Buying Houses with Code Violations
Real Estate Investor · Cincinnati, OH · Member since 2009 · 93 posts · 26 votes
I bought a house for $1...not $1 deposit...but $1 total purchase price. Here's how I did it: [LINK REMOVED]
Has anyone done this before?
Even though this is a dubious post and an even more dubious youtube video (you WILL NOT go to jail for code violations....get real dude), I am going to address this issue of buying houses with code violations. Code violations are a blessing when you are buying as they are known and documented issues with the house for negotiation purposes. You simply get licensed contractor bids for repairs and when you have it repaired you have documented compliance with the local building department. This is a very good thing.
Buying a house with code violations is actually a blessing
Even though this is a dubious post and an even more dubious youtube video (you WILL NOT go to jail for code violations....get real dude), I am going to address this issue of buying houses with code violations. Code violations are a blessing when you are buying as they are known and documented issues with the house for negotiation purposes. You simply get licensed contractor bids for repairs and when you have it repaired you have documented compliance with the local building department. This is a very good thing.
Buying a house with code violations is actually a blessing
I agree with Tim with the following caveat for the newbies.
Some code violations are not fixable, or else cost so much to fix that they are financially not do-able.
Occassionally, the building department will not settle for any solution except for removal.
So before you purchase a property with code violations, know what the building department considers acceptible for a fix, and know what it is going to cost.
I never said you should NOT buy code violations or properties with building code violations. It can be profitable if you know what you're doing. Also, the laws vary by state and by city. In Cincinnati, OH they indicate in their nasty letters to property owners with code violations that going to jail is a possibility if they continue ignoring the problems.
Building code violations can be a profitable way to make money but you have to do it right. Here are the steps (oversimplified it for now and will happy to discuss the details with anyone interested):
1. Find it
2. Acquire it with no risk
3. Sell it quickly
Find It
Getting the list of houses with code violations is not straight forward and can be downright frustrating. Most investors stop here when they don't get the list easily. You have to approach the Building Department of your city and the Health Department. Depending on the size of your city, you can be referred to the county. You need to do the legwork and understand that you can be passed on from one department to the next and from the city to the county.
Once you get the list of sellers with building/health code violations, you can send them a postcard or letter. My postcard has a response rate ranging from 10% to as high as 30% because there are very few investors sending letters to owners with code violations.
Acquire it With No Risk
How do you do this? Put it under a Purchase contract with an inspection contingency with as long a period that you can get to inspect the property. Part of your inspection is checking with the city the code violations and the fines and penalties that need to get paid. These fines and penalties must be factored in your purchase price - in other words, buy the property even cheaper than you normally would!
Sell it Quickly
One tip I tell people - and this is a tip you don't hear from the so-called real estate gurus - is calling landlords from the list of approved Section 8 properties. Of course you need to pre-screen them to find out who among the landlords (specially in the inner cities where properties with code violations tend to be) are still buying right now and who among them are cash buyers. If you buy the property right, selling it is the easiest part of the process.
Hope this helps. Code violations is a great niche to "mine" because there is very little competition, the sellers are desperate to sell (and very easy to work with) and they have multiple properties (repeat business!).
Trace
What I mean by the legal jargon is this....if you are not VERY specific with exactly what kind of properties you want included on this list, then you will not get what you are seeking. In almost all cases an Open Records request will be mandatory. On the lower end of the spectrum you have a house with some overgrown weeds and the grass is 3 feet high. In many cities these are considered GREEN tagged properties. Usually these properties are corrected immediately by the owners and it is no longer an issue.
Once you start getting into illegal conversions, abandoned properties, mold infestation, dilapidated structures etc those are the good ones. Commonly referred to by many cities as RED TAGGED structures.
There are various timelines factored in too, which are decided at the cities discretion. State law in Texas gives each city a wide range of options as far as penalizing the property owner. For example, city code compliance departments have the right to after xx amount of days of non-compliance by the owner.....They have the legal right to fine the owner on a DAILY basis no less than $50 and no more than $1,000. It can get ugly too, as Trace mentioned, some cities will actually threaten owners with mentioning "jail time" or misdemeanor charges etc. It is different in every single city. Some leads are online, some aren't. Some are supplied by the city in Excel format, some in paper format.
Eventually what happens if the problem is not fixed within a certain timeframe ((which is determined by a Building & Standards Commission in TX)) The commission can issue a demo permit and literally LEVEL the entire structure down to the dirt. If you can acquire these properties for less than the land value, there really isn't a downside. Especially if it's a situation which we are in now...... There is a dilapidated structure sitting on a large & valuable residential lot in an urban high traffic location near a downtown area.
It is set to have a demo permit issued soon, we go in and basically tell the city "Hey, here's our contract with the owner, we are pulling permits to fix it, we want this neighborhood to stay nice just like you do and keep the tax dollars flowing in." Once you execute the P& S agreement, close, pull permits etc it's then going to be a matter of us going in and getting the land rezoned for a higher density use, and I expect that we will do quite well on it.
I have an investor friend in Tampa, FL who does code violated properties as well. He recently told me about a deal where he basically got the lien discounted by over 80% off the balance. When the city files an abatement lien they put up the money it cost to fix the problem and attach a lien to get the money back if and when title is transferred. The filing of a lien hinges upon the cities budget. If they have the cash to fix the house up they usually will. If their budget is small, they will be even more inclined to give you a list so you can go in and buy the place and fix it up. Hope some of that helps some of you! Make it happen! :cool:
Hello. Trace I have a question. I am trying to find the Building Code Violations List in. I work for a real estate investment company in Washington D.C.. I tried going to the appropriate Housing Authority and they told me that they had no list. They stated that if I gave them a list of zip codes, they code them give us building code violations. Obviously this would not be an effective use of time...what gives?
Ivory Smith in my city the regional building department has a list of all the building code violations. I am buying a house very soon that has a lien from regional building department and they have deemed the house to be uninhabitable. I'm doing a short sale on the house right now and it's a great negotiation factor.
If you want other types of lists for example condemned houses, you can get that from your local police department. I marketed to that list when I first got started, I don't know why I haven't tried it again. I think I will market to that list again. Thanks for making me think of another list to market to. I just love this place.
Monica Breckenridge, I have been having the same problem as Ivory Smith and ive looked up the building department for my area (southern california, riverside/orange county) but they say the information i want isnt allowed to be disclosed. . .
am i asking for the right thing, where should i go and what should i ask for, please help im desperately lost. . . :(
Michael Yarbrough In spite of hearing otherwise from other investors for years, most code violation info is not public information in CA. The information that IS public about code violations are documents that are recorded in the recorder's office. In addition, the cities or counties in your area may have abatement hearings or minutes from city council meetings where lists of problem properties and their issues are presented and become part of the public record.
You'll have to do a ton of research to figure out what entity (city or county and/or department name) records a code violation and what the document is called. Could be a "lien", could be a "certificate", could be a "notice" or "declaration". It might refer to substandard property, it might refer to abatement. Could be anything really.
There is no uniform way in which cities and counties in CA record their liens and notices against owners. The best way to start is find a property that you know has such a document recorded. Then you can see what the city or county calls the doc and how they identify themselves on the doc. Then you can research all similar docs.
Most of this can be done online. But if you're not internet research savvy, you may want to consider getting someone to help you that digs this kind of thing. Happy researching!
This sounds like a great niche to get into but forgive me for what may seems like a dumb question, but what is the value in getting something, like a condemn home under contract? Who would want to buy something like that anyway? I mean most condemned homes I've seen are in terrible areas and even if they were fixed up, aren't worth a whole lot. Maybe I need to keep reading...
RE is a value-added business, so buying something low and improving "some aspect" of it is the only way to sell it higher, while pocketing the difference. Now, whether the acceptable difference is $1K or $100K is only a question of how much your time is worth... but at the beginning there's also the cost of educating yourself
To the guys (and lady) in this thread, since you seem to have experience in this area, i'm curious if any of you have dealt with former half-way houses (private residences used as drug and addiction rehabs) and code-specific issues that were attached? There's a place in my neighborhood which is a a beautiful Spanish-style two story 4 bedroom, but with all the flipping activity in the area, no investor seems to want to touch it with a ten foot pole. All the neighbors know it as a former half-way house, and i recently ran into a maintenance crew that was hired by the bank (BofA) to trim the yard once in a while. The house is in some stage of foreclosure process, and i know there's at least one lien for $10K on it for the chain-link fence that was put up around it by the city, and I know that the previous owner has taken some equity out of it before he split to Mexico.
From some research, it was one of about 7-10 houses this one "therapist" purchased in LA and Long Beach area over the years - i found at least 5 that have gone into and have already sold through foreclosure auctions - and the houses were used for both drug and mental illness rehab, as well as advertised themselves as AIDS friendly
Are there some red-flags in pursuing such a property?
Why do you assume that no investor wants the property? If the owner won't or can't sell and if the bank doesn't yet own it, there's not much to be done. Houses can sit for years in limbo. The owner or the owner's company may have filed bankruptcy which can stall the sale for a long time. It may be involved in a law suit or insurance claim.
You say it's in some stage of foreclosure. What stage? Is there a Notice of Default filed? Notice of Trustee's Sale? How many notes, for how much and who owns them?
IMO, there's nothing special about half-way houses in residential neighborhoods except that they have usually have a special use permit.
If you want to send me the address, I'll run it through my protocols. Since this forum is educational let's look at what you can really learn about a property.....without assuming anything.
You're right, i shouldn't assume nobody wants it. I've been walking my dog past it every morning for over a year, and just today saw a new bandit sign on the chain-link fence that surrounds it.
I'm emailing you the property address
Here's the quick scoop. A Notice of Default was filed in 2011, a Notice of Trustee's sale in February. The debt due according to the sale notice is $729K. The property was listed last week, with an asking price of $741K. It went pending immediately, which means they got the offer(s). The trustee's sale has been rescheduled for later this week, but my guess is that it will continue to be rescheduled if the pending offer is good.
From what I can see in public record, the current owner still owns it, so that's who is selling it. BofA may be accepting a short sale payoff as $729K plus commissions and costs may exceed the sale price. Of course we don't know how much the accepted offer is for. It could be quite a bit more than $741K.
I don't have any paid data services for LA County. When I research LA everything has to be public or available through one of my free title company accounts. I find LA difficult to research online. I'm used to much better data in my other farms.
Update: The trustee's sale line says that the sale has been postponed indefinitely. That's a pretty good sign that the lender is working with the owner to get it sold. I don't know values in the area very well. Maybe that property has equity and the owner will come out better than whole.
Great house btw. I live in a 1928 stucco house that I think is adorable, but that house is wonderful, and twice the size.
(Free) title company accounts - got it, thank you. Gotta get me one of those :)
That house, while slightly larger then average, is pretty representative of the North East LA, and the appeal of such a property - clay shingle, smooth stucco, old hardwood, arched doorways and overall 1920's Spanish feel - when remodeled, is what's so appealing to retail buyers in the are so close to Hollywood etc..
If the house was last bought in 1996 for $156K, and the current debt is in $730's, clearly the owner has taken equity out of it and walked. How can he be in a position to "work with the lender" in this stage of the gave and further delay a trustee sale?
Alex, I've seen stranger things. It's amazing how a home owner can take that much equity out, then just do a short sale. Incredible.
his sounds like a great niche to get into but forgive me for what may seems like a dumb question, but what is the value in getting something, like a condemn home under contract? Who would want to buy something like that anyway? I mean most condemned homes I've seen are in terrible areas and even if they were fixed up, aren't worth a whole lot. Maybe I need to keep reading...