Termite Damage - Should You Take on the Unknown Repairs?

[Chris Furcolo]

I've made an offer an a single family investment/rental property in Massachusetts.  We plan to buy and hold and rent it out for 5+ years at least.  The inspection revealed termite damage that may require the entire sill to be replaced.   The sellers are offering us a credit on the purchase price, but will not fix damage themselves, nor will they allow us to conduct our own estimates with our own contractor.  They have provided the termite report, and shared what the suggested remediation is (but even that report admits that they cannot see all damage until siding is removed).  So here's my question:  While risky (considering we can't be sure the extent of the damage), the numbers still work for us.  We will have to invest more capital than we originally planned to fix the damage, which will lessen our ability to re-invest in other properties, but the cash flow and rate of return on the property still work even if we estimate out what we think repairs will cost.  So what would you do?  Take on the risk considering the numbers likely still work?  Or, avoid the unknown of possible pitfalls and further unseen damage that we'd be taking on, and save the capital for another investment?  I've read some blogs and done some research on repairing termite damage (particularly replacing the entire sill) and unfortunately the feedback varies wildly from "absolutely walk away" to "it's not that big of a deal".  I'm interested in hearing from investors on this...

[Charlie MacPherson]

@Chris Furcolo When a seller refuses to allow your contractor in, I get very nervous.  It makes me think that they're hiding something - and maybe something big.

My response to the seller would depend on the strength of my negotiating position.

If it's a property that has been hard to sell, or if the seller is under some kind of pressure, you probably have the upper hand in the negotiations.

If that is the case, I would counter, stating that unless they allow you to conduct a full inspection, you are out of the deal.  (Presuming that you're still within your due diligence period).

If you're getting a killer deal that you don't want to walk away from, I'd be inclined to go with the @Nathan Gesner solution and talk with a couple of contractors.

FWIW, I never want to seller to make the repairs.  Their motivation is to do the job the cheapest way possible.  I'd much rather have a price concession and have the buyer get the work done themselves.

If you want to shoot me the address, I can tell you how many days it was on the market, vs the average for the area.  I can also tell you the market history.

That may give you an idea of who has the upper hand in negotiations.