All Forum Posts by: Katherine Roberts

I've posted multiple questions about this duplex we are (potentially) about to close on. I am in over my head and need more advice. The duplex was a SFH converted to a duplex. They listed it while the plumbing wasn't finished. We were supposed to close on Monday but the permits are still open. They were supposed to put a firewall in the attic on Monday and we had more inspections Tuesday. When we got there Tuesday, they were still doing the firewall and there was a hole in the ceiling from where they fell through. There were 4 other noticeable ceiling patch jobs and the drywall in between the units was popped out slightly. A toilet was also cracked and leaking. All of this happened since we went under contract. The inspector noticed that the water barely flows through the pipes when multiple things are running on both sides. My realtor told the listing agent everything we found and she drove over to be at the inspection, and then the buyer showed up. Lol

They were supposed to add ventilation to the crawl space, grade the front yard, remove an old brick post and cement slab, add flashings to the roof, and more but he didn’t do any of it (we were supposed to close Monday- he’s had over a month and has gone out of town). 

We told the listing agent that we would not proceed if the water pressure wasn’t fixed yesterday and then this morning they requested that we go ahead and close with the open permits and the promise that he’d complete the job. We told them absolutely not and I started to get concerned. We haven’t even gotten the appraisal. And there’s no certificate of occupancy yet??? The listing agent has lied multiple times about different things, and there are multiple red flags that have popped up. I did some digging and it turns out the seller (he’s a flipper) has been sued at least twice for not paying people back (a contractor and someone for a home loan). And he refused to give me the names for his contractors.

This is our first purchase and I feel like this is just chaos. I really don’t even want to close on it anymore. I feel like he probably cut corners, he’s run out of money, and he’s doing shoddy work to try and get things done. Does anyone have any advice? 

What concerns me, among all the other things you mention is "The inspector noticed that the water barely flows through the pipes". Having old plumbing that has been doctored over will cause that problem. It could need an entire plumbing upgrade. (Rusted pipes) And the sewer should be scoped. That could be a hidden problem.

You should check to see if the power box is 200amp and that the wires are copper and that the connections are good.

There is a check-list we provide our students before we let them go and buy a property like this.

Not sure of your level of experience but I would only  advise an experienced investor to proceed with this and that even depends. To take this the way it is there could be an extensive negotiation on price. If the investor is desperate enough they will fold and you could end up with tons of incredible equity and cash flow. However, if you dont have experience in hard core renovation and navigating all the pandemonium associated with it, you can find yourself on the losing end big time. This property is already marked as a problem under the permitting authority. They will go up and down this with a fine tooth comb finding more and more stuff. Suppose you get it and it takes months to work through it all; can you cover the holding costs? Supposed that firewall is jacked up and done backwards; can you handle tearing everything apart, putting it back and have inspection after inspection for months? What if the entire plumbing has to be over hauled which could mean tearing up floors and walls? I mean the list can go on and on and I have seen those scenarios and dozens more. Once you have short money, feckless individuals and chaos its difficult to get positive results unless very skilled in that arena. I wish you luck but if you are not highly skilled in renovation with some elements of project management, without question, RUNNNNNNNN...................

@Katherine Roberts Welcome to real estate investing! :-) 

I can understand how emotionally difficult this situation likely is. But I actually think there is a massive silver lining here which should ease your mind. First things first, don't close on this home. I'm going to make the assumption that the repair items you are referencing were agreed to in a written purchase and sale contract. If not you'll likely need to consult professional legal help which is beyond the scope of what I can provide. But if this was all agreed to, in writing, there isn't a lot to get worried about here. Cancel the contract and get your earnest money back. You may lose a bit of money from inspections, etc., but losing 500 or $1k is peanuts compared to the tsunami of expenses that could come your way if you move forward. 

Real estate is a people business and it's important to keep your word. But don't go through with a bad deal just because you have a contract and are close to closing. Trust me. I've been there, done that. In my case I ended up putting in $200k all-in on a home now worth $190k which doesn't cash flow now. Lots of trapped equity and stress along the way. 

The silver lining in all of this is that you're now learning so much about real estate from contractual agreements, trust but verify, what to look out for on the next deal, what to look for in an agent, and much more. 

Some of the more experienced investors here are recommending you try to re-negotiate which you totally can. However, I would try and cut my teeth on something a little more simple for your first one. Yes, negotiating is an important skill, but your mental capacity and enjoyment of the game counts for a lot too and you've probably learned enough already on this experience. 

I would cancel this purchase and really spend some time thinking about what you can learn from this experience, and what you can do differently next time to get a better outcome next time. Checklists are your friend. 

As far as real estate troubles go, this one is pretty simple. Read your contract to find out your rights/obligations and don't close. You're taking action which is more than most, so be proud of yourself. Something that I tell myself often "Everything is fixable". And in this case, there isn't anything to fix.

Best of luck!

Cut and run. Why are you dealing with this character? I do't know him personally, but I can provide more insight if you want to DM me.

I skimmed through other peoples post and not sure if anyone mentioned this but here's something to think about. If you do end up closing regardless of what all is fixed, not fixed, price reduction, etc. and it turns into a nightmare one of two things could happen: you'll burn yourself out and walk away from ever touching RE again or you'll learn a ton and be a better investor for it. We've all heard countless stories from both sides and ultimately it's your choice. If it was my first purchase I would have walked away without a doubt and looked for those kind of deals after gaining some traction and experience. Best of luck! 

I agree with everything said. But I would go a different way

Looks like you are at the beginning of your REI journey. I would get more value out of this instance.

First consider your risk reward.  How significantly does this investment impact your wealth?

Is this property close by so you can learn from nearby versus OSS?

Options to move forward:

A.  My momma told me not to touch the fire because it is hot.  I still had to touch the fire.  Think you need to do a deal to move to the next level of investing.  I hate walking away from a deal once I’ve put my mind to it.  Always make an offer that works for you.    If your original deal was &325,000, re offer at $250,000.  Some number to take care of the future downsides on the property.  You can still walk away but get more negotiating experience out of the deal.  Not only get the permits closed but also make sure all subcontractors are paid.

B. Walk away from the deal. Stop though. Make a Checklist on doing your REI deals.

From your posts you are overwhelmed.  Using a checklist and a home inspector you should have all of the big things covered.  So you still might fill unsure but you have 100% of the big items covered and you only get bit with the small stuff.  

@Katherine Roberts, my first inclination is the OPPOSITE of what the others here have said. Warren Buffet said "Be fearful when others are greedy and to be greedy when others are fearful".

Yes, you have a issues going on here! To me though, the issues combined with the seller's apparent lack of ability to rectify them creates a potentially "distressed situation". That is where opportunities are born.

If the seller has run out of money and you have them locked into a contract, you have leverage because they cannot sell to someone else and must either complete the work OR NEGOTIATE something with you to make it close UNLESS you give up and walk away. If you walk away, they might have other options.

So, if these issues are something you can deal with yourself after closing, perhaps look to negotiate a price that makes it a sweeter deal for you to take on that work.

Or if you don't want to do that work and the seller doesn't want to lose you as a buyer negotiate a reduction for the time lost.

Or negotiate whatever else makes this deal sweeter for you!

Distressed situations are often opportunities. Financial distress (tax sales, sheriff's sales, short sales, etc), Physical distress (fixer uppers, handyman specials, etc), Legal distress (divorces, estates, etc). All kinds of distressed situations create opportunities for those willing to take on the work and risks. 

Stick to your guns.  Have it inspected and give him a deadline.  If it isn't completed by a set day, then lower your offer by $X or get money back from the seller on closing.  I'd also add a hold back for a month after you've moved in to see if there are other problems.  do not close until the work is done, inspected and passed.

@Katherine Roberts

Do you have the "promises" that he made in writing as stipulations to the deal? With any outstanding work, temporary occupancy, or open permits, the agent should have written special stipulations that these be completed before closing. If there was an agreeance by both parties for something to be completed after closing, those should have been written as special stipulations to be completed in "X' number of days after closing. IF they didn't meet those conditions, they would potentially be in breach of contract. 

Feel free to reach out!