Under Contract/Current Inspection/Project Issue

[Michael Jablon]

Hello, I am currently under contract for a 3-unit multi family that contains one 2-unit building with a total of 1,000 square feet and a stand-alone building with 1-unit. The 2-unit building is in great shape, newer roof, new water heaters, great electric, only a few minor handyman type fixes to be done on that unit, nothing more. Now my issue: The stand-alone 1-unit building contains a 485 square feet flat-roof structure (tar & gravel; which also LEAKS) that has not been taken care of AT ALL in the last 10-20 years. Also, the insides of this building look like they haven't been tended to at all and has many safety concerns that my inspector had brought to my attention (BTW, great time to disclose that I'm doing an FHA loan). I was told by the listing agent that the seller just wanted to stick tenants in all the units and did not care to maintain the place and will continue to rent them out until someone buys.

So here's my current scenario. The 'effective date' began 5/27/17 and is over in 14 days. I proposed today to the seller (via agents and the like) to lower the purchase price by $7,000 or give me the credit. My agent told me he probably wont give me a dime as he's really been stressing 'AS IS'.

Here are my calculations:

- Purchase Price $255k

-Rent from all 3 units $2500/month

-Injection (Closing Costs + 3.5% down) $16,378 + $15,000 (Out-of-pocket renovations)

-Monthly Payment (PITI) $1,901

-COC Return 54%; ROI 6.66% (Is this a bad sign?)

Now, these calculations are when the building is running at optimal performance which is when I plan on moving out of it after the first year (the units not occupied by myself are rented for $800 a piece). Now after finding about these inspection issues, if I have to put the money in myself, it will reduce my COC Return to 44%. ALSO, my mortgage broker is now telling me I have to now switch from a standard turn-key FHA deal to a 203K FHA renovation loan. I am unsure at this point if I should stick with it or not.