What would you do?

[Bob Hines]

I have a 4 bed, 1 bath house with an oversized 1 car garage, deck and a large yard in a good area under contract for $36,600 (good area, not what you're thinking). Repair walls, paint, replace trim, lay laminate floor, stain deck and a few new light fixtures is all it needs. Estimating $7k-$8k rehab. Should rent for $850-$900.

It's St. Louis city so I always do a sewer inspection as the only contingency since the sewers are all so old. Turns out the cast iron under the basement needs replacing along with the clay going from the street to the house needs replacing too. From doing the basement before, I know that will cost about $2500-$3000. I've done the outside part before too but this house sits about 8' higher than the street so I didn't know how much it will cost to replace. I call my regular plumber and-over the phone so it's hard to say exactly-got an estimate of $4200-$4500. Called another company that does pipe bursting and he said $2500-$5000 depending on how much digging there is to do at each end. These quotes are just for the outside portion, inside still needs to be done in addition. It will most likely be $6k-$7k for the whole job.

After the inspection I countered at $33,600. They came back at $35,100 at 4:30 last night so I need to give my response this morning.

What I'm thinking about is this: With the sewer repairs, I will be all in for $50k. That's more than I was thinking/planning. I can find lots of houses to be all in for less than $50k. My last 2 family I was all in for $50k. This one is nice because of the large yard (house is landscape instead of portrait like the rest of the houses in the area), garage and 4th bedroom so I can see a family moving in and staying for a long time. It will suck to pay for the sewer at the beginning but St. Louis is old and I had to repair a sewer in another property as it failed. So it is a true CapEx here. At least this one will be fixed from the beginning (the water line, another common StL problem has already been replaced).

So, would you walk away because of the $7k in surprise expenses? Does it make a difference that $7k is 20% of the cost of the house? Would it be dumb to walk away over $1500 (I countered $3k less, they offered $1500) as it's less than 2 months rent? I have a couple of hours to figure out what I am going to do as I keep going back and forth.