Multi property financing question

[Alecia Loveless]

I made an offer on a 5Unit multi family. When all is said and done it comes in at a 10 Cap and solidly cash flows. The seller has offered it to an acquaintance for a worse deal than mine and has found out the first buyer can’t come up with his down payment for financing but the Seller feels bad walking away from him and going with my offer. There are realtors involved with me but if is still a pocket listing.

In the meantime I have found out a maintenance issue I estimated at $35,000 on a different property is going to actually be $100,000.

I have the funding in place for the first building and can get a HELOC of financing on a property I own free and clear for the $100,000, I just fear I am starting to spread myself too thin by doing this.

What would anyone do in my place? Continue to pursue the 5 unit and leverage equity to pay for the maintenance issue, or gracefully back out of the 5 unit as other deals will come along and use some of my capital and a small amount of leverage for the $100,000 expense?

For the record it’s to build two fire escapes and replace two furnaces. It’s cheaper to build two than one massive one.

Thanks!

[Phillip Bradrick]

@Alecia Loveless I think you are wise to consider whether you are getting spread too thin. At the same time, I know that having a deal on the table in this market is an opportunity that’s hard to pass up. If I were in your shoes I’d pursue the purchase if I were confident in the property and the cash flow. Once you have it under contract you could always get creative and look at ways of minimizing your risk. If you were to bring in a partner on the 5 unit it could reduce your cash needs for the purchase. In my opinion you’ll always have unforeseen repair expense but if deals have solid cash flow and equity then you’ll be fine. If however, you feel this new deal doesn’t have much equity or cash flow then I’d be careful in taking it on. I know there are many factors to consider but hopefully this is helpful.

[Alecia Loveless]

Thank you for your thoughts.  Gives me more to think about. 

[Joshua Janus]

If you are confident in the appraisal potential of the 5unit, you can add an addendum to the purchase price to increase it 35k and in exchange, receive 35k cash in seller credits at closing. I have seen this tactic implemented multiple times and when it works it is awesome. You can get into a larger asset for cheaper by leveraging the appraisal process and developing some relationship with the seller so they can fully understand and be on board with the plan. 

[Ed O.]

Have you considered asking for a seller concession at a minimum? Clearly there's a significant defect. Perhaps the apartments should be condemned absent the repair. The fire escapes will have to be dealt with by you or the owner if they do not sell, making this a real and urgent problem. This would effect the owner as much as yourself. I would try to renegotiate this as well as get a lot of other bids to see if you can do better on the cost. 

[Alecia Loveless]

Thank you for giving me your help. The situation resolved itself today when apparently the first position buyer’s funds for the down payment came through and their contract is continuing to Progress.