut tells me the seller is not going to go for that deal and I have a feeling this deal will be a bust. I hope not, but considering that I had a few conversations with the seller at the inspection and she kept saying things were new that were visibly apparent that they were not new that she thinks the place is worth more than what she paid and it is not because it was never maintained thus, having all the issues that it has now. I know what the seller paid for the property and I think shes just trying to break even and not lose money but she needs to face reality.
We knew that the first two offers she received never closed and now we know why. They probably discovered the same issues we saw, in their inspection reports, and she was probably unwilling to fix anything (just like she is doing to me now) and they walked away from the deal. At some point, she is going to either make the repairs herself or lose money on it and sell it for less than what she paid for it. If she declines our offer, I guarantee she will end up selling it for what we offered her because there is no way a smart investor would pay what she wants, then having to spend $20-40k just to fix the major things as soon as you buy it.
We ran the numbers and if we bought it as is with no assistance to pay for repairs, we wouldn't make a profit for 3 years and that's assuming there are no vacancies or extra issues that come up. Its not a wise investment if she is not willing to compromise. I am comfortable with walking away from this deal if I have to because this is an investment that needs to produce cash flow, if there is no cash flow then there is no purpose. Waiting on a response from the seller to see what they counter so I will keep you all updated on what happens next.
(Some advice: don't let anyone make you feel pressured into accepting or settling for what THEY want. Follow your instincts and look at the numbers, the numbers don't lie. I have a gut feeling they are going to not take our offer but that's okay because I am investing a lot of my hard earned money into this and I would be pissed at myself for not following my gut and settling just because I like the place and just because I want to be done with the "looking" phase of the house buying process. The only thing I am losing in this case would be the inspection money but its completely worth it because I rather lose $450 than $30k in the long run.)