Realtor/Investor · Philadelphia, PA · Member since 2012 · 114 posts · 38 votes
I have been offered a free property ($1) in a very rough part of Philadelphia. The property is a boarded up shell. I'm trying to figure out what risks I run if I purchase this and sit on it for the foreseeable future.
Aside from yearly RE taxes and HI there shouldn't be any costs I believe?
You record your deed and the local sheriff meets you at the property and serves you as defendant in a toxic waste super site lawsuit. As you duck into the house, you startle a squatter who shoots you in the head. You don't die but are permanently paralyzed.
You did ask what's the worst that can happen. Care to rephrase your question?
Ummm, off the top of my head....back taxes, liens on the property, asbestos, termite infestation, a former drug house or a murder at the location, crap neighborhood that no decent person will want to live in. Any of the above. Nothing worthwhile is free, especially property. Take this on and you could be getting into something that could be very costly to you.
Risk is that L&I cites it for being unsafe (requiring repairs, somewhat likely) or vacant (requiring a permit, not that likely) or for having boarded up windows/doors (requiring repairs, not that likely). If you buy, get a U&O first to see if there are existing violations that you will have to deal with.
And also that you hold it for a few years and the area doesn't turn around and it's not worth the holding costs.
And also make sure you're getting clear title, so the title insurance fees and deed filing fees and fair market value transfer tax will probably be $500-$1K.
I don't know anything about the laws in the area but assuming a court can't subpoena you related to the condition of the property and force you to pay for repairs you have no way of getting reimbursed for (e.g., selling for a price high enough to recoup those costs), the worst may be a significant liability claim for an injury of some sort if you fail to maintain liability insurance or they refuse to pay for some reason (if you get notice from the city of a dangerous condition that you don't remedy, the insurer usually/often won't pay).
@Lucas Pfaff Liability claims. My clients have settled 3 slip and falls claims this year ($25k, $40k & $50k) And these are properties they are they are actively maintaining.
If you put this property in with other property you may have, it could drive up the insurance cost for the entire policy/LLC.
It might be worth taking a look at. If it is liveable with a light rehab (unlikely as that is) and the neighborhood isn't too terrible you could rent it out to someone with a not too terrible background it would be great. What neighborhood is it in?
I have been offered a free property ($1) in a very rough part of Philadelphia. The property is a boarded up shell. I'm trying to figure out what risks I run if I purchase this and sit on it for the foreseeable future.
Aside from yearly RE taxes and HI there shouldn't be any costs I believe?
You will also need to pay transfer taxes. The assisted value times .01, take that total and 3% of that goes to the city and 1% to the state, unless you're getting it from a family member
I have been offered a free property ($1) in a very rough part of Philadelphia. The property is a boarded up shell. I'm trying to figure out what risks I run if I purchase this and sit on it for the foreseeable future.
Aside from yearly RE taxes and HI there shouldn't be any costs I believe?
You will also need to pay transfer taxes. The assisted value times .01, take that total and 3% of that goes to the city and 1% to the state, unless you're getting it from a family member
@Lucas Pfaff, @Ethan Giller is absolutely right about L&I. You as the owner have a responsible to keep up the exterior maintanence on the property weather it is a shell or not.
In addition, depending on the neighborhood the house may be used as either a place to stash and sell drugs from or a drug house. I would suggest you walk the neighborhood at various times during the day and over a period of time. Talk to the neighbors as well if you can. No matter how bad an area is, you will find a few house that show pride in ownership. These are the doors you want to knock on.
I have been offered a free property ($1) in a very rough part of Philadelphia. The property is a boarded up shell. I'm trying to figure out what risks I run if I purchase this and sit on it for the foreseeable future.
Aside from yearly RE taxes and HI there shouldn't be any costs I believe?
Aside from what the others have mentioned, the WORST that could happen is that you fail to do a thorough analysis and end up stuck with a serious "alligator" (eats you alive).
Analyze the property, determine an exit strategy and plan how to get there. If the numbers work, get a second opinion from someone you respect. Whatever they say, if you're comfortable with your own decision at that point, go for it!
You record your deed and the local sheriff meets you at the property and serves you as defendant in a toxic waste super site lawsuit. As you duck into the house, you startle a squatter who shoots you in the head. You don't die but are permanently paralyzed.
You did ask what's the worst that can happen. Care to rephrase your question?
Ummm, off the top of my head....back taxes, liens on the property, asbestos, termite infestation, a former drug house or a murder at the location, crap neighborhood that no decent person will want to live in. Any of the above. Nothing worthwhile is free, especially property. Take this on and you could be getting into something that could be very costly to you.
I've gotten some additional info and there are no back taxes, liens, or asbestos. The property will be conveyed with a clean title. It is DEFINITELY a crap neighborhood where few will want to live. You're right about nothing worthwhile being free...
Risk is that L&I cites it for being unsafe (requiring repairs, somewhat likely) or vacant (requiring a permit, not that likely) or for having boarded up windows/doors (requiring repairs, not that likely). If you buy, get a U&O first to see if there are existing violations that you will have to deal with.
And also that you hold it for a few years and the area doesn't turn around and it's not worth the holding costs.
And also make sure you're getting clear title, so the title insurance fees and deed filing fees and fair market value transfer tax will probably be $500-$1K.
Hey Ethan - The property has been cited in the past and all violations have been addressed. You're point about the area not turning around is my biggest worry right now. This is definitely highly speculative. BTW, the property will be conveyed with clear tile.
@Jason Bott & @Ed W. - Your points about liability and insurance are not taken lightly. I'm waiting on a quote from my insurer for this property under its own policy (more expensive) or as an addition to my existing policy (less expensive).
@Matt Roberts - The property is in Kensington near Front St and E St. It's a very rough area and at this point in time I have no interest in managing a rehab OR tenant in that area beyond making sure the property is secure and not falling down.
@Richard Fields - Thanks for the calculation...Are you certain of that math? Maybe I'm just doing it wrong, but it looks too low. Assessed value is $22,200. Based on your math the transfer tax would be $8.88 (22,200x0.01x0.04). My guess is that the transfer tax would actually just be 4% of the assessed value ($222).
@Lucas Pfaff, @Ethan Giller is absolutely right about L&I. You as the owner have a responsible to keep up the exterior maintanence on the property weather it is a shell or not.
In addition, depending on the neighborhood the house may be used as either a place to stash and sell drugs from or a drug house. I would suggest you walk the neighborhood at various times during the day and over a period of time. Talk to the neighbors as well if you can. No matter how bad an area is, you will find a few house that show pride in ownership. These are the doors you want to knock on.
Thanks for the input Paulette. I've walked the neighborhood and you're absolutely right. Even in the worst areas there are those who maintain their pride. I will stop back and see what else I can learn.
Aside from what the others have mentioned, the WORST that could happen is that you fail to do a thorough analysis and end up stuck with a serious "alligator" (eats you alive).
Analyze the property, determine an exit strategy and plan how to get there. If the numbers work, get a second opinion from someone you respect. Whatever they say, if you're comfortable with your own decision at that point, go for it!
I love this advice David. Thanks for it. This is exactly what I am in the process of doing now that I have a better understanding of the risks.
You record your deed and the local sheriff meets you at the property and serves you as defendant in a toxic waste super site lawsuit. As you duck into the house, you startle a squatter who shoots you in the head. You don't die but are permanently paralyzed.
You did ask what's the worst that can happen. Care to rephrase your question?
HAHAHA! This is dark but it gave me a great laugh!
@Jason Bott & @Ed W. - Your points about liability and insurance are not taken lightly. I'm waiting on a quote from my insurer for this property under its own policy (more expensive) or as an addition to my existing policy (less expensive).
@Matt Roberts - The property is in Kensington near Front St and E St. It's a very rough area and at this point in time I have no interest in managing a rehab OR tenant in that area beyond making sure the property is secure and not falling down.
@Richard Fields - Thanks for the calculation...Are you certain of that math? Maybe I'm just doing it wrong, but it looks too low. Assessed value is $22,200. Based on your math the transfer tax would be $8.88 (22,200x0.01x0.04). My guess is that the transfer tax would actually just be 4% of the assessed value ($222).
If assessed value is $22000 The math would be, 22000 X .01 = 220
Add the $220 to the assessed value for a total of $22220
The transfer tax is 3% to the city and 1% to the state for a total of 4%
$22220 X .04 = $888.80
You will need 2 cashiers checks or money orders. One made out to the City of Philadelphia and if I remember right the other to the Pa Dept of Revenue
You can get all the info from the clerk at deeds and records, their number is 215 686 1483. I think it's room 111 at city hall
@Lucas Pfaff Along with hidden costs, deferred maintenance and gun wielding squatters, you have a good chance wasting time on this that could be better spent on a better property with more potential.
We've explored some worst case scenarios, what do you see as the best case scenario for this?
@Lucas Pfaff Along with hidden costs, deferred maintenance and gun wielding squatters, you have a good chance wasting time on this that could be better spent on a better property with more potential.
We've explored some worst case scenarios, what do you see as the best case scenario for this?
I once drove by a property in that neighborhood that was a triplex for 16k. I started looking in windows to see what the condition was like and was immediately grabbed by cop. It took a while to convince him that I was a real estate investor. That's definitely one of the worst neighborhoods I've ever been in but it's so close to fishtown and Kensington that I'd bet if you held onto it for long enough you'd see an amazing return. Take it!!
If someone is willing to give you a property for free you probably shouldn't take it. You become responsible for everything about the property. If someone gets hurt on the property you will be responsible so you're going to need liability insurance on it. You will have to pay the property taxes if you want to keep it. If someone dumps trash you will be responsible for removing it. I don't know about how Philadelphia works but I can give you some examples from my local market.
Code enforcement liens.....they attach to any property you own in the same County. Here you could end up with a 5 figure lien against everything else you own pretty quickly.
Municipal Ordinance Violations.....if you ignore the code enforcement liens they will issue a municipal ordinance violation against the owner, which will result in a warrant for your arrest.
What's the upside? If the property is a shell in the hood how would it have any future value to you? If there's an exit strategy that makes sense then explore it along with all of the costs involved. If not don't take on someone else's liability for free.
Haha @rick Harmon
If a property in Arkansas is vacant for a year certain utilities will have to be inspected. An example: if the gas has been off for a year you have to hire an inspector/plumber, pull a permit, have the city pressurize the pipes and if there's no issue it only cost you a few hundred. If there's an issue then you might end up repiping the whole house, same with the electric. If it's been through a bad winter you might need a complete plumbing repipe.
Financial freedom isn't free ha.
@Richard Fields Thanks for the explanation. I completely misunderstood your first break down. The second makes perfect sense.
@Michael Olesky Hey Michael, your point about time better spent elsewhere is very true and something I seemingly forgot. Thanks for bringing my attention to it.
Best case scenario? Good question! I purchase with clear title and no violations or liens. My expenses run ~$500 for acquisition with an annual insurance premium of $255 + tax. Holding the property as-is, the area appreciates as the crime diffuses over the next 5-yrs and I sell it for $20-$30,000. Purely speculative based on a perspective similar to what @Matt Roberts alluded to.