How To Negotiate Further With the Owner of Two Meth Houses?

Question

I have under contract a property with two houses on one lot. There was an indication of methamphetamine contamination due to police activity there, and I had the problem house tested before wholesaling it. It came back positive and has to be stripped to the studs, due to the levels of meth.

As part of a remediation, all structures on the property must be tested, and it turns out the "nice little old lady" in the second house whose been there for six years is either a meth user also, or has family that stays there who is - lots of pot paraphanalia seen during meth testing. That house also came back with very high levels. After the first test showing positive, the owner reduced the price to the amount of his debt, just to get out of the property. Now there is a second house that must be stripped to the studs.

There isn't any more equity to work with and its always hard to get a seller to bring cash to closing, though I have for much smaller amounts. There isn't much else but Sub-2 left to negotiate for that I see and I don't see a viable use for that in this situation.  I plan to wholesale them in our local strong market, and help the buyer do a parcel split so they can be sold separately (I have done three parcels splits for other buyers of houses with two on a lot).

If I don't negotiate for more, it also makes a seller wonder why he came down so much on the first house that tested positive, though I could still make the deal work with no price/terms adjustment but it becomes a lot thinner and I've spent a lot on meth and asbestos testing - something wholesalers don't usually do, but it was previously a much stronger deal.

How might I proceed in negotiating further with the seller now that there isn't any equity left - and there is a second house to be stripped to the studs and rebuilt? Its been another college education along the way...

Mindy Jensen · Answer

Hi @Burt L.

Is this property in Steamboat? I'm going to assume it is for my answer. (With coal going away, if this home is located anywhere OTHER than Steamboat, I would recommend walking away.) Steamboat still has that amazing ski-town vibe and awesome skiing. A friend just sold a condo there for a ridiculous amount of money.

If these two properties are in town, you could really do well.

I was looking at a meth house in my own town. Well-documented in the papers that it was a meth house. I really wanted to get this house, and pay for remediation, and sell it as-is after remediation.

My meth house is a little different than yours, because my town has a daily paper, and we're not that exciting a town so this home was in the paper a lot. Lots of police visits to the home. Disclosure would have been required of me, because the home is notorious in our town, and I would look like I'm hiding something if I didn't disclose. The buyer's agent would have disclosed for me.

In Colorado, you are not obligated to disclose a fully-remediated meth home. I called a meth-remediation company who said in cases like this one, the whole home has to be taken to the studs. Then, the studs are decontaminated using some sort of water infusion, sucking process (obviously I'm an expert) and anything that stays is treated the same way. Drywall, ventilation system, appliances are all removed and disposed of in a special way.

Meth can be remediated, but you're looking at a lot of money to do it. This 3,000 sq ft house I was looking at was estimated at $70,000 for remediation/removal/disposal of contamination. This is not something you can do yourself.

I agree with Joe Splitrock about contacting the bank. They likely do not know about the meth contamination, it's a pretty safe bet they don't want to deal with it, and may be willing to work with you on your purchase. CO law states the property has to be remediated before sale, so I'm not sure how you will handle that aspect of it. I think that law is more to protect people unaware.

Contact a local remediation company to get an idea of what it will cost to remediate. I asked for a worst-case scenario quick quote over the phone. A solid quote on company letterhead might go a long way to getting the bank to deal.

I'd LOVE to hear how this turns out. I ended up not buying my local meth house, but I'd love to live vicariously through you.

Bill S. · Answer

@Burt L. I would not own a meth house if I knew it going in. Short sale is the only way to squeeze more money out of the that stone unless the seller has funds. @Mindy Jensen pretty much summed it up. I consider meth remediation to be a business enterprise that needs more competition in Colorado. I had almost $30K bids to deal with a 600 square foot house. It doesn't require work that is much different than what is done for asbestos. If it was just asbestos, it would be about half the cost. There is no way it's twice the work. The companies are making out like bandits on these properties.

Russell Brazil · Answer

If it is a meth contaminated house, I would walk away. @Mindy Jensen mentions that you do not have to disclose if the issue has been fully remediated. However I can tell you that people get sued all the time, and lose, for not disclosing things that are not required to be disclosed by law. The bar is set very low for civil liability.

Really weigh the risk/reward on this one. Unless you were being paid to take the properties, I just wouldnt want my name anywhere near the deal of a meth house, because it might not happen tomorrow, or the day after, but in a few years when you have long forgot about this house it may start causing you trouble again.

Burt L. · Answer

Wanted to provide an update - the owner agreed to a two-month extension for getting costs to remediate the second property, and will bring cash for the cost of the second remediation at closing, as the price was already reduced to the loan payoff after the first house was tested as meth contaminated.

An interesting point in the post above - the remediation company will be doing the demo for the rehabber, so no demo cost to them. I plan to price the property with the cost of the remediation included.....at X price, which includes the cost of remediation. Buyer will then have to replace the sheetrock.

Holly Baum · Answer

Rookie here... But would you be able to charge your end user (rehabber in this case) more? Since its stripped down to the studs and they can save  on demo costs? Just a thought. Good Luck!

Burt L. · Answer

It looks like I need to take some remedial business writing courses, as I've failed to communicate that I will be wholesaling this property, and not selling to end users - but to a rehabber and will disclose to them, especially as they will receive the estimates for the remediations. I couldn't wholesale a suspected meth property without having it tested and did the right thing on it, out of pocket, and then again, and again. I'm in 3k on testing so far.

As mentioned, the owner came down to the amount of his loan pay-off on the first house very quickly- the contract amendment came back within the hour - and I need to communicate the second set of positive meth results from late last week, soon. There is no more equity to work with on the cost of the second remediation though (much less sheetrocking it again, etc. )It has been mentioned that a bank would likely be cooperative on a short sale, but I hear nothing but bad things about short sales and that its not for wholesalers. I could pursue a sub-2, but wholesaling a sub-2 isn't a good idea and have only done that once, in a foreclosure situation where the buyer put a lot down and I was confident they wouldn't walk away. I can ask the owner if he has the funds to bring to closing for the second remediation, and  when he says no - would he then be willing to do a Sub-2 instead, which sounds like a pretty easy conversation though. I would still be in the deal to some extent afterwards, even with a loan servicing company, and it could get messy afterwards anyway.

The first bid on the remediation of the first house of 1200 ft was 28K for both meth and asbestos remediation, but the bid on the second house (cottage) of only 400 ft was 22k for meth and asbestos remediation. Seems out of control, as the second house is a third the size of the first, but the bid by the same company is 78% of the first house, an inconsistency @Bill S. mentioned in the post above. I will call that company for an explanation, though am sure there will be a justification. There are about ten companies that offer remediation and I can get bids from all of them, and mention that one company wants to bid about three quarters of the cost on the second house for a third of the size, and maybe they can "do better". I was amazed at how fast the first company offered to come over and offer a price on the work after reading the reports - this does seem like an inefficient market area currently. I wholesaled another meth property that had already been remediated, but the sheetrock not replaced yet, and that buyer jumped at the deal and never even asked for a copy of the Decontamination Certificate, so I'm confident it  can be done.

My immediate issue is getting another extension and whether to pursue the seller bring cash to the closing table or to pursue a Sub-2 with the problems with that mentioned. The rehabber would certainly like that as a wholesaling point to them though. I always double close and being tied to the deal later would be problematic as buyers like the deal until they see  your fee afterwards and I would still be involved in helping them through the parcel split process so the houses could be sold separately, etc. I might have to insist on the owner bringing cash (he has ten rentals out of state but of course will plead poverty) or having a much thinner deal. If writing a check at closing, the seller will likely take a much harder look at things though.  I remain open to suggestions on a complex deal.....

Joe Splitrock · Answer

@Burt L. you are taking on major trouble here. His price can go lower if it is a short sale. I think if the bank was aware that both homes tested positive for meth, they may be more open to a short sale. You need to make an offer the property compensates you for the risk you are undertaking. In some states you need to disclose manufacture of meth to future buyers, so this could really negatively affect the value. Now that the seller is aware of the meth, most likely he needs to disclose it to future buyers. Even if the deal falls through with you, he is going to have real trouble selling these homes.

How To Negotiate Further With the Owner of Two Meth Houses?

Most Popular Reply