Won an auction on a foreclosed property; Possible crackhouse

OP

Member since 2023 · 13 posts · 8 votes

3y

Quote from @Robert Leonard:

I would not walk away from $4k. Your story is an example of why I tell new investors, the auctions are not a place to start with little or no experience, unless you are working closely with an experienced mentor or partner. I hate these words, "buy something and you will learn more than any class/book."

Go to your local REIA meeting and talk to experienced investors. Ask for recommendations for a local real estate attorney who is good with evictions and other matters investors have to deal with. That's where you will get your best advice.

Thank you for the guidance! Reached out to my title clerk who recommended an attorney operating in the Philadelphia area; we'll see how things progress in the coming week! I would definitely prefer to keep the EMD in play and move forward with the investment, as the property value in the area has increased by 70% since 2016 (according to Zillow). Hoping that by the time I pay the home off in 6-8 years (used HELOC), I can use the appreciated equity to invest into other ventures.

OP

Member since 2023 · 13 posts · 8 votes

3y

Quote from @Danny Polanski:

If they are drug addicts i would expect they would jump at some decent cash to fuel their habit.

Cash for keys is what i would try, if they wont go easy.

In the process of discussing a plan of action with a reputable lawyer in the Philadelphia area about this within the next week (hopefully).

OP

Member since 2023 · 13 posts · 8 votes

3y

Quote from @Ron Brady:

We purchased a home on auction with occupants we believed were users.

Pre-auction, we'd driven by the home, front and rear, over several different days and at various times of the day. We also did a lot of internet sleuthing on our suspected occupants pre-purchase, giving us a picture of what we may be dealing with. We then built into our pre-purchase financial analysis, assumptions that the inside of the house would be damaged and poorly maintained and that we'd have costs associated with getting the people out and delays getting into the home. Everything played out post-purchase as we planned--a mess inside, failed cash-for-keys effort, court costs, sheriff's removal of squatters, completely missing furnace, etc. But it's been one of our best investments so far since we built it all into our numbers.

Recommendations:

1. Build your financial analysis based on what I describe above. If it doesn't work in a reasonably bad case, walk away now and think of the $4K as tuition to the school of hard knocks.

2. If you wish to go ahead, work hand-in-hand with an experienced eviction attorney on legally removing the residents. Build these costs into your analysis.

3. If you wish to go ahead, make sure the surrounding neighborhood is good and this is just one bad house that you will turn around. A bad neighborhood is a non-starter for us.

Best wishes!

Everything checks out for the most part, with the exception of point 3 regarding the neighborhood; going in I knew it wasn't the greatest. Nevertheless, seeing a 70% increase in home value over the course of the last 7 years, the purchase price of the home, and potentially working out a lease agreement with a Philly-centric real estate attorney to cover myself as best as possible - I'm figuring "what's the worst that can happen?" I feel like I'll probably suffer some backlash for that last comment...

Philadelphia seems to be bursting in the seam with real estate activity. I may be wrong here, but beyond the current hurdle of said occupant, I don't really see any downsides long-term. As long as I collect rent for the next 6-8 years to cover my immediate expenses (taxes, HELOC repayment, insurance), figure I'll build equity which I can eventually draw from in the future. What do you think?

OP

Member since 2023 · 13 posts · 8 votes

3y

Quote from @Drew Sygit:

@Razmig Yeremian why didn't you do your homework by getting the list of foreclosures being sold, then scope them out BEFORE you bid?

Lesson learned the hard way!

Highly probable everything that can be sold is gone from the house. You'll also probably find disgusting surprises - we once had to clean out a tub squatters were using to take dumps in:(

Recommend you find local mentor ASAP to guide you through this.

Thanks for the reality check! Reached out to a real estate friend of mine, my title clerk, and who I hope will soon to be my evictions lawyer on some guidance through this ordeal. I'll keep you guys posted!

Eric Greenberg

Investor · Philadelphia, PA · Member since 2019 · 618 posts · 430 votes

3y

I have a few guesses of where this is in the city… If you want to talk in more detail don’t hesitate to DM me.

Theresa HarrisPro Member

Member since 2019 · 15k+ posts · 11k+ votes

3y

Talk to neighbours and introduce yourself. Ask about the area and the house. Ron has some good advice. Also read your contract as to what happens if it is not vacant at closing BEFORE you close from someone who is experienced with auctions. For a normal closing (not auction), you'd check the place before you close to make sure it is vacant and in the same condition as when you viewed it or you do not close.

2 Reply

Ron Brady

Rental Property Investor · Burlington County, NJ · Member since 2019 · 540 posts · 771 votes

3y

Quote from @Razmig Yeremian:

Quote from @Ron Brady:

We purchased a home on auction with occupants we believed were users.

Pre-auction, we'd driven by the home, front and rear, over several different days and at various times of the day. We also did a lot of internet sleuthing on our suspected occupants pre-purchase, giving us a picture of what we may be dealing with. We then built into our pre-purchase financial analysis, assumptions that the inside of the house would be damaged and poorly maintained and that we'd have costs associated with getting the people out and delays getting into the home. Everything played out post-purchase as we planned--a mess inside, failed cash-for-keys effort, court costs, sheriff's removal of squatters, completely missing furnace, etc. But it's been one of our best investments so far since we built it all into our numbers.

Recommendations:

1. Build your financial analysis based on what I describe above. If it doesn't work in a reasonably bad case, walk away now and think of the $4K as tuition to the school of hard knocks.

2. If you wish to go ahead, work hand-in-hand with an experienced eviction attorney on legally removing the residents. Build these costs into your analysis.

3. If you wish to go ahead, make sure the surrounding neighborhood is good and this is just one bad house that you will turn around. A bad neighborhood is a non-starter for us.

Best wishes!

Everything checks out for the most part, with the exception of point 3 regarding the neighborhood; going in I knew it wasn't the greatest. Nevertheless, seeing a 70% increase in home value over the course of the last 7 years, the purchase price of the home, and potentially working out a lease agreement with a Philly-centric real estate attorney to cover myself as best as possible - I'm figuring "what's the worst that can happen?" I feel like I'll probably suffer some backlash for that last comment...

Philadelphia seems to be bursting in the seam with real estate activity. I may be wrong here, but beyond the current hurdle of said occupant, I don't really see any downsides long-term. As long as I collect rent for the next 6-8 years to cover my immediate expenses (taxes, HELOC repayment, insurance), figure I'll build equity which I can eventually draw from in the future. What do you think?

There are successful investors across all types of neighborhoods. Each neighborhood type requires slightly different investor strengths and weaknesses. We know we’d not yield returns in a challenging neighborhood commensurate with the financial and mental costs to us. But if you’re experienced in that area or feel you will be, there are others before you who have been successful. Best wishes!

3 Reply

OP

Member since 2023 · 13 posts · 8 votes

3y

Quote from @Ron Brady:

Quote from @Razmig Yeremian:

Quote from @Ron Brady:

We purchased a home on auction with occupants we believed were users.

Pre-auction, we'd driven by the home, front and rear, over several different days and at various times of the day. We also did a lot of internet sleuthing on our suspected occupants pre-purchase, giving us a picture of what we may be dealing with. We then built into our pre-purchase financial analysis, assumptions that the inside of the house would be damaged and poorly maintained and that we'd have costs associated with getting the people out and delays getting into the home. Everything played out post-purchase as we planned--a mess inside, failed cash-for-keys effort, court costs, sheriff's removal of squatters, completely missing furnace, etc. But it's been one of our best investments so far since we built it all into our numbers.

Recommendations:

1. Build your financial analysis based on what I describe above. If it doesn't work in a reasonably bad case, walk away now and think of the $4K as tuition to the school of hard knocks.

2. If you wish to go ahead, work hand-in-hand with an experienced eviction attorney on legally removing the residents. Build these costs into your analysis.

3. If you wish to go ahead, make sure the surrounding neighborhood is good and this is just one bad house that you will turn around. A bad neighborhood is a non-starter for us.

Best wishes!

Everything checks out for the most part, with the exception of point 3 regarding the neighborhood; going in I knew it wasn't the greatest. Nevertheless, seeing a 70% increase in home value over the course of the last 7 years, the purchase price of the home, and potentially working out a lease agreement with a Philly-centric real estate attorney to cover myself as best as possible - I'm figuring "what's the worst that can happen?" I feel like I'll probably suffer some backlash for that last comment...

Philadelphia seems to be bursting in the seam with real estate activity. I may be wrong here, but beyond the current hurdle of said occupant, I don't really see any downsides long-term. As long as I collect rent for the next 6-8 years to cover my immediate expenses (taxes, HELOC repayment, insurance), figure I'll build equity which I can eventually draw from in the future. What do you think?

There are successful investors across all types of neighborhoods. Each neighborhood type requires slightly different investor strengths and weaknesses. We know we’d not yield returns in a challenging neighborhood commensurate with the financial and mental costs to us. But if you’re experienced in that area or feel you will be, there are others before you who have been successful. Best wishes!

I appreciate your input Ron!

I'm planning on driving over to the neighborhood this afternoon to do some casual meet+greet/digging, in regards to home and surrounding neighborhood. In addition, I am planning to have a discussion with an evictions lawyer within the next week (once they return my call), so I hope to have a better sense of my approach within the 30 day window of closing on the property.

I've worked in a relatively blue-collared environment for quite some time now, coming across a range of people from varying demographics; not saying I've cracked the code on how to best handle the situation I'm in, but I think the years of experience I've gained has helped me really narrow in on when it's time to double-down or cut my losses and move-on.

Again, thank you very much for the time you took to provide detailed and thoughtful responses to my posting. I'll be sure to keep you all abreast on how things unfold!

OP

Member since 2023 · 13 posts · 8 votes

3y

Quote from @Theresa Harris:

Talk to neighbours and introduce yourself. Ask about the area and the house. Ron has some good advice. Also read your contract as to what happens if it is not vacant at closing BEFORE you close from someone who is experienced with auctions. For a normal closing (not auction), you'd check the place before you close to make sure it is vacant and in the same condition as when you viewed it or you do not close.

Planning on chatting up the neighborhood residents today, and currently in the process of setting up a meeting with an evictions lawyer. Thank you for your input and will keep you all updated moving forward.

Carlos Ptriawan

Member since 2019 · 7k+ posts · 4k+ votes

3y

In my case, I asked them to get out and immediately secured the property with the board and everything. But I'm more street-smart rather than lawyer-smart, they're meth addicts anyway, what do you expect, they will enter again lol

Chris SeveneyBusiness Member

Moderator

Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

3y

@Razmig Yeremian

Lesson learned. Not sure what research you did when you bought it but anytime a property is occupied at auction and you think you can rent it in 30 days I am curious to the reasoning - especially in Philly which can take months to a year to evict someone….

Did you actually visit the property before bidding?

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Nathan Harden

Real Estate Agent · Puyallup, WA · Member since 2022 · 551 posts · 379 votes

3y

Starting out in auctions is literally jumping straight into the fire. Sometimes you just have to know when to hold em and know when to run.

OP

Member since 2023 · 13 posts · 8 votes

3y

Quote from @Razmig Yeremian:

Hey guys! First-time poster here, as I was directed to this site by reddit's /r/property management subforum for a recent posting I submitted.

As the posting states, just won a bid through auction on a foreclosed property I was hoping to turn around and put up for rent within the next month or so. The closing date is in 30 days from now but I've already submitted by earnest deposit (~$4000).

Be it that this was a whole new experience for me, as I have purchased properties through conventional means in the past (real estate agent, inspector, etc.) - I was quite excited about the new endeavor, considering how great of a price I was paying for what seemed to be a pretty stellar rowhome in Philadelphia. A previous property management company had posted a video on YouTube circa 2018 showcasing - what seemed to be - a fully renovated home, so I figured how bad could things have gotten that a fresh coat of paint can't fix, right?

Well, to repeat myself, and as the posting states, I think I bought a crack house. As I approached the home this evening to scope it out after work - from across the street mind you - the door quickly swung open and I was (un)warmly welcomed by a woman who was seemingly under the influence of either crack or meth, as her vibe felt strongly fueled by paranoia, exacerbation, and a very short attention span. From the sound of things, there seemed to be multiple people within the property, or at least very least another woman and a man, whom I witnessed walk into the home within the first few moments of me arriving to the location.

The contract of the sales agreement stated that I am not to approach the homeowners until the closing of the property. I would like to stress the point that my intention was NOT to approach the current tenant/squatter/crack-house manager whatsoever; all I wanted to do was get a feel of the neighborhood on foot and just admire what I thought was a savvy investment decision.

So at this point in time, what I'm coming to the Bigger Pockets community for, is any guideline that I can follow, or stories of similar experiences and how you got through them. What can I do to make the best of this situation? Your advice and input would be GREATLY appreciated. I just want to prepare myself as best as possible here. I'm starting things off by calling the local police department to retrieve any information that I can get on the property and its potential tenant/squatter/crack-house manager. Should I just cut my losses and move on? Is it worth it to reach out to a real-estate attorney for guidance?

Any guidance would be greatly appreciated!

UPDATE: Ended up going down the route of a "Cash-for-Keys" agreement with the tenant living in the property at the time of closing. (Somewhat) Smooth transaction and a win for all parties involved. Thanks for the advice everyone!

Richard Elvin

Investor · Cleveland, TN · Member since 2016 · 280 posts · 187 votes

3y

@Razmig YeremianI am glad that ended up going well for you! I've done something similiar to that and lost $$ with a lot of zero's. Congrats on a successful endeavor!

Eric Greenberg

Investor · Philadelphia, PA · Member since 2019 · 618 posts · 430 votes

3y

Quote from @Razmig Yeremian:

UPDATE: Ended up going down the route of a "Cash-for-Keys" agreement with the tenant living in the property at the time of closing. (Somewhat) Smooth transaction and a win for all parties involved. Thanks for the advice everyone!

Awesome to hear. And always remember no matter how this turns out youll atleast have a good story to tell at parties.