Putting in an Offer on an Investment Property (and some due diligence questions)

As I mentioned a few weeks ago, Ken and I found a good duplex as our first investment property! Before we put in an offer our the duplex that we liked, we had our real estate agent pass along some requests for information to the seller.  Since the property already has tenants, we wanted to make sure everything was reliable and above-board. 

These requests included:

  • Copies of the current signed leases for both units (and the garage, which is rented separately).
  • Copies of cashed rent checks for the past six months (to show tenants’ reliability for on-time payments)
  • Recent property tax bills
  • Copies of recent sewer and water bills (since the owner mentioned that these are paid by him instead of the tenants, so we wanted to know how much to budget for those bills)
  • Documentation of construction permits for recent renovations to the property (the current owner had done a massive renovation after he bought the house in 2011)
  • Whether the house had or required a “certificate of occupancy” verifying that it was eligible for a rental.  

Our requests were answered promptly, and required minimal follow up.  One of our follow-up questions was why the one tenant seemed to pay 2x the rent one month, but nothing the previous month.  The seller responded that he had been out of town and had just asked the tenant to hold the payment until the following month.  

The Downsides

But, there were a few things about the house and existing contracts that we weren’t crazy about.

  • First, the house is in a terrible school district. Literally one of the bottom 5 percent schools in all of Pennsylvania. However, since the duplex has smaller units (one 1-bedroom and one 2-bedroom units), we figured that the house might not attract many tenants with kids anyway. 
  • Second, the current owner allows pets, and one of the long-term tenants has a large dog. We were not planning on allowing pets as landlords, mostly due to liability and damage concerns. But since there’s already a lease in place and the tenant is stable and long-term, we figure it’s okay.  However, for future tenants, on our own leases, we probably would not allow pets.
  • The house does not have a washer and dryer. However, considering that the current tenants don’t seem to mind having to go to a laundromat, we figured it wasn’t a problem. It’s just something to take into consideration as an issue that future tenants may consider to be a deal breaker.  
  • The house is old.  Like so old that the city doesn’t even know how old it is.  One property record shows it being built in 1900, while another shows it being built in 1910. Old houses come with lots of maintenance issues. But, since the current owner had done such a major renovation, we’re hoping that a lot of the big ticket maintenance issues have been addressed recently.  (For comparison, he bought the house for $25,000 in 2011.  It was in really rough shape, he fixed it up, and is now selling it for $89,000.  When we asked him why he was selling, he said he had done this with a few homes, with the intention of selling when he needed the equity. He said that now he wants the equity in order to be able to put major repairs into his own home that he recently purchased.  Seemed like a reasonable enough answer for why he was trying to sell.)

Even with our few concerns, we decided that we would submit an offer of $82,000, about $7000 under asking price.  The house had been on the market for 7 months, and had started at an asking price of $119,000. According to Zillow records, the seller had lowered the asking price twice already in the 7 months it had been on the market.  We figured he must have been getting anxious to sell, so we hope he’ll accept the $82,000, or at least counter to somewhere in the middle at $85,000.  We’d have to wait and see until we put in our offer!  

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