Would This Be an Ethical Deal?

Question

So I am definitely a newbie to investing and my plan is to do fix and flips, property development, and whole sale.  I'm reaching out to distressed properties wherever they pop up in my area.  My full time job is being a firefighter, which leads to my question.  There was a house fire last night not far from me.  My department responded but I was off duty and didn't respond to it.  The house burned completely down.  I looked up the property information and it's owned by a local guy as a rental property.  Would it be ethical for me to make him an offer?  If so, how much time should I allow to pass, if any, before making an offer?  I'm sure he's up to his eyeballs in paperwork and managing this loss so I want to strike while the iron is hot but not offend him at the same time.

Ralph R. · Answer

@Davis Sessums I own 9 units. if something burned down I wouldn't even talk to you about selling until I had some idea what the Insurance company was going to do and what it might cost me. for instance I have a couple of duplexes. I've never had a fire so I don't know all the ins and outs of what the insurance may or may not do. I do know several things though. my insurance has loss of income protection. I get rent for a period of time after the fire. My insurance pays for a place for the tenants to live. My insurance will pay replacement cost of the building. End results= this. new building with new roof, new furnace new buildings don't have large capitol expenses, plus during construction theres no loss of income, no repairs, no cash out to provide housing for the tenant, no PM expenses. If I sell you the lot I still gotta pay the bank for the property that's burned down, give up any appreciation I may have had in the property, and woudnt have much money left to purchase another unit. now tell me again why would I sell you the lot? and if I was going to sell it do you think the bank or maybe the insurance company would have anything to say about it? can you see why people burn down a building for the insurance? If a burned to the ground property is a better deal for you to rebuild than the original owner I would bet people will be standing in line to buy it. Remember if the zoning has changed any you would also loose all grandfathered uses of the property when the name on the deed changed. If the guy owned it free and clear and had no insurance then that might change things. if he had a loan its a good bet the lender is requiring insurance similar to what I described

RR

Jay Hinrichs · Answer

not an ethical situation... people chase probates all the time and are dealing with family members who just lost loved ones.

life happens.

Many times in a majority of the rental markets in our country... once you have a burn out and you get a check from insurance.. it simply does not pay to rebuild.. cost too much...

so much of our buy and hold areas in the US.. the underlying value of the dirt is zero to negative.  Unless there is a strong infill market happening currently were you can sell new construction for 150 to 200 plus a foot.  then there is room to pay for a lot and make profit.

Davis Sessums · Answer

Thanks everyone for the input.  As for what I want out of this is to simply contact the owner and say hey I'd like to make an offer on the lot.  If he's interested great if not that's fine too.  If he accepted I would whole sale it a few investors I know who do property development.  I would think he would listen to any reasonable offers as to avoid the headaches of rebuilding, then again maybe not.  I guess there's only one way to find out.

Account Closed · Answer

I don't see any problem with reaching out to him/her.  I would just state that you saw the unfortunate fire at one of their properties and that if they didn't want to deal with the redevelopment, you would like to talk about purchasing the land.  It's always an advantage to have yoru name be the first they hear is interested.

Depending on their circumstances, it may be better for them to take the insurance money and move on anyways.  Ultimately you don't know unless you reach out.

To be honest, even if you were on duty and put the fire out yourself, I don't see there being a problem reaching out.  If you let the fire keep burning in hopes of buying the land, that would be different (no one would do that, would they?).

Ethan Perry · Answer

Not unethical at all in my opinion. Everyone has their unique advantage (at least succesul investors do) so more power to you. You are correct to be tactful with the approcach but take a swing. Good luck!

Davis Sessums · Answer

@Jay Hinrichs thank you.  Here in Northern Virginia new housing is definitely back in the swing of things.

Michael Henry · Answer

@Davis Sessums I don't see any ethical issues. You might be helping him out more than you think.

Thomas S. · Answer

As other have posted if you are in some way using the information you have regarding the fire to manipulate the owner that could be constrewed as unethical. If you are simply making a offer or informing the owner you are aware of their situation and would like to be considered as a potential buyer ethics does not enter in.

Going forward you may want to rethink your base ethical standards if this situation has you questioning your ethics. If not your investment future may not be too promising.  Success will often require taking  advantage of other investors misfortunes. Those are the situations in life that offer the most potential profits.

Don't let ethics get in your way of taking advantage of opportunities in normal business transactions.

Chinmay J. · Answer

I saw it on news yesterday. What a tragedy. I don't see this as an ethical dilemma at all. Some other investor is going to profit from it anyway - why not you. As the old adage goes.. One man's trash is another man's treasure.

Stanley Parsley · Answer

way to be looking at properties

more than likely the person had insurance on the property

it is a piece of property not a sec security

go talk to the owner and see what the plans are for the property

how is it zoned

maybe even hook up with the owner and put together a partnership and build a duplex

who knows

know what I mean

there are opportunities for wise investors everyday way to be on the look out

enjoy

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