All Forum Posts by: Richie Thomas

Re-reading my last comment, I realized I focused on one risk to the exclusion of others. There are many ways a city inspector could find out about non-permitted work (they see a dumpster out front while driving by a house, they get a tip from a neighbor, etc.) I think some were mentioned above.

My point is not about the motivations of the people who tell the city about the non-permitted work, and more about how to mitigate the risk itself.

Sure, but *not* pulling the permit can mean headaches down the road.  I was able to figure out pretty easily that the property in question had had non-permitted work done.  If a new investor like me can put two and two together, others can as well.  And that could blow back on me as the new owner, in unforeseen ways.

At the risk of sounding paranoid, all it takes is one person to say "Gee, it'd be a shame if an anonymous tipster told the county about your non-permitted work, why don't you let us take this headache property off your hands?  At a discount, of course..."  Not saying that's guaranteed to happen, and I'm sure local Huntsville investors are totally above-board and ethical and would never think of adopting this strategy.  But I know money is pouring into the Huntsville market from all parts of the country and even internationally, and some of *those* folks are likely to be more or less ethical than others.

At the end of the day, I can't guarantee that this scenario won't happen.  It's my job as an investor is to anticipate and mitigate risk, right?  An experienced, locally-connected, well-capitalized investor, who doesn't mind taking the gloves off with their competition, will know that I as a new, inexperienced, aspiring investor have little recourse if they make the above suggestion.  I'd rather avoid that risk ahead of time, by dotting my i's and crossing my t's.  If my plan includes a contingency for this scenario, then I'll either be right or I'll be pleasantly surprised.

Additionally and equally important is how the permitting will affect my cash-out refinance strategy.  If the work done involves increasing the square footage of the property (a forced appreciation strategy which I expect to use frequently), lenders who only perform drive-by appraisals will use the older, lower square footage figure, and therefore will return a lower appraisal.  Not sure to what extent local lenders rely on drive-by vs full appraisals, but to the extent that they rely on the former, my pick of cash-out lenders will be limited.

@Tim White I have not looked at that journal yet but I will.  Thanks for this.

I'm reading about the market in Huntsville, AL and how several big changes are on the horizon (Toyota mega-plant, FBI office expansion, Facebook data center).  I'm wondering if there's a good source for news about these kinds of expansions (or contractions, i.e. major factory closures) on a national level.  I'm specifically looking for announcements which are limited to openings or closures of factories, hospitals, headquarters, fulfillment centers, or any other major employment sources.  For example, reading the Wall Street Journal won't work because they publish much more than just this limited scope of news.

@Victor S. it's a rental, and there will be significant work done.  Opening up the kitchen and finishing the conversion of the garage into a master suite, among other things.  It's definitely a bigger job than just kitchen cabinets and granite counter-tops.

@Victor S. it could come up under similar circumstances to what @Michael S. described above- I purchase the property and hire a licensed contractor to come do work.  They pull permits as they're "supposed to", the city inspector comes out as requested, while on the property they notice that un-permitted work was done at some point in the past, and it becomes my problem.  Sounds like the only way to avoid that is to explicitly tell my contractors not to pull permits, which is a non-starter for me (and hopefully for my contractor as well).

@Michael S.thanks for your input.  I would consider the room in question to be "half-finished", in the sense that it looks like a "finished garage".  The plan is to turn it into a master suite, so given it needs further rehab anyway, is it feasible to pull permits when bringing the room the rest of the way to completion?

@Russell Brazil I'm curious why you say that.  Can you expand on your answer?  Potential code violations seem like a non-trivial issue.

@Kincaid Ryken welcome to BiggerPockets! Judging by the number of recommendations here, you could be forgiven for feeling overwhelmed at where to start.

Before recommending a specific book (which at this point would really say more about me than you), we should really be diving more into you and your strengths and weaknesses. Judging by the fact that you’ve already won a state-wide math competition, I’m guessing that math is both something you enjoy and something you’re good at.

In that case, you’re definitely in the right place.

But real estate is just as much a people game as it is a numbers game. You sound like a humble young man, which bodes well for this aspect as well. Putting together your "Core Four" team members (realtor, property manager, lender, and contractor) is important, since you can't possibly be good at all of those specialties right out of the gate. Realtors are good at marketing properties, PMs are good at tenant screening and selection, contractors are good at both making a property habitable / beautiful and at managing the costs of doing so, and lenders are good at helping you leverage scarce dollars to increase ROI.

Each of these may or may not be the bottleneck to you doing your first deal.

For instance, if your goal is to flip properties, you probably won’t need a property manager since you won’t be renting to tenants. If you’re a trust fund kid with access to ample cash, you probably don’t need to read up on hard money loans and private lending (unless you want to employ leverage, in which case I congratulate you on being wise beyond your years).

My point is that any discussion of which books you should read should be tailored to you and the areas you want to improve. Anyone trying to recommend a book without first getting to know your strengths and weaknesses is like a wholesaler trying to pitch a prospect on selling without first getting to know what’s motivating them to sell in the first place.

There's a chance that I'll be closing on my first investment property within the next month!  However I walked the property this morning, and I discovered that the conversion of the open-air carport area into an enclosed "spare room" by the property's owner (who is a contractor) did not include pulling of permits.  I called the local zoning department and they said the only permits pulled for this address in the last 12 years were for a conversion of 100 amp electrical to 200amp due to storm damage.  No idea what that means but it sounds completely unrelated to what I'm referring to, since the remodel took place 15 years ago.

Initially I was worried that this could sink the deal.  My understanding is that, if I purchase the property, I assume any liability related to the original lack of permits.  I'm almost positive that I'm correct on that point.  However my realtor / property manager assures me that almost no one pulls permits in this fashion in my market (Huntsville, AL), and that the length of time since the remodel transpired means we're probably OK.  Additionally I spoke with a lender I'm considering for financing the property, who is local to the area and who I found on my own and who has no connection to the realtor / PM.  This lender said almost the same thing verbatim.

The workmanship looks OK to me, but I'm certainly not a contractor or inspector by any means.  My planned offer includes an inspection contingency, to prevent any habitability issues from turning my deal into a money pit.  My question is, has anyone else run into a similar situation in your local market, or heard of folks getting burned by something this after committing to a deal?