Possible Rental/Living Purchase

[mpbaker22]

I bought it!!! ... well not quite.  This one had some things going on with it, and I backed out.  But I found a very similar one in an even better neighborhood.  List was 85K.  I offered 78K and we settled at 84 with seller paying closing.  I'm not sure if it's that great of a 'deal' compared to the list price, but I feel that it is a super deal for the market value.

There is a renter downstairs paying $550/month on a month-to-month.  The current owner did not want to renew a year long lease while trying to sell, and apparently he's been living there for a while, so I should be able to keep him on a lease.  I will be moving in upstairs.  It does 'need' some cosmetic fixes, but it's almost entirely work I plan on doing myself, so I look forward to the learning opportunities. 

Also, we just came to an agreement on price and terms, still have to have an inspection, appraisal, and closing.  I haven't seen the currently occupied unit, but as long as it's similar/better than what I have seen, there shouldn't be a problem.

This is an older house that will have some maintenance, but I personally love the architecture and woodwork, and it's in one of the better neighborhoods of St. Louis, IMO.

[arebelspy]

Congrats!

Good luck with the closing.

[mpbaker22]

I have moved forward in purchasing a different, but similar, place.  The place I'm purchasing is accepted for $84,000 with seller paying 4K to closing.  However, at the time, I had not yet seen the downstairs, and it wasn't in nearly as good shape.  I didn't expect it to be as good as the upstairs, but I didn't expect it to be as bad as it is.

Anyway, I moved forward having it inspected, and the inspector says that current and near-term fixes would total about $15,000.  The current residents have to go no matter what.  They've lived there 3 years and at some point the fiber glass above their tub started cracking.  Water has been leaking and will take roughly 3-5K to fix.  Had they done something as soon as it started cracking, it would be much less.  The roof needs some repair, and some of the electrical is still knob and tube, so it will need replaced in the near-future.

The place currently fetches $550 downstairs for rent.  I believe if these changes are made, that could go up to $650, or possibly even $750. 

Also, I made a point to ask my inspector if it was feasible for me to live upstairs while these changes are made downstairs, and he said it most likely would not be a problem.

So, I'm starting to get nervous about the decision, but even at the high end of the repairs, we're talking $104,000 total cost.  At that point, rent and rent-equivalents would be at least $1,300, and up to $1,500.  I'm thinking while I'm a little more nervous about it, I had planned for some repairs to be needed, and this still comes out well over the 1% rents.  Also, making all these repairs means it'll have a brand new roof, downstairs tub, and new electrical.

Thoughts?

[Another Reader]

The sellers should pay for some of this work.  The leaking downstairs tub will likely not be acceptable to a lender, and the roof may also need to be repaired if it is leaking.  Repairs are negotiable, and the seller should be incentivized to fix anything that could keep the sale from closing.

On a 2 to 4 unit, you should look for closer to 2 percent than 1 percent.  I would try to get the repairs done by the seller at the least.  What you thought you were paying $84,000 for is not what you are getting.

[mpbaker22]

They're trying to sell as is.  I put an offer contingent on seeing the downstairs and getting an inspection.  I'm thinking I might try to renegotiate a bit lower even if they don't want to fix anything themselves.

I just talked to my lender and he said they will have to get more details but they will most likely still lend as I am putting 20% down.

As a percentage, I think the place is probably at 1.3-1.5%, but it could potentially be higher.  I know of places listed at higher prices in the area, but I'm not sure if those higher prices are renting.

[Another Reader]

I would either negotiate down for the things you could not see and they did not disclose or I would ask them to fix the worst problems.  You were not expecting $15,000 in repairs when you wrote the offer.  Once they have seen the inspection report, they will have to disclose the problems to any other buyer.

[mpbaker22]

OK thanks for the advice.  I'll talk to my agent.

Still leaning towards negotiating for less.  I probably won't get $15,000 less, but I was counting on having to do around $5,000 in repairs (not $15,000).  The upstairs is phenomenal, IMO.  Beautiful hardwood, Wooden mantles around the windows.  Balcony on the front.  Just beautiful and exactly my taste.

[Another Reader]

Falling in love with a property is a sure way to overpay.  Properties are like buses, if you miss one, another one will be along shortly.  In your shoes, I would step back and ask myself if I would pay $104,000 for this property when it is repaired.  Perhaps you could find something substantially better in perfect condition for $104,000.  I would not do this deal until I had looked at what I could buy in the higher price range.  It's easy to get sucked in by the lower purchase price, but it's the end result that will determine if this property is really a bargain.

[arebelspy]

They're trying to sell as is.  I put an offer contingent on seeing the downstairs and getting an inspection. 

That's dynamite, but has nothing to do with renegotiating, and don't let your agent tell you otherwise because they want a faster commission.

You made your offer subject to inspection of the downstairs.  You've done that, and find it unsatisfactory.

Now renegotiate a lower purchase price or renegotiate to have them fix some of the stuff.  Or give you a repair credit, it all pretty much washes out to the same thing (and you may prefer repairing it yourself, so they don't do fast shoddy work to save money).

[mpbaker22]

Another update - My inspection period ends tomorrow so I had to move on this.
I got estimates on a lot of the work, and I separated out what a semi-intelligent buyer should have known about before purchasing and what I had no idea of knowing before an inspection.  For example, the garage roof obviously needs repair, but anyone could have determined that.  The house needed tuckpointing in a few locations which I could tell (and my agent pointed out at our first viewing). 
What a normal person wouldn't be able to tell is the roof needed to be replaced, a vertical I-beam in the basement needed replacing, electrical needed replacing, and the downstairs was a mess.

I estimate about 35-40 for ALL these repairs (which would would get the property in ship-shape position to bring in $1500+/month).  The ones I knew about would run 10K and the ones I did not would run another 30K.  So, I lowered the offer by almost the full 30K.  Then I added a sort-of pro-rated roof cost as I wouldn't have expected a brand new roof, but maybe one halfway through it's life time.  I added that pro-rated cost back in and set that as my maximum amount I'm willing to pay.

Basically, I don't expect them to accept, but if they do, I will be paying  65K or less.

I do feel like my agent sees an accepted contract and doesn't want the sale to go through, so I wrote up an email allowing me to go through line by line to show how much each unexpected expense will cost.

[Another Reader]

Good for you.  You want the property to be worth more than the purchase price plus the cost of repairs when you are done.  You should expect to be compensated for the risk you are taking on and all the work you will have to put into the property.

[mpbaker22]

I don't really expect them to accept, but who knows ...

The bad news is I've lost a week or two in savings from inspection and other costs, plus some time and hassle.  The good news, is I'm going to keep my savings for the last 2 years instead of throwing them into a bad house.

[kevlarswift]

I can verify first hand that you can save money w/o using a Buyers Agent.

I just closed on my first home last Friday. I represented myself (did not use the quote-unquote free buyers agent). I wasn't quite sure what would happen, would the Seller's agent keep 5 to 6%, or would my offer be 3% "juicier" to the Seller? I didn't feel like I could ask the Seller's agent w/o insulting her.

Prior to close, I was forwarded an estimated Settlement Statement indicating a 5.5% Real Estate Broker fee. However, when I received the final docs from the Closing Company, the amount was 2.5% of total sale. I'm speaking specifically on the Settlement Statement (HUD-1), Page 2, Line 700 the Total Real Estate Broker fees. In my case, the final number was 2.5% of total sale.

Therefore, I saved 3% of the purchase price of the home by:
1. Locating the property on Redfin
2. Arranging an appointment with the Seller's agent
3. Having an internal sense of market price
4. Preparing a written offer (using standard Texas contract alongside a sample from my relative who recently purchased a home in same region).
5. Dealing with all the back-and-forth (counter offer, tweaks to language).
6. Arranging all the inspections, etc.

I wouldn't sneeze at all the work I did. In fact, it was quite tedious and nerve-wracking, being my first time. However,  the house was not cheap, so the savings were significant to say the least. Also, I should say that my mortgage broker was very helpful in reviewing my offer etc. Additionally, I run a business so negotiating, reading contracts etc is not daunting to me.