Offer accepted but numbers run incorrectly

[Tom Gillotti]

I have an accepted offer on a 4 unit property for $300,000 (310 Hallcock St, Pensacola if you want to take a look). The property needs some work ($80-$95k estimate... contractor going out next week). All units are occupied (I know... not a good sign, right...). 

So, I had previously been told by my realtor that total rents were $4000/mo ($1200 each for the two larger units, $800 each for the two smaller units). This was the only information I had to go off of so it's what I used (hindsight...). I based my offer on these numbers with the assumption that I would have room to increase the rents once rehab was complete (planned to be done to each unit over the next year as leases expire). 

Well, today, after asking several times for rent history, I was shown the current rents for all units... and it's actually $3575 total. 

I tried to explain to my realtor why that is such a big deal and completely changes the value of the property to me as an investor. 

Her plan is to wait for the inspection to be done and bring up the issue then and see what we can work out. My thought was to set the anchor for further negotiations with the reasoning being the information about the rents (which likely came from the seller's agent, although that's unverified). I don't want to pay $950 for inspections on a property if the deal has no more room for negotiation on behalf of the seller... they did accept the first offer of $300k when it was listed for $350k but it had been on the market a long time.

I do believe that the inspection will already give us reason to go back to the negotiating table as I've already seen the inspection the seller has had completed. What I don't want is to try to negotiate two separate issues at the same time. 

Would you push back and have the agent being up the issue with rents now or wait until inspection is complete and do it all at once?

I appreciate any insight that can be shared here!

[Elliot Rivera]

Do you know what the economic occupancy rate is? If the leases are month to month? Do you need the $3,575/month or do you have the capital reserves to meet holding costs during renovation?

I have acquired and renovated quads assuming the property vacant and keeping the tenants while renovating at time of turnover. I can tell you after doing both, we prefer assuming the property vacant, renovating and then stabilizing.

In which case rent rolls would not matter, your decision would be based primarily on ARV and the market rents you will achieve post renovation.

Rent rolls would matter far more for a commercial property or for a somewhat turn key property where there was not significant deferred maintenance.