Property under contract in a precarious situation

[Luke Spencer]

Hello, this is my first post so bear with me it might be long! I started my real estate investing journey this year with the private purchase of a off market house that went awesome.

I then found a interesting triplex/warehouse property, went and looked at it with the listing realtor, crunched the numbers and decided that it made financial sense. I was told the warehouse was under lease until july  of 2025, on a 18 month lease for $40,000, but the seller was keeping all the proceeds. The 3 tenants, all 2/1 property, had leases of 800/700/700, he said they were raising all rents to 800 as leases came due. One lease is the owners brother which becomes important later on. We agreed on a purchase price of 105,000, got all agreements signed, but no mention of rent increase, or warehouse money in the agreements (shame on me, shame on them).

The leases came due between me viewing the property 6/1 and accepted purchase agreement 6/26, I saw the updated leases when the lender was wanting them, and noticed the brothers lease stayed at 700 while the other was bumped to $800. I mentioned it to the realtor and was basically told he did it behind his back and had no idea. 

Fast forward to yesterday(appraisals are done, waiting on underwriting) after a text from the realtor about signing a document that says I'm okay with him representing me and the seller, I called him and brought up the fact that I'd looked over the purchase agreement and the rental agreement and nothing was stated about the rent increase, but it was clearly stated that ALL rental income even prepaid rents (the warehouse was paid in full up front) would be prorated to the buyer (roughly 2200/month)

I'm at a crossroads on what to do, part of me wants to just ask for earnest money and appraisal fees back and walk away, but the cashflow of $2300 (current rents not counting warehouse) on a $105,000 property just seems to appealing to walk away from, what do the more experienced investors than myself think

[Nathan Gesner]

Quote from @Luke Spencer:

1. Numbers are numbers. If it still works, why walk away? Accept the brother, then increase his rent when the lease is up. It's only a difference of $1,200 in a one-year period.

2. Are you saying the warehouse pre-paid their rent for 18 months and you agreed to let the Seller keep it all? Crazy.

3. When making an offer on occupied property, I highly recommend you include a clause that the seller is not allowed to make any changes to the leases without your prior written permission. This prevents them from reducing rent, signing new 5-year leases on tenants you didn't want to keep, or other shenanigans.

4. The agent cannot "represent" both of you. They either represent the seller or the buyer. You are probably a "customer" which means they don't represent your best interests and have no requirement to protect you, negotiate on your behalf, etc. You should always have your own agent looking out for your best interests.

This sounds like a really good deal based on what you've shared. It could have been better, but it's still really good.

[Theresa Harris]

For the rent increase, you're talking about $1200 (or less because the lease was renewed for July and you won't be taking possession until later).  Increase it next year to $850 when you increase the rent for the others.

I'm not sure about this "I was told the warehouse was under lease until july of 2025, on a 18 month lease for $40,000, but the seller was keeping all the proceeds" and later you say "it was clearly stated that ALL rental income even prepaid rents (the warehouse was paid in full up front) would be prorated to the buyer (roughly 2200/month)".  Are the prorated rents being given to you (along with deposits) or is the seller keeping it?  If the latter, I'd tell the seller to stuff it.

[Russell Brazil]

Next time hire an agent to represent you. There's more surprises looming that you arnt aware of yet.