Railroad easement woes and factoring the risk into my analysis

[Jack Murphy]

Hi BP community, 

This is my first post! I wish it were a happier one, but I'm hoping to gain some insight into a situation that I've been dealing with for the last ~5 months. I have the opportunity to purchase a property that would become a combo househack/BRRRR. The rental opportunity is strong, and since it's a fixer-upper I have the chance to buy at a discount.

The problem: there is a railroad adjacent to the property that I have to cross to access the house. There are three lots in total across this railroad access. There are no crossing bars or anything, just a road that crosses the tracks. After initially going under contract, the title search found that not one of the houses had a documented easement across the tracks. I completed a 2.5 month and $1,000 application to officially procure the easement, only to have my lender back out saying that it would be too risky for them to lend to me, given that if I were to default on the loan, they would be stuck with a property and potential issues with the railroad. They told me it didn't matter how much equity I had in the property, they would have backed out regardless. This has been a wildly frustrating ordeal, especially given that I went through all the steps to apply for the easement, per the lender's requirement, only for them to deny the loan. 

The situation now: the sellers are now open to seller financing. On one hand, this could become financially advantageous for me, because now we can make the terms of the loan (lower purchase price, interest rate, etc etc). That said, now I'm debating if this is even worth the risk. Does anyone have experience in this arena? How did you factor in the risk of dealing with the railroad access into your analysis? The numbers are sound in this property, but if it's going to turn into a massive headache, then is it worth it? The plan is to hold the property, but if I did end up wanting to sell, I'm going to go through to same scenario then. 

Helpful info: purchase price 125,000 (although I'll probably negotiate this down now). Needs ~50k reno. ARV ~200k, with rental potential of ~3.2k monthly. I would have to pay the railroad 1k per year and my insurance premium went from 900/year to 1500/year. Also, if the section of railroad that I cross needs maintenance, they can technically charge me for that maintenance. It was just serviced recently, so it shouldn't need anything for many years, but still a factor here.

I appreciate any and all knowledge/experience/advice. The numbers look nice on paper, but it would be a real bummer if this became my biggest headache. Thanks everyone! 

P.S. Maybe David Greene could add some insight here on one of his Listener Questions episodes??? Help a brother out! 

[Jay Hinrichs]

As a RE developer I have dealt with railroads.. these are very specific situations.

The ONLY way to get this resolved is to get your ingress and egress easement done with the railroad.

Depending on where it is this can be a tall order.. Railroads are VERY difficult to negotiate with.

U can look for some sort of prescriptive right away and sue for it but those don't usually work and litigation can run into the many thousands.

If the owner contract works and you dont have to put much money down and you can remain positive cash flow and no personal guarantee on the note.. then even if you cant get a legal right of way its ok to own it forever type of thing.. just know selling it will be next to impossible unless you do the same thing for the next buyer.

[Scott Mac]

Pay the railroad ongoing $1000 per year (???) Ongoing--as in forever (???)

[Jack Murphy]

@Jay Hinrichs: Thanks for he info! The railroad was willing to give legal right of way across the tracks, so no issue there. The issue is more that if I were to ever sell the house in the future, I would have to find a cash buyer or do seller financing. 

@Scott Mac: Wild, right? yes, ongoing as in forever. And they have the right to increase that fee. A local business has a similar agreement, and the railroad hasn't increased their fee in ~35 years, but they still do have the right to increase that fee if they feel like it. 

[Rick Pozos]

And they also have the right to cancel the easement!!! Find a way around the property through a street or across someone else's property. They have you by the marbles with that agreement!!

I would never pay for an easement that is temporary. It is temporary.