Are free prosperities a good investment?

Question

Recently when working with an investor on a wholesale deal the investor offered me what sounded at first to be a great opportunity. He would give me 3 properties in Gary, IN for free. All I would have to do is fund the repair cost. The way he would set it up is to allow me to fix up the 1st property and after the repairs are completed he will transfer the title to me (all the legal paperwork will be in place) and than he will give me the next 2. The problem is the city of Gary is overall a very distressed area. The 1st property is a full rehab from top to bottom, which I'm estimating to cost between $25K-$35k (it's a small house). Most of the homes in the area county owned due to the poor economy of the area, so most sell for no more than $40k. At retail I'm calculating ARV after repair around $90k, however, I anticipate that due to the location it may be better as a buy n'hold. That being said, market rents are about $800 - $850. Is this a smart opportunity to get involved in?

Greg Scott · Answer

"Once the repairs are completed he will transfer the title to me" sounds like he is looking for a free rehab and a sucker to do the work.

I've looked at houses in Detroit that were not worth the $500 price tag.  But, if you think you can do the repairs for $25K (assuming you are not doing the work yourself) and the salable ARV is $40K, that might be a good deal.  I'd just own the house before doing any work.

Jay Hinrichs · Answer

this has fraud written all over it..  CAREFUL  there .. you got one bid mahtzah ball hanging out.

you do the work he fails to deed you the home.. He gets a IRS lien on him prior to deeding the house to you.. He gets a judgement he borrows money etc etc.. Plus whats in it for him.. ??? get rid of code enforcement.. Heck he can just let it go for tax's he does not have to do anything..  Trying to do the right thing in the neighborhood altruistic motives ??   you nailed it Gary is dead and deader and dying you get what U pay for plus you will never collect the rent in any consistent manner who wants to live there given a choice if they are good rent payers.

I had two homes in Detroit that tenants kept beating to crap.. got code enforcement etc.. I let them go to tax's I just felt the city could deal with their own filth and decay and crime.. I lost money yup i did but I got a valuable lesson in how this all works in these areas and I will leave it to the next investors who think they can turn these type of areas around..

Drew Sygit · Answer

You should find out if the city will allow him to transfer the property to you or if you will have to qualify directly with the city.

Even if he has the best intentions, his mistake could cost you your entire investment.

Louis Jeffries · Answer

This doesn't smell right. Simple question to ask yourself.

On another note, anytime someone wants to give you property, if the numbers do not work walk away.

Ronda Lewis · Answer

Thanks for the advice! I realized there is more pertinent information that I should have shared. The investor is part of a pilot program from the city where seasoned investors were given properties in opportunity zones for $0. However he does not get the title from the city until the repairs are completed. Once he does the repairs on the 1st property, he gets title to 2 more for free. That being said, he is moving out of state and says he doesn’t have the time and since we developed a good relationship he is offering to give me the titles for all 3 if I do the repairs on the 1st (this way he gets the title). I would definitely consult an attorney about the legality here before I get involved. He is asking to negotiate with him on his payment from the portion of the equity once the work is done, but I’m not sure if there would be enough equity in the property in the 1st place. I’m new at this, so if it still sounds sketchy, let me know. I do have copies of his city contracts so I know he’s on the up and up concerning the city program. I’m more so worried if it’s worth doing repairs in this area, even if the property is free.

The 1st property is fully gutted, it also needs a new roof and the city is requiring they add an enclosed porch, stone deck and garage. The investor said he has the work quoted at $20k (it’s 800sqft) but this sounds like a lot more than $20k of work to me.

Austin F. · Answer

If it's too good to be true, it is.

Are free prosperities a good investment?

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