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LynexProperties
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Topic: Buying a Condemned Property Question
Started: 10/25/09 Current Grade: ?
Posts: 9 Topic Type:
There is a house that is condemned and owners have moved out. I'm interested in purchasing the property but would like to know what to do if I plan to fix and resell the property for profit. I have no experience but do have knowledge of the process. The Total Property Tax + Special Assessments are $5,176 for 2009. That seems pretty high in property taxes so I'm guessing I need to pay off the owed taxes to keep current before I resell? Would I also need to have the Dept. of Health to inspect and get a C.O. (certifcate of occupancy) before I can start renovating or before I can resell? Asking price is $39k and ARV is $150k. The investor who wholesale this property said it needs about $25k in minor repairs. I see that this is a great deal in making profit but like know if there is anything else I would need to do before I can purchase, renovate and resell on a condemned property. Thank you all for your opinon, experience and advice!

-John Lee
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Stevecsd
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# 1
Default Condemned Property
Posted: 10-28-2009   Current Grade: A-
The first thing I would want to know is why is this property condemned? If it is condemned why does someone say it only needs $25K in "minor" repairs?

I would get a reputable home inspection company to inspect it and have a rehab company give you an estimate based on that.

Also, why is a condemned house being priced at $39K? Without seeing it, it is hard to guess, but that seems high for a condemned property.

It may or may not be a great deal.

Also, how realistic is it that you could sell it for around $150K? What is the market in your are like? Are there comparables within the last 3 months at that price?

Best Regards,



Steven Currie

stevencurrie2@bellsouth.net
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Posted: 10-30-2009   Current Grade:
This is what I found out looking at the Truth In Sale Of Housing Inspection document online. Inspection date May 22nd, 2009. Its a category one property. Evidence of dampness or staining it says block stains in areas of the basement. The rest of the house has no other dampness or staining. Most every part of the house it says meets minimum. State law requires CO detectors within 10ft of sleeping bedrooms and this house don't have one. For the foundation and chimmey it says missing / damaged mortar. I have no idea what that is. For the Electrical service installation/grounding section it says Hazardous and No jumper at water meter. Missing knockout(s) on panel. The Electrical wiring, outlets and fixtures it says Splice outside junction box above dryer gas line. Looks like it needs mostly minor cosmetic and exterior (roofing, siding, gutters, windows) work from reading the document and myself inspecting from the outside to the inside looking through a window. From this information I have obtain would this still be a good property to fix and flip? Its in a light crime rate area, not on a busy street and a huge fenced backyard but no garage. Has 4 bed, 3 baths, 2100 sq ft. It's one of the bigger house on the block. Thanks for any input.
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Financexaminer
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# 3
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Posted: 10-30-2009   Current Grade: A
Hi, in short it might be a great deal, but it might be a big money-pit too. Condemned is usually something I stay away from, but I have done it. It sounds like the reason it was red tagged was due to electrical problems, especially a splice over a gas line! Missing knockouts can be covered with a steel sheet metal screwed into the panel, but if the inspector requires a new panel, you'll have an expense. Sounds to me that it's an older house and it has some grounding issues, so you might have a rewire job, lots of money there too, especially if it's plaster and lath. CO detectors will need to be hard wired, so that's more electrical work. Figuire on rewiring the place. Missing motor is no big deal, missing foundation/chimney might be a real bid deal, better check that out. If it's just missing motor in those areas, it probably just needs point tucking, no big deal (and by the way, to do that you might use an icing bag used to decorate cakes with a ribbon tip....ok, I'm not giving all my secrets away, lol). I've never heard of a municipality requiring a stain to be covered up, but if it's wet, it depends on the source and it could be expensive. If you have a leak in a wall from unknown plumbing, that could be a real problem too. If the source is drainage seeping through the foundation, grading soil might solve it or a french drain on the inside or outside might cure the problem. Hydrostatic pressure can be a real problem, might have to dig up a concrete floor and put some drains in to relieve the pressure in a basement. Then again, you might get by painting the area with a waterproofing sealant and forget it.

All in all, it doesn't sound really bad, but then I can't see it, so I'm just guessing, everyone is! Contact your building regs department or those with jurisdiction over the issue and ask for an inspection and punch list (items to be repaired). I'd suggest you take a home inspector with you, some bucks now might save thousands later, it's a cost of doing business. Get with your contractors and get bids. After you have all the facts you'll be in a better position to make a deal. And, there is no hurry, no one else is going to jump on a property like that without getting the facts.

Another tip, maybe, the city or county wants the place back in shape, on the housing inventory and improved for the rest of the area as well as the tax roles. They will work with you and might give some if they see you're going to do extensive work. If the city owns the property ask for some grant money for rehabs or low interest rehab loans, the property probably qualifies depending on its location. I purchased a three story tri-plex about 4000 sq ft in a similar situation and got financing as a concession on the deal. Play on the benefits to the community in bringing condemned properties back on line!
Good Luck with it, Bill
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stevebuyshouses
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# 4
Default
Posted: 11-02-2009   Current Grade: C
Start at your urban development/code enforcement department.That is where the condemnations usually come from and go through. Find out what you are going to have to do to get it out of condemnation status first and the time line on that. Sometimes the cost and timeline is the problem not the property itself. Condemned properties can be a problem due to the red tape hastles more than anything.

Also don't forget paying attention to your discloser laws for your state when you go to resell as well.

If you are a new investor as you say I would generally say stay clear of these types of problem properties and start with something easy......think addition and subtraction not advanced trigonometry...
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Financexaminer
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# 5
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Posted: 11-02-2009   Current Grade: A-
Quote:
Originally Posted by stevebuyshouses View Post
If you are a new investor as you say I would generally say stay clear of these types of problem properties and start with something easy......think addition and subtraction not advanced trigonometry...
I agree very much! Lynex, you stated that you don't have any experience, but you were familiar with the process. The process of what? I have had hundreds of people try to buy properties to fix and flip or move into, I guess they were all familiar with the process. People have seen some guy cut and put up crown molding and think they can do it, or they watch HGTV to gain confidence. Or, they think HGTV will make a general contractor out of them. Here's reality;

First, financing will be hard to get without experience, the property is the collateral for the bank and they want all the windows to close, doors to open, sheetrock straight, etc. Lenders learned long ago that no experience equals shoddy workmanship and when the borrower fails and walks away, they get stuck with a mess. So, without a track record, don't expect a bank to jump into your deal.

Secondly, there are more fly by night fix it and handyman guys out there than quality contractors. If you want quality in a rehab, you will really have to pay for it and by the time they are done, your expected profit has gone in their pocket, not yours. It's almost like they know what a property will be worth when the job is done and that's what the bid will be close to. If you get the 9 to 12 dollar an hour guys, they know more ways to work you over than the job they are doing. They work slow, make mistakes and have to redo, show up late maybe hung over and the bad ones might even just do a days work to make a mess after talking a down payment, steal materials and you'll never see them again.

I didn't want to rain on your parade and I can tell you are excited about your deal, but my real advice is the same as Steve, go with the KISS method. If rehab is what you want to do, find a deal and a rehabber to work with, split the deal and give them the lions share. Learn how to work with contractors, how to do some of the work (and it is a skill that must be acquired with practice and doing), then later on you can walk into the bank and tell them, show them, your experience and do a deal on your own.

Good Luck, Bill
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Financexaminer
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# 6
Default
Posted: 11-02-2009   Current Grade: B+
Quote:
Originally Posted by stevebuyshouses View Post
If you are a new investor as you say I would generally say stay clear of these types of problem properties and start with something easy......think addition and subtraction not advanced trigonometry...
I agree very much! Lynex, you stated that you don't have any experience, but you were familiar with the process. The process of what? I have had hundreds of people try to buy properties to fix and flip or move into, I guess they were all familiar with the process. People have seen some guy cut and put up crown molding and think they can do it, or they watch HGTV to gain confidence. Or, they think HGTV will make a general contractor out of them. Here's reality;

First, financing will be hard to get without experience, the property is the collateral for the bank and they want all the windows to close, doors to open, sheetrock straight, etc. Lenders learned long ago that no experience equals shoddy workmanship and when the borrower fails and walks away, they get stuck with a mess. So, without a track record, don't expect a bank to jump into your deal.

Secondly, there are more fly by night fix it and handyman guys out there than quality contractors. If you want quality in a rehab, you will really have to pay for it and by the time they are done, your expected profit has gone in their pocket, not yours. It's almost like they know what a property will be worth when the job is done and that's what the bid will be close to. If you get the 9 to 12 dollar an hour guys, they know more ways to work you over than the job they are doing. They work slow, make mistakes and have to redo, show up late maybe hung over and the bad ones might even just do a days work to make a mess after taking a down payment, steal materials and you'll never see them again.

I didn't want to rain on your parade and I can tell you are excited about your deal, but my real advice is the same as Steve, go with the KISS method. If rehab is what you want to do, find a deal and a rehabber to work with, split the deal and give them the lions share. Learn how to work with contractors, how to do some of the work (and it is a skill that must be acquired with practice and doing), then later on you can walk into the bank and tell them, show them, your experience and do a deal on your own.

Good Luck, Bill
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Default
Posted: 11-02-2009   Current Grade:
Quote:
Originally Posted by Financexaminer View Post
you stated that you don't have any experience, but you were familiar with the process. The process of what?
I have HELP a few relatives renovate their properties who went through the process of buying foreclosure, contacting contractors, fixing, installing, etc. So yes I know how hard it is to get the job done. HGTV and shows like "flip that house" are just entertainment and don't show the real side of labor, costs, time and headache. Its TV magic but also good motivation to be excited. Back on subject, after the repairs of my relatives houses I see how much profit could be earn if they were to resell. I also have a uncle who uses his own cash out of pocket to buy these type of properties to fix, rent or resell. He's an old schooler and don't believe in loans because of interest. However, he has made six figures doing so for the last 15+ years. He buys burnt down houses and only the uglist properties in every location (even war zones) that needs more than a paint job. He takes months to renovate because he don't hire contractors unless its a big job that he can't do. I could learn the hard way and do it the slowest way that my uncle has been for the past years but because there are faster and creative methods I prefer learning the faster way. I've been reading and buying thousands of dollars worth of investing courses and talking to other investors these last 3 years since I've became very interested. I was spending money I didn't have and making it happen. That's the first step is to take the step. I know its not for everyone but rehabbing is what I want to do. It'll be the most rewarding "job" I could dream of.

My final conclusion is that I've decided to leave these type of properties alone since I'm a new investor in this ball game. I do understand the KISS "Keep it short and simple" method. This property would only get me in a hole that maybe harder for me to climb out. Thank you all for your inputs! I really appreciate learning from experienced investors.

-John
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Financexaminer
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# 8
Default
Posted: 11-03-2009   Current Grade: A
Hi John, I'm sorry if you took what i was saying personally, HGTV and all that, I did not mean to imply that your skills or abilities were gained in that manner. My point was directed to an open forum, not to you pesonally. My overall advice still stands, and your situation has had some light shed on it by your additional post. I think you are in a unique position to take advantage of the great resources around you and you should try to go for it. Nothing beats a mentor in the family! Partner with them and do it! The property you described seems to be a snap compared to a burned out building in a war zone! Good Luck with it, Bill
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greffit44
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# 9
Default Hold on a second
Posted: 11-10-2009   Current Grade: A
Hi John,
If your numbers are accurate, this looks like a perfect candidate for an option and a wholesale flip. If you can get an option for up to $25, do so. Your uncle does houses like this, get him to give you an opinion on rehab costs. Maybe its something he would be interested in rehabbing.
Ralph
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