Flipping a Marijuana Grow Op

8 Replies

So I did a little searching and haven't seen any talk about people flipping a grow op before, maybe nobody around here has done it?

A little background, my cousin bought a townhouse for $215,000 back in the summer.  There was basically an identical unit with pictures of what looked like unfinished renovations.  The price was $30,000 less to account for that.  I'm from Canada by the way, prices and renovation costs may seem a lot higher than you're used to.
What I later found out after contacting the realtor was that it was a grow op and they sent me a pdf with a ton of images and the legal documentation saying that it is not habitable.  From what I understand, it was probably raided just over a year ago, inspected and then put into this environmental hazard state and deemed illegal to live in until certain criteria are met.  Things like electrical and plumbing and mold need to be taken care of and brought up to code.

I showed these pictures to my contractor who said, "that's not a grow op, they had maybe 10 plants."  Basically saying it was such a small and crappy operation that there probably isn't even mold in the house.  He was estimating that repairs could be in the $40,000 range and also suggested that I write an offer for something around $110,000 since it is currently bank owned and just sitting there losing them money.  He said they'd counter offer as is expected.  Anything under $100,000 might be too much of an insult to the bank though.

With all this in mind, the ARV is about the same as what my cousin paid for her townhouse. If I were to acquire the place at say $135,000 and borrow $40,000 for renos (from an investor/lender) then I'm asking for ~$175,000. I am supposed to offer 12% ROI for the investor/lender right? ($21,000 to them). I should end up with $10k - $20,000 on this project I'm guesstimating. These are very crude numbers, I know there are additional costs that I haven't worked out on paper yet, just providing a quick example. Such costs as holding, insurance, selling, etc. Feel free to point out things I miss :)

What I'm more interested in is if people have dealt with this kind of situation before.  I've known about this unit for a few months now and haven't had any motivation to act on it.  I've never done a flip before so you can understand my hesitation, especially playing with others' money and there being extra hoops I need to jump through.  When I think about it, it's not THAT bad.  Making sure my contractors are certified and pull permits and bring everything up to code.  If anything I'm most concerned about the renovation costs.  If I could get the property at a much lower value then that would free up a lot of room.

I also recently just found a site that lists local houses that are deemed uninhabitable.  So I have a few distressed homes to choose from.  I could make this my niche haha.

Let me know what you all think.  Thanks!

@Jarrod English

I showed these pictures to my contractor who said, "that's not a grow op, they had maybe 10 plants."

I wonder how he knows this?

and also suggested that I write an offer for something around $110,000 since it is currently bank owned and just sitting there losing them money.

I usually only take advice from someone that's done something and been very successful at it.

Sounds like you could make a "high" profit 

Nice joke haha!

Well there were quite a few pictures and you can get a sense for what the property needs.  The contractor in particular is older and has done a lot of renovation/flips in his day.  He's also seen a lot more of these types of distressed properties where he is from (British Columbia, where they grow it more so than anywhere else haha).  So I do consider his opinion valued in that sense.  The other interesting thing to note is that this is an "as is" sale and you are not allowed to enter the property.  For me to consider this an option, I'd have to acquire the property at an extremely low value.

What is your experience in flipping in general? What kind of disclosure must you make to the end buyer? When things like "remediation" etc, are mentioned, that means the cost to repair jumps. See what the city really wants you to do, and get bids. Send the highest ones to the bank with your offer.

Is the contractor a real estate agent? Who is going to negotiate with the bank? I would not worry about offending them with a low offer. You can ALWAYS come up. 

Seems like your potential profit is too slim to take on this job. I'd pass unless you get it for under $100k and ARE experienced with flipping, BUDGETING, etc. Good luck.

There is a property here in British Columbia that I looked at recently and it was a former grow-op. The property was on the market for over 150days with no sell, the asking price was $650,000 (3500s.f. home on 3 levels split). By the way the area homes are going for over 800k - 1M+ (similar size). I looked into flipping it and the numbers made complete sense. Until I did a little bit more digging into flipping a former grow op, that is. Turns out, in BC you absolutely have to disclose every single time you try to sell the property that it was a former grow op. That stigmatizes the property and will always be reducing your price. The only way to get that off the title is to re-build the home. This one, even though it already had all the papers and was deemed live-able in, you still wouldn't be able to re-build or do so much as take dirt away from the property without jumping through a minimum of $30,000 worth of government hoops (in testing the soil for contamination) to get a building permit. It may sound very appealing because of the low asking price, however, it turns out that banks aren't very interested in giving you a mortgage on a former grow-op property. Which means that no matter how you flip it, you will always run into major difficulties. Either trying to sell it as a flipped home, because of having to disclose it and buyer's having difficulty getting financing, or re-building it which will cost you up to $100k in extra fees, not to mention the extra time spent in the whole process. 

This is just in BC though, and from what I've read, in Alberta you don't have to disclose a former Grow-Op once it's been approved by the city as habitable. You should always double check that though.

@Bojan Kovacevic Much appreciated on that.  I didn't encounter having to list that it was a former grow op but I'll dig more for that information.

@Matt M. I don't have any flipping experience, but I'm not foolish enough to just go in blind and say "give me money and we'll make a profit" haha.  I've been around here long enough to know that I should put together an accurate cost assessment.  I'd sit down and put out a timeline and best guess estimate as I do have the criteria for what needs to be done, but I can't be 100% perfect without access to the property.  Best I can do is get bids from contractors (thanks for that idea).  I would have a real estate agent (not the contractor) representing me as their is a real estate agent representing the sale for the bank. 

I am unsure of the days on market for this one, but it's been deemed uninhabitable for 15 months so I'm hoping that works in my favour.

Worst they can say is no. We have a plethora of cannabis here in Colorado. They are not like meth labs with traces of harmful chemicals, etc. Mold would be my main concern followed by shotty electrical work. Bring your budget back here and we can all go though it to offer advice. 

@Bojan Kovacevic "... Turns out, in BC you absolutely have to disclose every single time you try to sell the property that it was a former grow op. That stigmatizes the property and will always be reducing your price. The only way to get that off the title is to re-build the home...."

Holy crap and we thought "Big Brother" was bad here in the USA!