Help analyzing 4-plex, repairs, first deal

[Ethan Lee]

Hey BP nation,

I decided a few months ago to put my crash course education into action, jump into the game, and pull the trigger once I found a deal where the numbers made sense. I found a 4-plex and am under contract but am looking for any helpful tips and advice you can give.

Details: 4 units, each unit 2 bed 1 bath, all occupied, kind of a rough rural area in southern Delaware, fairly low income tenants/area, older building with some deferred maintenance issues, very close family friend is a broker and owns a property management company that has been managing it for years.

Numbers: $135k purchase price with seller paying $5k in closing costs, $2200 gross monthly rental income, I believe the most recent unit just rented for $650 - $700 (waiting for verification and exact number) which means market rental rates should equal $2600 - $2800 if I could get all units up to market rates. 15 year mortgage at 3.875% (just locked in with lender, really happy about this and lower than expected) and 25% down payment brings mortgage to about $750 per month.

50% rule: Current rental income of $2200= cash flow roughly $350 per month.  Optimistic market rate income of $2800  = cash flow roughly $650 per month.

2% rule: Current rental income of $2200 = purchase price of $110k. Optimistic market rate income of $2800 = purchase price of $140k.

So far so good as the cash flow is solid and purchase price is just under/right around the 2% rule.

What I need help with: The inspection report came back today and there are a number of safety issues and deferred maintenance that needs to be taken care of right away. The main things are some termite damage under the house, tree limbs rubbing the roof, a few minor leaks and electrical problems, and dozens of other smaller issues. Depending on the extent of the termite damage and whether or not it was treated (it should have been since the owner disclosed knowing about it but clearly did not keep up with maintenance), we estimate it will take $5k - $10k just to have the major issues fixed and safety hazards resolved, let alone actually improving the property to make it more desirable or able to bring in higher rents.

I am going to submit a list of repairs and try to get the seller to at least pay for the major repairs and the issues breaking code. My gut tells me he will reject all requests since he paid $130k for the property 5 years ago and cannot mentally get past "losing" on the sale despite making thousands over the years helped by not paying for a lot of necessary maintenance.

My questions: If the seller refuses to pay for repairs and it takes $10k to bring everything up to code, is this still a worthwhile deal at $145k? If he will only cover some of the cost, what would you feel comfortable agreeing to? What are your thoughts on this property as a whole?

Sorry for the long post but I wanted to include all necessary details. I look forward to your input!