Under Contract For My 1st Investment Property

[Shakira Patterson]

So I am in the process of purchasing my first investment property.

I am under contract for $274k - this is a multi-family property with 2 units. A tenant is currently renting one of the units for $1k a month and she wants to stay once I take over as the landlord.

After getting the home inspection done. There were a couple of repairs that I requested to get fixed. One of the major repairs was replacing the columns in the basement that basically hold up the house. This repair cost an estimated $8-25k to be replaced and the seller said she wouldn’t get it replaced.

She also declined getting any of my other requested repairs fixed.

I’m wondering if this should be deemed as a red flag or dealbreaker. Any advice is helpful.

Thanks in advance!

[Jane Ng]

Congrats on getting your first investment property under contract! You made the first big step!

Without knowing all the details, it all comes down to numbers. If all your estimated repairs (including the ones on the inspection report) is still less than a conservative ARV, I would say it's safe to move forward. I say "conservative ARV" because some markets are very difficult to determine an exact ARV. I got two back to back appraisals on my first investment property and the difference in ARV was 60%!! Typically, it's easier to figure out a more accurate ARV in established neighborhoods, and more difficult in less established neighborhoods.

Some investors stick to a 70-75% ARV rule where your purchase price + all rehab costs should be 70-75% of the ARV. These deals are harder to find, so depending on the market, I do around 85% of a conversation ARV. But it all depends on your goals. Even if your purchase price + all rehab costs = ARV, that doesn't mean it's a bad deal, if you can cash flow and there's decent appreciation in that neighborhood. Also - for your first investment property, a single base hit is A-OK bc you will learn a TON!

Good luck!