Did the Seller disclose this to you, or did you stumble on it ? Did he provide a disclosure document, and if so, what is listed under Sewer; Public or Private ?
Is there anyway to eliminate this ongoing expense, by a one-time upgrade of the system ? Even a larger capital improvement, may be warrated, if you can eliminate this ongoing monthly expense.
You have pretty much summed up the financial implications of this hidden expense. The net of this deal just went to “heck in a hand basket”. Yes, I would renegotiate; and be prepared to walk, if Seller is unwilling to compensate you for this oversight.
I am looking at a group of four duplexes. After looking at the proprties I offered 70,000 each and the owner accepted the offer.These duplexes are on a private sewer system.I found out today there is a fee of 65.00 per month per duplex charged to be on the system. 65x4=260 extra a month. The financing I would be getting is at 8 1/4% over 30yrs. $260 a month is the equivalent each month of tacking on an extra $35,000 to the loan. To offset this the owner would have to reduce the price of each duplex by $8750.Am I calculating this right or should I meet him halfway since rent increases over the years would offset some of the cost. This would be an unexpected expense that comes right off the top. Any suggestions? Thanks B. Wade
This is why skinny deals dont work - Posted by SteveS(CPA)
Posted by SteveS(CPA) on June 12, 2001 at 13:30:02:
B.
RULE NUMBER ONE: You make money when you BUY.
The first mistake, I guess, was that you did not do enough due dilligence on the front end before you made your offer. Second the deal was so skinny, you had no room to take a hit. But with that being said (and I guess you already know that now) let’s see what we can do.
I don’t have enough information about the deal or your market to give any concrete answers but, my first question is do you have an out clause? That’s your ace in the hole.
Next, can you go back to the seller and demand a reduced price? Then can you raise the rents immediately to cover the cost? And finally, can you flip it to someone else?
If all those fail and you can’t make this deal profitable from day one. Use your out clause to get out of the deal. And head for better pastures.