Need advice to close or not to close on wholesale deal today!

[Karen Adams]

Hi BP!  We took an assignment of a standard AAR contract for a fee of $5,000 through a wholesale/rehabber mentor of ours here in Phoenix.  We were told by our mentor that repairs would be $20k or so.  After signing the assignment, we were told it would probably be more like $25k, but that the property was in really good shape with responsible tenants.  The inspection period was over by this time, so we were not able to see the property other than photos (took our mentor's word for it).

Yesterday we had a walk-through with the mentor's contractor who said repairs are more like $30-35k.  Plus, the tenants had still not moved out.  The contract dated 11/1/16 states they are to be moved out by close of escrow (today).  The pristine pool at contract signing is now green with trash in the bottom. We obviously won't close until the tenants are completely moved and we see what shape they've left it.  Sooo...

Our deal was pretty thin profits already with $25k in repairs.  We're also using hard money to fund 95% of the purchase price at 14%.  Here's the breakdown with $35k in repairs:

Purchase price $125k

Rehab $35k

ARV $180k

Holding costs $7300 (4 months)

Closing costs incl RE commission $8191

We'd be lucky to net $5k. So my question is: should we eat the $5k EMD we put down with the assignment and walk away? Does our mentor have our best interests at heart? Would the honorable thing be for him to let us out refunding our $5k? Had we not trusted him in the first place, we would have done more due diligence (never again - live and learn). Any and all advice is much appreciated!

[Brent Coombs]

If the CONTRACT terms have not been fulfilled (eg. tenants not moved out yet), then YOU should be entitled to all of your EMD back. Why not make your Wholesaler buy it (who would consequently make $10k instead of $5k out of it, but would be waiting 4 extra months for the privilege)?

Or, you can treat this as a (hopefully) non-expensive TRAINING lesson in the art of negotiating / due diligence (and flipping) - and you'll know better next time, right? All the best...