First investment, two major repairs needed

[Bauclair Mbouadeu]

Hi all,

This is my first time writing on this forum, and I'm also a first-time investor. I'm looking to purchase a 3-unit property in Massachusetts. The purchase price is $626k, with one unit delivered vacant, unit two currently paying $800 a month, and unit three paying $700 a month.

My question pertains to the inspection report I have received, which states that the roof has around 5 years left, and I need to replace the drain iron plumbing to the street, which is estimated to be a $10k job. I wasn’t prepared to invest this amount of money in the first few years, so I'm unsure how to proceed.

Due to the high interest rates at the moment, mine being at 7%, and with two tenants paying below-market rents, I currently have no cash flow. My plan was to gradually raise rents to market rate over a two-year period, which would generate a cash flow of $200 in two years with a 7 percent interest rate.

The seller is firm on the purchase price and has cash offers as backups if our agreement falls through, but we are currently under contract.

Pls let me any additional info needed, as this is my first post. 

[Ko Kashiwagi]

Hi Bauclair,

I'm assuming you have an inspection contingency clause that allows you to back out of the contract? If you feel that the offer is not worth $626k, there is no reason you need to force through the purchase. If you think it's a bad deal, it's a bad deal no matter how many other offers exist. Given the inspection findings, you have a basis to renegotiate the purchase price or request seller concessions, such as a price reduction or credits at closing to cover repair costs as well.

To do a proper analysis on whether the purchase is worth it, you'd need to calculate the expected rent after repairs and the ARV. If $626k still makes sense given these inspection reports, then you could perhaps do a BRRRR.