Backing out after going under contract

[Larry Apple]

Hey guys. I am super excited to be part of this community, and wish everyone tons of success!

On to my question-  so I just purchased my first multi family property, it is a 16 unit property located in Texas. We just went under contract, and I was super excited to have gotten the deal based on the offering brochure.  The PSA has been signed literally days ago, and I have yet to wire the earnest money. 

They just sent me all financials, as they wouldn’t release it until after the contract was signed. However, after reviewing the P&Ls for 2016-2018, it seems that this property doesn’t even cover the debt! They were saying this propert was a 7%cap rate, but now it seems they may have been referring to the 2018forma only. But even so, 2018 is projected to be way less than the 7% cap rate.

What do I do in this situation? As if I continue forward with my current price under contract, I will be losing money year after year. Thank you so much for all your time, it really means more than you all know.

[Seth Hobbs]

Luckily in the state of Texas you don’t have a legally binding contract without earnest money. I would send termination paperwork - and if you had an option period pay that fee. Moving forward I wouldn’t get a property under contract without seeing financials on it. And if they won’t release them until under contract then it’s a major red flag. Ask to sign a NDA for the release of it and give them your proof of funds to make them feel comfortable. Good luck!