A while ago I began the process of buying a 3br 1 bath 1920s Tudor in a C-class neighborhood in Minneapolis. Final sale price was $191k. Actually, the price that we had originally agreed on was $182.5k, but the bank refused to finance it until the seller completed certain repairs, including mold abatement, and plumbing repairs. My plan for the property was to fix it up (it has great builtin woodwork, but needed a new kitchen and bath) and turn it into a rental property. I figured I could get maybe $1600-$1700/mo if I fixed it up, and the remodel would add a lot of value to the property. Maybe it's not the greatest deal, but with the money I was planning to put down, it would have cash-flowed. Now, the guy I was buying it from (it was agent-owned) is pretty slimy. When we were dealing with him he was pretty rude and disrespectful to my agent, and after the bank refused financing and requested that repairs be made, he threw a fit, raised the price and demanded that I put down $15k earnest money (to pay for the repairs and "to show I'm a serious buyer"). Because I am a moron, I agreed to this, and once this was done, he seemed to make attempts to get us to breach contract and keep the earnest money by setting closing dates (which in hindsight I never should have agreed to) that we couldn't keep. This resulted in some drama where I had to call the bank and tell them to submit the loan to underwriting for denial since they wouldn't have time to review everything and stick to the closing date that we had set in the purchase agreement. Finally, he reluctantly agreed to push back the closing date and it looked like that we would be set.
In the meantime, two things were happening. One was that I was having all sorts of problems with contractors. The constantly changing closing dates (they had changed 3 times due to incompetence from the bank as well as the aforementioned repair issues) had caused me to cancel appointments that I had made with plumbers and handymen for repairs, and I was also having trouble getting any interest from general contractors to work on the kitchen and bath remodel that I had planned. Of all the general contractors that I talked to, only two bothered to show up for an estimate, and neither of them got back to me.
The other thing that was going on was that the seller was (supposedly) making the repairs that the bank had insisted on. One sticking point was the toilet in the upstairs bathroom, which was loose and leaking. We signed an amendment to the PA stating that this would be inspected and repaired by a licensed plumber. Before closing, my agent and I inspected everything, and it didn't appear to be leaking, so we went ahead and closed. The next day, I went to the property and found a small waterfall had appeared from the kitchen ceiling, and the source of this enchanted spring was none other than the upstairs toilet. I had a plumber look at it, and he had found that the flange and wax seal was completely shot. Not only this, but the drain pipe was lead, and to keep up with code, it would need to be replaced, which would be an extremely intrusive fix. Now, you might be asking yourself why the seller's plumber didn't find this, and the answer is that he never hired one. I went over the receipts that the seller sent to us for the work that was done, and he only had a drain cleaner do any work on the plumbing, and that guy wasn't a licensed plumber.
I had an appointment with the property management company that I had scheduled to find me a renter for the place so I could at least tread water for a while until I got contractors squared away, but now I've had to cancel that, since basically, the property isn't livable without a functional bathroom. Now, I'm back to square one, looking for contractors who aren't total sissies who will be willing to remodel a house in a not-so-nice neighborhood, and do it quick.
I'm pretty sure I don't have any legal resource due to caveat emptor and all that, but I would like to end this with a summary of some lessons that I've learned from this:
- When investing in a property that needs work, make sure that you have a good network of contractors established who can do the work, (or, you can do it yourself) and make sure you understand everything that needs to be done to the property.
- Real-estate can be a slimy business, with slimy people, especially when dealing with distressed properties, or properties in bad neighborhoods. Make sure you can deal with people like that, and if you're using an agent, that he or she can as well.
- Surround yourself with competent people, not just people you like or who are easy to deal with. My agent is a nice lady, but I feel like she was out of her element with this, and my bank who I went through for really screwed the pooch, too (but that's a completely different story).
- When investing in real-estate, do so from a position of financial strength. This is going to suck for me, I'm probably going to lose thousands and thousands of dollars, but I'm pretty sure I'll be OK in the end. Someone else less fortunate than I am in the same situation could find themselves in a lot of trouble, though.
- Check every single thing in the purchase agreement that you signed, and make sure that it's been done.
- Don't be afraid to walk away from a bad deal, even if it means losing a couple thousand dollars in earnest money and inspection fees.
