Seeking advice: Tenant occupied House

[Melinda Ching]

Hi all,

I'm seeking advice for purchasing a property. This property is a duplex in need of a lot of work. It is a 2 unit PUD, with one of the units with a large garage. We placed an offer after walking the property with a contractor. There's a ton of work that needs to be done including roof, siding, septic, as well as interior rehab. We were unable to see one of the units because the tenant (lets call him Tenant A) is at high risk for COVID, but we were told it was in decent shape. That current tenant rents out the garage as well. We offered a price based on rehabbing one of the units and fixing up the garage exterior (we could not access the inside)

During inspection, we learned a lot. There was an illegal unit above the garage the we initially thought the owner had put in, but it was actually Tenant A who had built it. It was taken apart. Tenant A runs a plumbing and heating company and did some work on the garage himself. He also put an illegal studio in one of the garage bays with a bathroom... I should also mention that Tenant A has a ton of crap on the property. He uses the other 2 garage stalls as storage for his plumbing stuff (almost impossible to walk around) and has several cars (buried in the snow) and even a semi-truck on the property as a storage unit.

Our initial plan was to fix up both units and the refinance them separately and attempt our first BRRRR. We offered with Tenant A staying as tenant at will, thinking it would take him longer to move all of his things since the snow has to melt. We were going to rehab tenant B's unit and rent it out and then ask Tenant A to leave. However, now we are reconsidering because the tenant seems so deeply entrenched in the property. He also did some work on it himself. During the inspection he stayed there, since he was vaccinated and didn't have any other place to go. The whole time he was pointing out things that were wrong with the place, and kind of just talking a lot. It honestly seems like Tenant A was taking advantage that the owner lived out of state and is probably retired, with little cell service. Tenant A seems to have just done whatever he wanted with the property.

TLDR:

• -We put in an offer too high 
• -post inspection our rehab costs are about 50k higher
• -during the inspection, lots more issues came up
• -potentially difficult tenant

We are pass our due diligence period, which sucks. We could walk away from the property, losing our deposit of 5k or renegotiate a price. Any advice would be very very much appreciated. We are eager to start our investing journey, but don't want to be total chumps.