Multi-Units with Building Code Violations?

[Travis Russell]

I'm still in the beginning stages of analyzing properties and learning what is a great investment opportunity and what should be avoided. My realtor sent me an updated listing for a property that we've been monitoring that had another price reduction.

It's for a 6 unit, 2 building 3-flat combo listing, that definitely needs a lot of work. The area is probably considered a C- neighborhood that is a mix of some newer rehab projects, but is still an up and coming neighborhood. There are several other properties that are in need of rehab on the block as well, and some rehabs have already started. It's still in a higher crime area, but very close to the approaching border of drastically lower crime ratings by only a couple of blocks.

The property itself has been reduced by more than 50% in 3 months. The new listing price would have this at <$10k per unit on the sale price only, before any other costs are factored in. I would expect the rehab costs to be on the higher end to bring it up to code and in move-in condition as future rentals. It's a little difficult to find reasonable comps for it. There was a recent rehab 2 flat on the same block just a few doors down that sold less than a year ago for $169k. Another distressed 2-flat sold last fall for $10k, AS IS with major need of rehab. Another 2-flat on the block is listed at auction starting at $1k. So the comps are all over the place!

My biggest question is this…the property is sold AS IS (which is expected) but has several code violations that the buyer would be responsible for. Many of the items on the list of violations are fairly normal stuff (i.e. light fixtures replaced, new electrical outlets and covers, add GFCI's in wet areas, replace some screens/windows, water heaters). It does need structural columns replaced in the basements which is a caution, as well as rear decks being replaced as the are build on cinders and not ground anchored.

Here's where I need the expertise from BP! Has anyone had experience in dealing with code violations and city permits/red tape, etc? Is this even something to consider??

I want to rehab and sell to investors looking to hold and rent, or I am considering the value to even just buy and sell to other investors who have greater resources to develop many properties on the block that could be picked up at some great priced. It's a great tree-lined street, very close to 3 options of public transportation, and 3 blocks from a park. Close to the expressway for commuting as well. The neighborhood is definitely close to being in front line of rehabs moving into the area; it's just a little sketchy at the moment.

Thanks for any and all insight!