Hi everyone,
This is only my second post and my first asking for advice on a deal so please forgive me if it is too lengthy or if I have omitted important details. My wife and I are committed to growing our portfolio and becoming better investors. We currently own 1 duplex and 1 single family student rental. We want to be helpful to the BP community in any way we can as we spend more time interacting with all of you going forward. For now, our real estate expertise is limited but we do have other skills. Stephanie is an experienced yoga teacher and I am in my 16th year as a public Montessori teacher. I am also pretty tech-savvy. So if there is anything you need help with in these areas, please let us know.
I have attached a deal analysis from the BP calculator.
https://www.biggerpockets.com/...
The property is a 3 story 5-bedroom 2-bath single family house that is about in Michigan that is 100 years old but in pretty good condition for what will be a student rental in a "C" neighborhood. Some recent updates include all-new appliances, a new water heater, painting and other cosmetic repairs. The roof looks good and the inspection didn't turn up any problems that we didn’t already know about or that are obvious deal killers. Some problems we have known about since the first walk-through and that would likely cost us money in the near future are:
- The stairway from the first floor into the basement must be rebuilt
- New windows must be installed in the third floor for better airflow in the summer
- Baseboard electric heating will need to be installed on the third floor
- Some rehab/repairs need to be done on the eaves and soffits
- Semi-circle steel barriers should be installed outside of the basement windows and we should eventually replace the old basement windows with glass block windows. Both additions would be done to minimize water coming into the basement
- At least 4 concrete parking pads should be added to the backyard (access through alley) for the student tenants’ cars
An additional concern is that the seller was unwilling to provide verification of rental history for recent years. The local Realtors (it is about 3 hours away from where we live) do feel fairly confident that the property will rent for at least $1500/month.
We asked for a price reduction of $5000 dollars, from $120k to $115k and the sellers agreed to reduce it to $117.5k.
So we have had these concerns, as well as some concerns about the street/immediate neighborhood not being great (doesn’t seem to be safety or crime related concerns but just generally run down and this house is definitely the best on the street) but we were generally feeling pretty good about things and looking forward to closing in the next couple of weeks. Last Friday we found out that the house appraised for $125k, which made us feel better about the concerns.
However, yesterday our realtor informed us that the bank’s underwriter stopped the deal because of water in the basement. We knew there was water in the basement but the feeling from our realtors was that it was not excessive for a house of its age and anyway it is the time of year when many older Michigan basements have some moisture. But I am starting to think that this additional concern may be the straw that breaks the camel’s back. Also, our Realtors said that the listing agent has indicated he thinks the sellers will not make any concessions or help in any way with fixing or putting money toward any of these issues.
Finally, we are in a position to make a cash offer if necessary. Since we have already put a bit of time and money into the inspections and financing, what would be a smart cash offer? I have tried to include all of the relevant information but would be happy to clarify any points I can. Our experience is limited. We are excited about the potential cash flow, especially in this market, but we don’t want to buy a money pit. So, BP friends, should we do this deal? Thanks!
