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Rehabbing & House Flipping

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Jarrod English
  • Homeowner
  • Edmonton, Alberta
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35
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Flipping a Marijuana Grow Op

Jarrod English
  • Homeowner
  • Edmonton, Alberta
Posted Nov 25 2014, 14:14

So I did a little searching and haven't seen any talk about people flipping a grow op before, maybe nobody around here has done it?

A little background, my cousin bought a townhouse for $215,000 back in the summer.  There was basically an identical unit with pictures of what looked like unfinished renovations.  The price was $30,000 less to account for that.  I'm from Canada by the way, prices and renovation costs may seem a lot higher than you're used to.
What I later found out after contacting the realtor was that it was a grow op and they sent me a pdf with a ton of images and the legal documentation saying that it is not habitable.  From what I understand, it was probably raided just over a year ago, inspected and then put into this environmental hazard state and deemed illegal to live in until certain criteria are met.  Things like electrical and plumbing and mold need to be taken care of and brought up to code.

I showed these pictures to my contractor who said, "that's not a grow op, they had maybe 10 plants."  Basically saying it was such a small and crappy operation that there probably isn't even mold in the house.  He was estimating that repairs could be in the $40,000 range and also suggested that I write an offer for something around $110,000 since it is currently bank owned and just sitting there losing them money.  He said they'd counter offer as is expected.  Anything under $100,000 might be too much of an insult to the bank though.

With all this in mind, the ARV is about the same as what my cousin paid for her townhouse. If I were to acquire the place at say $135,000 and borrow $40,000 for renos (from an investor/lender) then I'm asking for ~$175,000. I am supposed to offer 12% ROI for the investor/lender right? ($21,000 to them). I should end up with $10k - $20,000 on this project I'm guesstimating. These are very crude numbers, I know there are additional costs that I haven't worked out on paper yet, just providing a quick example. Such costs as holding, insurance, selling, etc. Feel free to point out things I miss :)

What I'm more interested in is if people have dealt with this kind of situation before.  I've known about this unit for a few months now and haven't had any motivation to act on it.  I've never done a flip before so you can understand my hesitation, especially playing with others' money and there being extra hoops I need to jump through.  When I think about it, it's not THAT bad.  Making sure my contractors are certified and pull permits and bring everything up to code.  If anything I'm most concerned about the renovation costs.  If I could get the property at a much lower value then that would free up a lot of room.

I also recently just found a site that lists local houses that are deemed uninhabitable.  So I have a few distressed homes to choose from.  I could make this my niche haha.

Let me know what you all think.  Thanks!

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