Code Enforcement Deal – House #52

We finally closed House #52.  This property fell out of escrow 4x, went to auction once and finally was sold to us.  With this purchase we helped the real estate get rid of one of their dogs (a difficult property), if we didn’t buy it, it probably would have been pulled and sent back to auction.  This should buy us a lot of future credit the listing office.

Basically the story is, the City has added a huge violation to the property.  The listing office and other Buyer’s have gone to the code enforcement officer and tried to negotiate the fine only to later cancel the escrow.  The code enforcement officer was eventually sick of the Seller calling and eventually refused to negotiate.  Our solution was to tell the agent we will make an offer subject to the fine and try our luck negotiating with the City.

To give some numbers, we bought the property at about 38% of ARV, the repairs would be 14% of ARV and the existing fine is 17% of ARV.   By my math, even if we have to end up paying the entire fine we would be at 69% ARV. Of course our goal is to negotiate the fine down.

Other investors have had some success negotiating with this City, so we are hoping we can go in.  We have two strategies:

First step, we will schedule a meeting at the property introduce ourselves as the new owners, explain our goals and see if the City is willing to provide a discount.  Hopefully, their goal is the same as ours, get the property repairs to an acceptable standard.

If that fails, we are going to hire a lawyer and have him dispute the fine with the City.  There is no real rhyme or reason on these fees.  So I am hoping we don’t have to attempt this strategy.  The last thing I want to do is pick a fight.

I will update you on how the progress goes.  But I am thinking this should be one of the better deals of 2010.

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3 Responses to “ Code Enforcement Deal – House #52 ”

  1. jp moses says:

    Sounds tasty, Steve. Good luck on your negotiating with the city on the CE fines…seems to be the luck of the draw.

    What’s your exit on this one? Sell or rent?

  2. cgabhart says:

    We just bought a similar property a week ago. We hired an architect to deal with many of the issues and also met the city at the property to let them know we planned on taking care of issues.
    The city was very cooperative so good luck and you may want to try an arhitect who deals with you problems all the time and has relationships with the city.

  3. And were still tied up with the city in our deal. First guy from the city (code enforcement) had totally different requirements than the building department.
    Ended up getting stuck in a beurocratic rip tide because we are on a hill with open space, straddle 2 different zones and they found a coastal sage brush 100 ft outside our property line.

    Anyways well be ok because we bought it so inexpensively and that is why you need to buy these so cheap because there is ALWAYS problems. I don’t know what they’ll be except hay there will be.

    Sometimes small some times large but until I have an issue come up on a flip I’m waiting. So leave room in the deal for the issues that come up because it’s the investors who buy with the tighter margins who get burned.

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