Re-negotiating an unpermitted duplex

[Alex M.]

I've been targeting a specific town in California due to my current job locality for the past 8 months and have finally been able to find the right property, but the numbers need some work. I will premise my post by saying that it doesn't meet the traditional 50% rule and it is a terrible investment by BP norm. I do however want to share my experience on this deal and ask you guys for any other creative ways to re-negotiate this deal based off of the inspection and appraisal. My goal is owner occupy in this area while I can still afford to buy a multifamily property in the area.

General description: Historical town with plenty of old houses with a large percentage of duplex conversions, most of which are on crowded streets, single car garages and hillsides. Comps vary greatly depending on when they were sold during RE recovery period in this local market where there may only be 5 active listings at one time. This property has huge garage, unpermitted duplex with views for both and is in the best neighborhood in the town which adds value to long term rents.

My strategy is to document both the repairs against the actual county recorded square footage along with the cost to permit the additional unit. My hope is to both re-negotiate the price down to $290k, my realtor believes the property will appraise for the contract price, but i'd like to show the appraiser my inspection report to ensure it appraises for the correct value. Property has fallen out of contract twice which I believe was due to marketing property as duplex even though it doesn't have a permit.

Is this the best strategy to take? Should I send in a counter-offer and cancellation contract at the same time?

Location: California

Contract price 340k,

Description: 2 bed 1 ba 900 sq ft. with an unpermitted 1bed/1ba lower unit. House is in remodeled move-in condition.

Gross rents: 1400 + 1100 (unpermitted)= $2500.month

Mortgage: 20% down with $1500 P&I

Estimated repairs: ~$14k (garage:roof replace, repair floor joists + joist support concrete footer + sewer lateral replacement)

Estimated costs to permit the unpermitted space: $10k ($1.5k permits + $6k additional water meter (req'd) + $3k in electrical upgrade)

Comps:

#1 Sold 240k permitted duplex 2,000sq ft no garage needs rehab $2200 gross

#2 Pending $350k Permitted duplex with unpermitted extra unit gross $3400

SFH Comps ~1,000 sq ft

$250k SOLD needs remodel

$300-330 completely rehabbed in and out

300-350k with 1200-2000 sq ft remodeled or significantly newer