Seller Repairs Advice

[Rick C.]

Hello -

I am in the middle of an inspection period for a duplex. The inspection report came up with some significant repairs that need to be done (all categorized as safety issues and major issues). The pre-inspection purchase price was $71k, but the repairs will likely amount to about $20k. For purposes of maximizing my percent return, I am getting a conventional loan and putting 25% down.

I would prefer to get the work done by my own contractors, so I am considering asking for about $20k off the purchase price. However, after closing, I do not want to have to take $20k out of my pocket and away from other investments to do these repairs. I would ask the seller for an assist instead, but I do not believe a standard investment property mortgage would allow for that high of an assist. I also have the ability to buy in cash, but would want to roll 75% of that cash back into a loan for that property after the repairs are done (not sure what the process is for getting a mortgage post-closing).

Does anyone have advice as to how I can a) minimize the amount I put down for this property and b) ensure the repairs are getting done properly.

Thanks in advance for your advice.

Rick

[Bill Gulley]

As Jon pointed out in his second method, paying at settlement is the usual way to do this. Asking a seller to actually front money for repairs is not something most sellers will entertain, if they can do that they might as well have repairs made and sell for more.

The seller needs to contract with the with the contractors for the work. The purchase agreement is set at a price plus costs on the contract as costs can go over. The construction is paid from loan proceeds from the seller. You'll have an appraisal of the property with plans and specs, then a final value after completion and prior to closing. You (actually the seller) needs lien waivers from everyone who works on the property and the seller will be required to give clear title with work being performed within the period of time in your state allowing material and workman's liens, like 90 days for title insurance. You'll likely need a list of all materials paid for, a release of lien may be required by suppliers. There is more paper work involved, but no cash required if your contractor agrees to be paid at closing. Good luck. :)