Lock it Up

I have a property under contract for an acquisition price that spits out good returns.

I've performed my due diligence and had my inspector, real estate agent, and insurance agent out there as soon as possible.

A few red flags definitely popped up. So, I need to evaluate the cost for all repairs and determine what my inspection response will be. Do I let this property go? Do I ask for a credit at closing? Do I ask them to reduce the sale price?

I send my agent this email after evaluating everything:

I've run my numbers and I'm asking for either a credit at closing or reduction of sale price by $5,410.

This is due to:

-Crawlspace mold and standing water. Needs remediation and new vapor barrier. Source of standing water still unknown. Needs further evaluation and could be grading or foundation issues.
-8' x 8' puddle at crawlspace access point. Access point may be source of crawlspace moisture, but not positive. Needs to be repaired and secured.
-Both breaker boxes: excessive rust and needs to be evaluated by electrician. Will need to replace both boxes.
-Unit 2 Disposal un-operational
-Both bathroom fans un-operational
-There's a hole in the wood siding that needs repair
-Garage door motors: non-operational or non-existent
-Smoke detectors non-operational
-Missing outlet covers on multiple outlets
-Driveway needs maintenance

Thanks,
Tyler

At the end of the day, I want this property. A credit at closing or a reduction in purchase price are both options I'd accept. I personally ran my numbers, got one quote for the crawlspace moisture issue, and came up with wanting $5,410. This isn't an exact number by any means, I honestly could use more/will need more, but I didn't want to rock the boat too hard. Even with those repairs and costs, this should still be a great long-term investment.

The response back from the seller?

He offered $4,500 credit at closing and agreed to repair the garbage disposal.

I accept.

And schedule closing for July 31st. My birthday!

It's not time to relax now. I've got a deal locked up, performed due diligence, solidified the repair details, and I check in with my property manager.

I shoot my PM a note (ALWAYS over communicate and don't make assumptions):

-With closing on the last day of July, rent for the occupied lower unit is due the next day (August 1st). Confirming you'll be able to collect?

-I have a list of repairs needed with varying degrees of priority. What's the best way to coordinate work and get a quote from you?

-Please market the upper unit as soon as possible to fill the vacancy

 
He confirms, we map out a transition plan, and proceed to closing! BOOM! My Third Property.

Takeaways

• Evaluate the cost of repairs as soon as possible. With a limited inspection window, time is not in your favor. Not only do you need to evaluate repairs ASAP, but you also need to come up with an Inspection Response back to the seller.
• Decide on if you want credit at closing or a reduced purchase price. But, I'll note: if you already have your financing locked up, it might cause a delay if you were to change the purchase price. Credit at closing can be an easier process, and saves you cash up front.
• After you send over your Inspection Response and hear back from the seller, rerun the numbers and make sure the investment still makes great financial sense!
• Make sure your Property Manager is looped in on everything so they can seamlessly take over the property if/once you close.

-Tyler

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