Changed conditions on offer - homicide on property?

Question

Hi all, I submitted my first offer for an investment triplex in a developing area of Hamilton, ON (Barton Village). The area is still on the rough=ish side, but doesn't look too bad. I've only been there once.

Anyway, while the seller accepted my low price, the offer came back with changes on the conditions. The one that I was most surprised about was about no deaths, suicides, hidden defects, etc -- was crossed out.

So I googled the property (can't believe I didn't do it before) and there's a news article from 2012 about a woman who was stabbed to death in the neck there! Looks like the property itself was used as a rooming house with people always hanging out on the porch.

Not the kind of property I want.

It is vacant and I would like to do some improvements to get good tenants in there. But what do BPers think about the reputation of a place like that? I feel very nervous all of a sudden. I'm not sure if that's a "trust your gut" reaction or just the feeling of a first-time buyer.

Account Closed · Answer

There's no obligation to disclose, but I did notice the owner struck it off the conditions. The city's crime stats have been going down over the last few years. The area's reputation is bad but there are changes. As far as the area is developing, these are the positive signs:

The city has a business improvement area in this part of town and this property is right in the middle of it. So there have been improvements over the last few years. A major developer has purchased an old building at the end of this area to redevelop into luxury condos.

Other things along this street ... There is a major transit station 2km away being built, the 2015 panam games are holding all soccer matches in the stadium, a major mall with all the stores (walmart, cdn tire, banks) opened in the last couple years.

The one thing every single investor has said is "get the right tenant." Even if I have to stay vacant for a couple months, I want good people living there. The kind that don't get violent. That seems like the best way to mitigate the less desirable tenants, so managing doesn't drive me crazy.

Account Closed · Answer

Hi thanks for the feedback already. I talked to my realtor who is an investor and knows the area inside out. He said for the time (2.5 years ago) this was "normal" for the area. He said good luck trying to find a multiplex without issues like this, because that was the way it was. Since the area is really transitioning, he's encouraging me to improve and get good tenants.

The numbers work really well. Cash flowing almost $1000/month (20% COC). We can get out of the deal next week with the inspection report if needed.

I don't know if I wasn't excited about it or if it's just nerves about my first deal.

-- and apparently the woman didn't die, just had life-threatening injuries, but the homicide detectives were involved.

Jean Bolger · Answer

This sort of thing is handled differently in different areas I guess. Is that stuff about death and suicide a part of a standard contract up there? In our state there is no obligation to disclose anything that might be psychologically stigmatizing. I'm glad of that because people have such different ideas about what would be included in that!The incident, in and of itself, is probably not something to worry about. The issue may be more that you could stand to do a little more due diligence into the area. You say you've only been there once. Why are you buying here? What are you basing your assumptions that the area is improving on? ('m not challenging you on any of this, simply making suggestions of things to check up on or be extra sure of ) Have you looked at crime maps for the area? Have you talked to the local police? How about property managers who work in the area (or ones that won't work in the area!) they can be a great source of info. Why is the property currently vacant? Is the vacancy rate high in the area in general, or is this a property that got foreclosed on and as soon as you spruce it up there will be tenants waiting in line?

If it really is an area that is roughish but on the upswing, then you may have a good deal in the longterm that makes it  well worth dealing with a bit of first-time buyer nerves. But sometimes a rundown area is just a rundown area- and that might not be your best bet starting out

Mike H. · Answer

I'd be more worried about whether the area is safe today than whether there was a stabbing there. At the end of the day, you're looking to chunk in cash flow and at 1k a month, thats a pretty good chunk of cash flow. :-)

That being said, its a little concerning that there was a stabbing there. And that there is a history of hanging out there.  That typically means trouble.

I would be sure to go to the area at night a few times (hopefully when its not cold if thats at all possible) to see whether this is a bad area or not. Dont' take the realtor's word on anything. They're not going to be the ones stuck with that property if things do go sideways. Maybe check with the police and see what their take on that area is.

You definitely want to be sure you aren't buying a huge headache in terms of property management.  But outside of that, I don't think a stabbing in the unit is going to prevent too many people - other than the person that got stabbed obviously - from renting there given that the person didn't even die.

I think the ghost thing always gets to some people. But not sure an injury like that would. Still. I think I might have tried chipping the price down a bit after that changed that clause. Maybe you could have gotten another 10k off it. :-)

Chris Simmons · Answer

Stigmatized properties will be less valuable since some people will have nothing to do with them and others will want a discount for dealing with them.

While the seller accepted your price, they did not accept your offer.  They made a counter offer.  If you don't think the price properly reflects this stigmatized property, then accept their change of terms but counter back with a lower price.

This property has a history.  It does not have a reputation.  Unless you buy the first house that stabbed someone, the house isn't the issue.  It may or may not have anything to do with the location or clientele at the time.  The details around the stabbing would offer more clues into that.  There is a very nice house in an upscale neighborhood not far from me where the homeowner was just robbed at gun point.  Don't think for a minute that I would not buy that house for the right price.  Things happen everywhere.

It sounds more like you were not super excited about this deal to begin with and now this new detail is just giving you an excuse to back out.

Do the numbers work or not?  Do you want this particular deal at this particular time or not?

Get the price lower and try to wholesale it if you don't think owning it long term is not for you.

Linda King · Answer

Tabatha - First, I am sorry to hear your story...

I think the best thing to do at this point is to really look at whether you are in an area to proceed with your plan!  Most renters are not going to Google or ask if someone died on a property-most...

If you try to flip it to another investor, then that is where you may run into trouble.

Sounds like you needed a little more due diligence up front but just about every investor has had a property that wasn't 100% perfect!  I know we have...

I will be interested to hear what others have to say from the BP family.

Good luck with your property!