BiggerPockets

10 Reasons To Pursue Registered Vacant Properties

In order to deal with the rapidly increasing problem that vacant properties present on neighborhoods, cities across the country are adopting "vacant property registration ordinances." These ordinances vary widely from city to city. However, the intention is usually the same - to ensure the city is aware which properties present a threat to their neighborhoods. Generally, a property owner (or their agents) may register a vacant property. However, in many cases a city inspector will register a property as vacant.

When city inspectors find vacant properties, they may "tag" them as nuisance properties. They usually post a sign or other notice on the property. After the property is tagged and logged as vacant, it is considered "registered and vacant" by the city. In some extreme cases, the property may even be "condemned" if the property meets certain criteria.

When properties are condemned, any buyer or seller of that property may be subject to certain procedures to bring the property "up to code." The city may also assign a special inspector trained in condemned properties to furnish a report indicating which repairs must be made. The report may indicate that either the seller must make the repairs or that a buyer must assume the repairs when it is sold.

If a buyer assumes the repairs, they must usually be completed within a certain timeframe the property is sold. In addition, city inspectors also have the authority to dictate any additional required repairs after the rehab has actually started.

In addition to this process, the city may also require that a deposit (or bond) be paid before any work begins. These deposits vary, but may be as high as $5,000. In addition to any deposits, some cities also require certain regulatory fees be paid (in addition to permit fees!). These fees may be as high as $10,000, and in some cases are assessed annually! If left unpaid, these fees may be assessed against the vacant property and may eventually be certified into property taxes to ensure payment.

Many investors avoid these properties due to the following:

• The investment in fees and deposits.
• The investment in substantial renovations.
• The regulatory oversight.
• The required use of licensed contractors, further driving up the costs of these rehabs.

If all of this sounds overwhelming - it is! But to the savvy real estate investor, this should be seen as an opportunity. Simply put, what is one investor's nightmare is another investor's opportunity. For investors who are familiar with this cumbersome process (and have the ability to undertake such projects), registered vacant properties can be excellent opportunities if they can be bought at the right price. Since dealing with these properties can be a hassle, many of these properties are purchased for substantial discounts. In fact, they have been some of my best deals.

We've covered the challenges associated with these properties. Now, here are 10 reasons why you SHOULD pursue registered vacant properties:


1) There's a list!

The city has already done the dirty work for you. They've compiled a list of the city's most ugly and vacant houses. You should be jumping up and down for joy. All you need to do now is start marketing to the owners of these properties. Most cities publish vacant property lists on their website. But don't think for a second that just because these lists are published that everyone is marketing to owners of these properties. You would be surprised how little marketing these owners actually receive.


2) They're vacant!

Vacant properties will always be your best deals. They cause (and add to) seller motivation since they're expensive to hold.


3) The owner incurs vacant property fees

Cities often assess substantial fees on these properties. Since many of the owners of these properties are already facing hardship, these fees only add to their problems. This increases their motivation to sell and your ability to get a good deal.


4) Regulatory process required

The owner of a vacant property must generally follow certain guidelines to get a property rehabilitated. Owners may even need to submit a detailed work plan, and in some cases, fund a repair escrow! Few property owners have the patience and determination to adhere to these cumbersome regulatory requirements. The more complicated the process, the less competition you'll have. Most people are too lazy to learn how to deal with these properties. Educate yourself and you will soon be making big profits from vacant properties.


5) Threat of demolition

If a property has been on a registered vacant property list long enough, or is causing too much of a nuisance to the neighborhood, the city may have the unilateral authority to demolish a property (even if it has a mortgage!). A seller who fears their property may be demolished is going to be extremely motivated to sell.


6) Cities may require buyers of registered vacant properties to pay fees and make deposits

Some cities require buyers of registered vacant properties to pay expensive regulatory fees and deposits before commencing with work. This eliminates a large pool of buyers. The less competition you have, the better your deal.


7) Less competition from owner-occupied buyers

Owner-occupied buyers generally stay away from these properties due to the amount of work they require. In fact, many of these properties cannot be occupied until substantial repairs are completed. Owner-occupied buyers looking to do "sweat equity" are usually a real estate investor's biggest competition. This is because they usually don't know what it takes to rehab a property and are willing to pay too much.


8) Licensed contractors are often required to fix up the property

Since these properties often come with enhanced regulatory scrutiny, it's not uncommon for cities to require licensed contractors in the rehabilitation of the property. This is a good thing! It means less competition from fly-by-night investors only looking to do splash and dash rehabs. Since these types of investors usually do subpar rehabs, they can pay far more than a legitimate investor who intends to do a more substantial renovation.


9) Cities may require special inspectors for these properties

Cities may require special "code enforcement inspectors" to oversee renovations of these properties. Oftentimes, the scale of the renovation can be affected dramatically by what these inspectors decide should be done to a property. While some may look at this risk as a disadvantage, smart investors capitalize on this opportunity. If you learn this process, the costs involved, and how to work with these inspectors, then you can become an expert in vacant property renovations. You can also educate a seller about the regulatory oversight involved in order to negotiate a better deal.


10) Buyers and sellers often don't understand the vacant property registration process

Vacant property registration can be a confusing and convoluted process. For real estate investors who learn the process and can educate sellers (or their agents) about the process stand to make substantial profits from their expertise.

Comments

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  Anne Walls — 9 months ago

  Wow! Something to look into in the future!