Executing deal on condemned property - how to do it?

[Matthew Hull]

Has anyone ever successfully executed a deal to close on a condemned property that is planned as a fix and flip?

I have one I'm working through right now am my my primary road block is that Title won't grant title insurance with condemnation on record (the condemnation is for code violations that can be remedied through rehab). I haven't checked with insurance on this to see if they'd do builders risk on a condemned property, but that might be a second roadblock. My hard money lender understands the project type and is fine with the condemnation status.

I'm curious how others may have structured deals like this to secure the deal while working through lifting the condemnation. 

I think my next step is to get a lawyer to help create a framework for this, but any insight from your experiences would be helpful. 

-Matt

[Jonathan Bombaci]

Hey @Matthew Hull We’ve taken on a bunch of condemned buildings in a number of states over the years, usually multifamilies. Most of the time the lender just needs to see that the city is okay with you bringing the property back. That usually means a building permit or something form the building department saying you can rehab it.

The main thing to check is whether the property has lost its grandfathered use. I’d start by meeting with the building commissioner and asking for a zoning determination. That will tell you if you can bring it back as the same number of units or if it needs to meet new zoning rules. Sometimes the city wants an engineer to signoff on it or something along those lines depending on how decrepit it is so understanding that upfront can save you some time and heartache later. 

For insurance, you’d just get a builder’s risk policy. If title is giving you trouble, that’s probably a separate issue and not really tied to the condemnation itself. Worth having your attorney dig into that a little.

Once you have something in writing from the city showing you’re cleared to move forward, you should be able to get title, insurance, and lending lined up.

We actually like working on condemned properties. The profit isn’t always huge, but it’s a great way to build trust with the city. Around here in New England, it’s almost impossible to build new housing, so bringing these buildings back to life makes a big difference. Its one of the ways we can add new units without displacing existing residents.