Why do some Real Estate owners keep abandon property?

Question

Few weeks ago, I went driving for dollar in this mid-low class neighborhood in Los Angeles.  I came across an abandon rental property, which has 5 units on them.  I've done my research and found out the following:

1. The owner purchased the property back in 2007 for $200K

2. The owner has been cited by the city and fined every single year in regards the abandon property.

3. All units have been boarded up

4. Graffiti, broken glass, major property damage on all units.

5. Recent zoning is now LAR1 (Residential Only)

The place is a complete dive, but yet I see major opportunity if fixed up correctly.

With that being said, I was able to find the owner and reached out to him and see if he is willing to let it go.  Owner informed me that he was offered $1 million last year and did not take the offer.  He is not sure if he wants to fix it up himself, but willing to wait and see the proper offer.  Also, he indicated he is very well off with his other property.  But then he started complaining to me about all of his bad tenants in LA and gave me a life tip "Don't be a land lord in LA".  I really think this person is very unusual.

As of now I really don't understand, why this particular owner is not willing to do anything to it and willing to let money fly by.  As for the comps, you can not really do a comparison, since there is nothing similar to property in a 2 mile radius.  There are apartments which sold for like $3.5 million near by and it can by justify since there are tenants currently there.  Few homes sold near by and at most sold in the low 600K.

Why are there people like this guy willing to sit and wait and wait?  Is it really worth it? If he sells now he make more than what he purchased it for.  Is there some type of strategy to abandon property?

Account Closed · Answer

Make him a cash offer with no weasel clause quick closing and see what he will say.

Joe Gore

Tom Mole · Answer

He's delusional as @Daniel Sanchez pointed out. You cannot understand what motivates this owner specifically because you are not similarly delusional. Delusional folks are the most difficult to mindscape. I can be done, though the chances of success are low.

If he's talking, you have a window of opportunity. Have you tried just asking him why he bought the property in the first place? If he would tell you, resist the temptation to respond with a solution to his problem. You see, he already has a solution to his problem (in his own mind). What he's blissfully unaware of is that his "solution" doesn't address his "problem".

Your mission, should you decide to accept it Mr Phelps, is to discussion his problem with him until he offers you YOUR solution to his problem. This message will self-destruct in 10 seconds.

How does owning this property serve him? What does he want to get out of it? If he was paid a $1M in cash, would that turn the building from a tax shelter into a tax burden? Perhaps he wants the cashflow that landlording would give him without the headaches that tenants bring. You can offer him that.

Perhaps he's just fallen into "hoarder" mentality. Maybe he figures, "I bought the property planning to rehab and operate it, but I never got around to it, now I need to make a great profit to make up for holding this liability for so long. If that's his position, he might need a partner that can help him reposition his acquisition. You can offer him that for a slice of the pie.

It could be his motivation is something else. We won't know until you chat with him again. If you're still serious about doing this deal (and I agree it's worth trying), talk to him. Resist the temptation to do what we're taught to do. Do NOT offer him a solution, rather guide him toward the solution that he'll offer to you. It must end up being his "good idea". Then thank him profusely for him helping you solve the problem.

Recall that I said "the chances of success are low". There's a high probability that this will fall apart at some point. If that happens, take a deep breathe, let it out slowly and repeat. Review the process. What worked, what didn't and what you'd do differently next time.

On the other hand, if this succeeds, I rather figure that you'll remember my advice and offer to share a celebratory bottle of champagne! Here's to great success where others just find failure!

All the best.

Darron Stewart · Answer

@Nixon Vayupak

I wonder too, several properties were bought here and they did nothing to them for over a year.  One absentee owner almost lost house to back taxes, had it on then off market, know it was divorce case and have made offer based on condition, but still it sits...crazy!

Fred Sams · Answer

Have you checked the LA county and neighboring county tax tax rolls /Title?

This individual could have multiple properties and sitting on much equity.

Where tax reprecussions "capital gains" etc,. are a concern for them. While Property

Owner is probably looking for Big ($$$) score they may prefer to receive in tranches

an not all at once. Just a thought.

Mike H. · Answer

I'm guessing its the same reason why some people buy land. At 200k, it sounds like he got a killer deal that maybe he just couldn't pass up.  I think some people do that with land.

But the fact that he's sitting on it this long means he obviously has the money to not care (somebody is paying the taxes and fines on the thing) and that he's probably just waiting for the market to really perk and then he's going to sell it and collect his windfall. Maybe he just doesn't want to be a landlord any more because of all the problems he's had in the past.

But I'd be thinking the same thing. Why buy something like that where its so close to being able to generate positive cash flow instead of being an absolute expense (fines and taxes, etc).

Best you can do is keep an eye on it and maybe send him a postcard once a month or so offering to buy it for a number that makes sense to you. You know what he's paid for it.  If he had an offer of 400k and could double his money, wouldn't that entice you a little to make the deal? It would me if I kept seeing those payments going out for that building.

And don't worry about his 1 million dollar offer. Offering and closing are two different things. :-)

Rachel H. · Answer

Many in this position are just waiting for an offer. Their hope is to cash out big time, kind of like winning the lottery!

Daniel Sanchez · Answer

@Nixon Vayupak Existing non-conforming works then if you think you can restore the units at a fairly efficient cost. Since I'm a broker, I perform extra due diligence to satisfy not only own curiosity, but my clients expectations. Seems really odd that he hasn't bothered to rehab them and exchange out. To each his own.

Best,

Daniel Sanchez

Nixon Vayupak · Answer

@Daniel Sanchez  I have to agree I think he is very much delusional.  But as for the units, i was thinking if it was to be purchased just rehab the existing units and not tear them down since the new zoning. My understanding existing units can stay since they are grandfather in.

Why do some Real Estate owners keep abandon property?

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