First potential purchase under contract, and then...

[Wesley W.]

Hello, all!

Well, we are under contract for our first of hopefully many multi-family investment properties to create a buy-and-hold portfolio.

Here's the issue. The seller grossly underreported the taxes, insurance, and water expenses for the property (they were listed on the MLS). So, during the attorney approval period, we get copies of the paperwork and discover the discrepancy.

How much were they underestimated? By $3000 a year. This cuts into our cashflow significantly - our analyses showed a little more than $500 positive cashflow a month (it's a 5-family unit), and these new figures will cut that in half.

After speaking to my realtor, he says we should ask for money back at the closing for the difference over a few years. (He suggested $4000-$6000.) basically, the seller writes us a check at closing for that amount.

Here's what I totally dislike about this notion: after 2 years, we are still going to have those expenses (hell, they'll almost certainly be higher by then), and we'll have a few more decades of debt service to pay on the property.

I'd like to call upon the collective wisdom of the BP community to ask: given the situation, would you walk away? If not, what would you ask for as compensation?

I'd be happy to provide additional details if it helps make a more informed decision.

Thank you in advance!

[Ned Carey]

@Wesley W. I agree with you, the real estate agents solution is a temporary fix to a permanent problem. I would just lower the price until I got the same return (NOI) as you originally bargained for.

If he doesn't agree then, you have to decide how much you want it and if there is otherwise an upside, like the ability to cut expenses over time. Of course you probably figured those factors in when you made the original offer. Don't be afraid to walk if it is not a good deal.

@Account Closed it is common to have a due dillegence period after the contract is written on commercial deals.