Should I Throw Away this $4,950 Earnest Money?

Run from this deal. I lost much more on my first deal, and Im still glad I walked away. And I spent 3 months doing the rehab myself. I wont go into all the gory details, but ur situation compared to mine is like a cake walk in lala land and a cheap learning experience. Rando

Chad,

you say that you could rent the place for $2200, and price would be 265K? a 30yr loan on a 5% rate (not sure what rate you're getting) would be approximately $1500, taxes and insurance, add another $400. You would maybe net about $300/month.

Now, the other properties in the area, you don't specify how much is needed in repairs, and what would the ARV be?

Also, if you rented out the place, where would you live?

You say that there was a title hangup? who's fault was that? did you ask to close on aug 1st, so if seller is responsible for delay, you could get your EM back.

This is a good example of why we are taught to offer 30% less than FMV; with that said, my vote would be to let it go, take your loss (maybe not totally) and move on...

wishing you success,

Valerie

You say that there was a title hangup? who's fault was that? did you ask to close on aug 1st, so if seller is responsible for delay, you could get your EM back = breach of contract, you get EM returned and walk away

Hey Valerie, and all,
Thanks for your insight. The general consensus is to write this deal off and I'm comfortable with that. PITI on the loan is about 2,100. The taxes in Suffolk County are 6K a year, that drives it up a bunch. So after management fees, the property would barely rent roll if at all, and on months that it's out a tenant I'd have heavy carrying costs...it's one reason I've been looking for my investment properties in other cities.

The Title glitch, in my opinion, and my loan officer's opinion is Seller's fault. It is obvious the violations should have been caught by them months ago, and not by me with the same Title search (i.e. we got different results); I was able to verify the violations with one phone call to county. So their fault. BUT, and this was another learning point, I gave myself too much rope in the contract. The closing is supposed to be "on or about 15AUG," my lawyer advised me that this was "standard" and that if we could close sooner they would definitely take it.

I should have enforced that my deal was contingent on me being able to close on 01AUG. Technically, if I don't get mortgage commitment by 30Jun we can terminated, but seller has the option to extend that in another provision.

In any case, there are a couple loop holes I'm trying to work, but worst case scenario, I lose earnest money. And right now, the deal's numbers don't make sense any more, I found myself in a hole, and I think wise advise would be to stop digging, and cut losses.

Any one else?

Thanks for the input it has definitely helped bring me to peace on the required action!

Take care,
Chad.

unfortunately, that's what happens when we get in a hurry. is there any way to work the "title stuff" as not being able to get clear title? that would usually null and void a contract. being in the military makes it even more challenging to do these deals, so take your time and do your due diligence. as Valerie said, don't pay full price. i hope you can work this deal out, but if not, take everything you can learn from it and move forward. best wishes.

there is no way to make lemonade from this. Perhaps (but probably not) there is some loophole that can be used since it is a military transfer and/or a loophole since the deal couldn't get closed by August 1 (if that was in the contract). Good luck with your process.

Chad,
You didn't specify how much it would cost to make it livable and or attractive to a potential renter i.e. paint, carpet, general repairs. If that isn't too much you might consider lowering the rent to get someone in quickly. If you cover your monthly costs you are still having your investment paid for. Sometime in the future you can sell the property for maybe a profit and even have equity paid for by others
(renters).
It may not be a super great deat but it might just prevent a loss and still could be chalked to a learning experiance! Plus it will increase your net worth!

Good Luck

When you find yourself in a hole STOP DIGGING when ever you can get out of a bad decision do it,when you can't you won't do it again.

Bill, I agree, there is no sweet lemonade that can be squeezed from the numbers here, thanks for your input!

And Jim, Sir, I believe that you sum up my entire philosophy at this point. I have found myself in a hole. I'm only about eye-level deep; I'm going to crawl out and move on to the next deal! It made sense for us in June, we were motivated buyers, now that we are arranging other accommodations, there is all the time needed to choose from a better vantage point.

Thank you all. I just needed some reinforcement to go with my gut here. The deal is no good anymore. Cutting losses.

Take care,
Chad.

No lease option fans?

I'm a big fan of L/O but if the property is being bought at the top end of the range and the monthly rent may not cover the mortgage and Chad is moving away; I just think that there are too many bad things slanted against a successful endeavor.

It should cash flow...265K @ 6% (arbitrary rate)is 1588/mo plus TI...rent for 2200.... The downside may come from not actually occupying the property long enough with a VA loan. Could recoup the earnest money plus some cash from the option money and have some monthly cash flow. This is a property Chad is moving to, correct? See if the seller is amenable to adjusting the price for the inconvenience of you not being able to close on time. Get a monthly corporate rental for the time being. Was this deal driven strictly by the convenience of having somewhere to move to on Aug 1 or was it going to be held and if so what was the exit strategy when transferred again?

is there anything about the house that would get it more than market rents? I rent my homes above market rents by providing appliances 'as a convenience' to the renters and the homes have a high pride of ownership. This way, I can charge more for rents.

Can you manage the home yourself? There's no need to use a property manager for a house that's in good order. Especially if its all in good working order and you get the 1 year home warranty that homes come with.

Why not L/O to someone?

Otherwise, hope the loopholes come through. Have you talked to the agent about the situation? Maybe if you offer to give them the home inspection you paid for for the inconvenience you'll get your EMD back. Is there a clause saying the EMD is non refundable? Usually if you don't qualify for the loan, there's an exit strategy w/o losing your EMD. Is there anyway to NOT qualify for your loan?

Chad, regressing, why are you considering tossing this deal away and losing your earnest money because the seller can't deliver marketable title on the closing date specified in the purchase and sale agreement? I would think you are in a strong position.

Hey TRSD, and Zion.

I sort of prefaced this all, but I'll try to give more background on it. Firstly, this was a primary residence and not an investment (arguably they should be the same, I get it) so my entrance and exit plans were very different, along with my motivation to buy. Secondly, I in no way desire to just give away the earnest money I was bouncing a worst case scenario off the board, and coming to the conclusion that it is still better than going through with the deal.

When we first starting looking for a house in Long Island, it was because I was issued critical fill orders for a unit out there, which meant I had little time to look and lockup. In order to secure a primary residence swiftly, I focused solely on unoccupied or investor-owned houses, and my strategy was to offer the asking, if it comped appropriately, and if the seller would cover the astronomical closing costs for Suffolk County, to get this deal off in record time.

I did just that, exactly that worked, and every thing was expediting swimmingly until the title hangup. I warned all parties in the beginning that if this deal was going to fail, I needed it to fail sooner rather than later, and if I had to find alternate accommodations for wife, self, and dog, my entire motivation to buy will shift. My worst scenario would be coming up days before 01AUG when I had to report to the new assignment and finding out that our deal is not going to close. Well we came to a situation where exactly that happened, and I had to move to put a roof over our head. Now we have that roof, and this deal doesn't make any sense whatsoever.

Sure there are creative L/O ways to move it anyway, but why? It will cost 2,100 a month to carry the property if a tenant fails to pay, and the most I could shave off the L/O is $100, $200 if I'm lucky. So it's poor cash on cash. After that, the strategy is mutated into a sort of "let the tenant pay into equity so you might maybe can sell it higher" which has never been my investment strategy, and I won't start now with that over 5 grand, which was the base of this thread, cutting losses.

This property was acquired by an investor at 140K, he did fantastic reno to it, it is top of the line, and is worth its retail price. We went to the seller for a price break, but bottom line is I still have to report to new unit on 01AUG, and need a roof over my head, and now have changed motivations in buying.

Lastly, this is my primary home, would be my largest mortgage, and holding it would make it difficult to get another large mortgage...which I want, on a different property. There is a lot of inventory in the county that is going for half the price, which with 20-40K of renovating and appliances will work a nice flip with a good cushion of equity the whole time.

The short story though is that I had certain motivations back in June, and now all that has changed since we couldn't get the deal off in time.

This is not a good deal for investor purposes, and the carrying costs are just too high to try to make it one. It's hard to explain it all. It started off as a win/win, now it is a definite win/lose.

Thanks for all your comments, and suggestions! I was mainly just using the question to take the emotions out of the 5K earnest money. Mathematically, these numbers don't work for our needs anymore. I took away some solid lessons from it though, mainly about catering that contract to protect, protect, and protect me, which I fell short off on this one.

Take care,
Chad.

"I was mainly just using the question to take the emotions out of the 5K earnest money."

So you are thinking you have no basis for getting your earnest money back? Had the deal gone through, what were your plans for the property upon your next transfer?