All Forum Posts by: Marlia Stone

@Marlia Stone

I recently purchased a 4 unit property with 3 units livable snd one unit gutted. Through the process I learned Thea foundation was shot and needed to replace about 80 linear feet of foundation. As we got into it the roof sprung a leak snd the copper was stolen. So at that moment we decided to redo everything. So we sunk an extra $40,000 into the property. Luckily we’ll recoup most of the once we refinance but my point is if you have the funds then put the money into the place. In my opinion it’s always best to just do things the right way and be done. Now you don’t have to worry about it for years. Like some others have said finish one collect cash flow save money and finish the other unit down the toad. We are only finishing 3 snd well finish the fourth in 6 months or so after collecting some cash flow and saving money.

Welcome to investing. Adds theses items to your pre purchase check list!

Unfortunately this is going to cost you no matter if you keep it or sell it. Get it fixed and fall forward!

@Bruce Woodruff this may come across as a silly question but wouldn’t fines like you mentioned against the property show up in the title search?

Currently as long as you are classified as a passive investor you can only reduce your expenses by your passive income which you currently don't have. Until you can generate income you need to become classified as active so at least your losses can reduce your tax liability on your earned income.  Consult with your tax advisor on the requirements so you are compliant with tax laws. This is a short term consideration as you work through our issues.

@Marlia Stone I suggest you run the numbers both ways objectively, fix or sell, and see which option you like better.

So many make REI an emotional decision, but it is a business. As Joe said, don't fall in love with it. In the end it has to profit somehow. If not, cut bait and move onto next.

Re disclosures, they are there to showcase what you know that may influence a buyer. It is not just a legal form to fill out, but also the right thing to do. It makes me squeamish when I hear people say, "I will have to disclose..."

In all transactions, I take what people say with a grain of salt. And if you look at the bottom of most MLS listings, there is some version of "Buyer beware".

Re utilities you can also call utility co before owning and ask what is high and low over last 12 months, and avr bill, of each unit. During that call you would have found out about the disconnected meter.

The seller should have known the electricity was illegal and about the gas issue.  How could they not know this?  I would suggest you consult with an RE attorney about what appears to be an intentional non-disclose.  Many attorneys will provide an initial consultation without charge.   

I do not know the cost of purchase. The more significant the cost of the RE, the more likely that an attorney will be willing to take the case.  

As for the other recommendations suggested, I would have suggested the start with one unit but I would defer to local expertise and therefore fear @Jim K. is likely correct.  I cannot think why I would go with non-local suggestions over the suggestion from the local expert.  

I am sorry this happened and suspect the sellers intentionally did not disclose the known issues.   I wish it was easy to make them pay for their nondisclosure but I suspect that will not be the case (consult the local attorney).  

Good luck

I like Rick's answer. Even though it'll cost thousands to get the electricity back online, I would still try to get that done regardless of whether or not you decide to sell or keep. Also, and I'm sure you're aware of this....it'll cost you thousands more to sell. And if the buyer happens to be a savvy investor and starts to understand the situation you are in, they will try to lower the transaction price as much as they can. 

If it makes you feel any better, I always have to spend tens of thousands of dollars whenever I buy a new property from all the gremlins I discover (or the tenants tell me because the prior owner was a deadbeat). 

What @Dave Chapa said.....! Real Estate is rarely (if ever) a bad thing to have and hold onto.

@Marlia Stone What is your long term goal? Every property I have bought has ALWAYS had issues. One property was budgeted 40k renovation, however cost 55k. Another property budgeted 85K, cost me 125k, out of pocket.

In the short term it can be overwhelming, you lose sleep, you worry about other hidden issues popping up, you second guess your decision to buy the property (buyer's remorse).

So, what happen to the two property I listed above?

The first one appraised for 38k over what we estimated when the work was finished, and now is worth 77% more than what I have into it, and cash flows very well.

The second property has doubled in price and is a cash cow. 

So, what is your long term goal? What is the after repair value? Do you have the staying power to hold and finish the project?
What will the numbers look like 2 years from now?

Only you can answer these questions.

I'm in a different position in life where cash flow is not as important that equity capture. For you it may be different.

Don't give up without a fight :).