Should we buy this Home/Duplex? punch my face?

[Megatron]

My fiancé and I have recently put in a bid on a Duplex property on short sale. The property is a really nice looking graystone building. The bank listed for 299k and we put in a bid for 275k after finding out that the bank rejected the last offer of 265k from our agent. We are currently waiting to hear from the bank. A comparable property around the area is list at about 350k.

It has 2 units, each with 3 bedrooms, high ceiling, and a large unfinished basement with fairly decent heat and hot water systems. Our plan was to move into one floor and keep the other floor rented out. Both of us have experiences dealing with tenants as both our parents have owned similar properties and we were often "coerce" into manual labor managing the place while growing up. both units are currently occupied by renters ($1200 each floor, 1st floor been there 14 years, 2nd been there 7 years, Both would want to stay if we purchase,  but we'll need to kick one out). Both of our work commute would significantly improve once we move there. Me (from 35 mins bus / train down to 15 mins train), Her (driving 35 mins down to walking 10 minutes). The building is located in a very urban city with easy access to public transportation (bus, train) and plenty of free street parking. We will be putting 20% down and are looking at around 2k month (me over estimate) for all the mortgage related monthly payments. property taxes are around 6k in the city. We gross 165k annually and has somewhat frugal spendings. (mostly on travel and rock climbing and she likes to buy good food)

Now the bad part.
The property has a really small yard and a broken down 1 car garage which we plan on taking down and expanding the yard. (garage is not an issue for us as we can park on the street for free and I rarely drives, she does a little more). We had a professional inspection done and the results were not pretty. here it is:

• The subject property was a Graystone style multiple family rental building that was originally built in 1903. The building was in poor condition, displaying signs of non-professional repair attempts and some gross examples of deferred maintenance.
  
• Rear wooden porch displayed rotted exterior windows, rotted structural posts, improper structural footings and was non-compliant with current local standards. Additionally, a portion of the porch was being used as living space. This rear porch would have to be completely removed and reconstructed.
  
• The roof was in the last few years of its useful life and was improperly installed the last time it was replaced. The roofing membrane had been taken up and over the parapet walls which has contributed to the deterioration of the parapet wall brick. Additionally, the roof seams were deteriorated and some were open. There were signs of past roof leaks and active roof leakage at the time of the inspection.
  
• The exterior brick at the sides displayed significant mortar erosion at the parapet walls and under the stone window sills. There were signs of non-professional attempts and "tuckpointing" repairs, but these repairs were mere parging of the mortar with new mortar, and the new mortar was of the wrong type. There was significant spalling of the brick, as well, which would call for some actual brick replacement.
  
• The two floor joist beam ties at the north side of the building were broken and had significantly sunk into the brick. This is indicative of structural bulging of the north wall at the 2nd floor joist level. This inspector could not even begin to guess as to how this could be fixed and how much it would cost. Failure to repair this condition could lead to structural collapse of the building.
  
• The electrical system was generally underfused, with insufficient electrical circuits for modern use.
  
• There was substandard interior workmanship seen throughout the building.
  
• There was evidence of basement water intrusion, most probably caused by backing up sewers.
  

The inspector said we'll probably be looking at around 20-30k of repairs.

so... what is your expert mustache opinion on whether or not to buy this if the bank accepts our offer. facepunch?

[arebelspy]

The bank listed for 299k ... A comparable property around the area is list at about 350k.

That's completely meaningless, as it's not even selling for the 299 it's listed for.  What does it actually comp out at?

If this was a deal, it would have been snatched up.  How long has it been on the market?  It sounds overpriced to me.

Clearly less than 300k, minus the 30k in repairs, doesn't seem to be worth the 275 you bid just based on value.

Now looking at rents, $1200/unit = $2400 gross on 300k+ (with repairs) is a pretty poor ROI.  When you consider those repairs will be cash (can't leverage it at low rates), the ROI looks even worse.

I wouldn't buy that as an investment property.  Probably wouldn't pay more than about $185k in good shape, $150k as it is.  That clearly isn't possible in some locations, but that's one reason I asked about the actual comps, above.

Since you're looking to live there, however, you'll have to evaluate it versus your other options.  It may be better to get this place and have a poor ROI than rent.  It may not.

How much do you want to be landlords?

Some things to think about.

[Another Reader]

The floor joist issue is a fatal flaw.  From the moment you take title, you are liable if the building collapses.  You could have a contractor look at it, but I can't see you getting a mortgage unless that is fixed.  I would pass on that issue alone unless I could get the selling bank to do the structural repair.

[arebelspy]

The floor joist issue is a fatal flaw.  From the moment you take title, you are liable if the building collapses.  You could have a contractor look at it, but I can't see you getting a mortgage unless that is fixed.  I would pass on that issue alone unless I could get the selling bank to do the structural repair.

Yikes, I didn't even notice that.

I skimmed past the repairs list to the totals.

The two floor joist beam ties at the north side of the building were broken and had significantly sunk into the brick. This is indicative of structural bulging of the north wall at the 2nd floor joist level. This inspector could not even begin to guess as to how this could be fixed and how much it would cost. Failure to repair this condition could lead to structural collapse of the building.

...

The inspector said we'll probably be looking at around 20-30k of repairs.

(Emphasis added.)

So it's 20-30k of repairs WITHOUT that problem that he had no idea how much to fix or what it would cost?

That's a hard pass.

[mpbaker22]

Without knowing the area I'd stay far away.  But properties in that condition can be bought here for less than $50K in fairly reasonably nice areas ...

[tryan]

I don't see a bank financing this one .... try asking the existing lender if they'll carry the note (my guess is "no") that will tell you something about your chances of finding a lender.

[DoubleDown]

Sorry to pile on the "no's", but this property sounds like a literal disaster waiting to happen. In your shoes, I would immediately fax, email, and phone in my formal withdrawal of the offer/bid. Do it all three ways so you have records that you withdrew your offer before they accept it.

[MrMoneyPinch]

I'll second the "run like hell" opinion.  Have you seen that movie with Tom Hanks?

I will use this opportunity to give you a tip: ALWAYS make your offers conditional upon conventional financing and satisfactory inspection.   That thing probably needs 100k$ of rebuilding.  Also, you will start with rental losses because you will have to relocate your renters during the work.

Comps are just a guideline; your agent is misleading you by comparing with a fully-renovated unit to keep his commission juicy.  Which leads me to my next tip: throw that dead weight overboard.

[arebelspy]

I'll second the "run like hell" opinion.  Have you seen that movie with Tom Hanks?

The Money Pit.

I will use this opportunity to give you a tip: ALWAYS make your offers conditional upon conventional financing and satisfactory inspection.

Agree with the latter, not so much the former.  What happens when I purchase in cash?  Or do some sort of owner financing?  Or...

[Kazimieras]

I'm with everyone else and run from this one.

I bought an old house that had many questionable repairs, but it was okay since the bones of the house were good. There are too many things structurally wrong with the proposed house to buy and there is water damage... and water is a home owner's worst enemy (well maybe the taxman...)

[Megatron]

thanks fellas for the advice. The comps were given by the agent.
My first thought after reading the inspection report and talking the the inspector was to gtfo. But she's in love with the place and wanted to talk to her uncle (an architect) and some of the structural engineers that works for him first. She's getting estimates from a few masonry people. I've sent her the link to this thread.

sorry honey, the Oracle says no.