All Forum Posts by: Account Closed

Building code violations can be a profitable way to make money but you have to do it right. Here are the steps (oversimplified it for now and will happy to discuss the details with anyone interested):

1. Find it
2. Acquire it with no risk
3. Sell it quickly

Find It
Getting the list of houses with code violations is not straight forward and can be downright frustrating. Most investors stop here when they don't get the list easily. You have to approach the Building Department of your city and the Health Department. Depending on the size of your city, you can be referred to the county. You need to do the legwork and understand that you can be passed on from one department to the next and from the city to the county.

Once you get the list of sellers with building/health code violations, you can send them a postcard or letter. My postcard has a response rate ranging from 10% to as high as 30% because there are very few investors sending letters to owners with code violations.

Acquire it With No Risk
How do you do this? Put it under a Purchase contract with an inspection contingency with as long a period that you can get to inspect the property. Part of your inspection is checking with the city the code violations and the fines and penalties that need to get paid. These fines and penalties must be factored in your purchase price - in other words, buy the property even cheaper than you normally would!

Sell it Quickly
One tip I tell people - and this is a tip you don't hear from the so-called real estate gurus - is calling landlords from the list of approved Section 8 properties. Of course you need to pre-screen them to find out who among the landlords (specially in the inner cities where properties with code violations tend to be) are still buying right now and who among them are cash buyers. If you buy the property right, selling it is the easiest part of the process.

Hope this helps. Code violations is a great niche to "mine" because there is very little competition, the sellers are desperate to sell (and very easy to work with) and they have multiple properties (repeat business!).

Trace

J Scott - I like your site. Lots of useful information - I like your post on how to flip houses successfully - http://www.123flip.com/education/flipping-in-2009-part-1.

I agree with you that you should have the best house in the neighborhood AND at the same time it should be priced 10% below market value. Flippers who adhere to that rule - specially if they focus on what is selling in their market - are making a killing in this market.

Thanks!

Congratulations! I get excited more when I reminisce about my first wholesale deal than my biggest deal. Relish the moment.

I never said you should NOT buy code violations or properties with building code violations. It can be profitable if you know what you're doing. Also, the laws vary by state and by city. In Cincinnati, OH they indicate in their nasty letters to property owners with code violations that going to jail is a possibility if they continue ignoring the problems.

I bought a house for $1...not $1 deposit...but $1 total purchase price. Here's how I did it: [LINK REMOVED]

Has anyone done this before?

Apart from knowing how to attract motivated sellers, investors must also find out the reasons why people become desperate or motivated to sell:

DISTRESSED PROPERTY
Sometimes the property becomes distressed or in need of repair and the seller does not have the funds to correct the issue. One time, I got a call from an old lady and when I was inspecting her property, I was shocked to find out there was a big hole on the ceiling of her house. And to think that she was living in that house! I could not imagine how cold it must have it been for her during the winter and when it rained, things at her house must be soaked and yet...because she did not have the money to solve the problem, she was forced to live with it.

Unfortunately, I could not do anything either because based on the value of her home, she would have to pay me to buy her house.

DISTRESSED FINANCES
Another thing that makes a seller motivated is distressed finances. In America, unfortunately, some people get into a house that they can only afford on two incomes. If for some reason, one of those incomes is gone temporarily or permanently, then the disaster begins. It ends with the couple losing their home in foreclosure. This is what happened once with a seller named Kim. I got a call from her and she begged me to buy her house so that a foreclosure would not appear on her credit report. I inspected the property and worked out a deal with her and her bank. I sold the property, made $17,000 and she and her husband were happy and move on with their lives.

DISTRESSED SITUATION
Sometimes, the property is not distressed and neither the finances but the seller could be in a distressed situation such that he still needs to sell quickly. About a month and a haf ago, I closed on a deal in which the seller and his soon-to-be ex-wife are getting a divorce. The guy said that the wife was giving her a hard time and just to spite her- just so that she wouldn't get anything from the divorce, he decided to just let the payments on the duplex that he owned to slip and let the property go into foreclosure. The seller is also an investor and he bought this duplex as an investment. He told me that as soon as the divorce is over, he will start buying investment properties again!

So there you have it. These are the three general things that motivate sellers.

Dedicated to your financial success,
Trace Trajano

Don't buy houses and keep them. You've heard me right. Houses are not the way to go as far as generating cashflow, or cash that comes month in and month out whether or not you do some work for that month. Houses are good to sell - houses are capital gains play not cashflow plays. That is I've made money when I buy a house at a low price and then I sell it at a higher price.

I've bought houses but the cashflow isn't there. I've found that the real passive income comes from commercial properties - apartment buildings, retail mall, office buildings, mobile home parks, assisted living facility, etc.

Dedicated to your financial success,
Trace Trajano

Yes you may stop foreclosure when you buy the foreclosure BEFORE the foreclosure auction. This is the best time to buy the foreclosure because you have NO COMPETITION. During this step, the work you need to do is do a shortsale. The disadvantage of a shortsale is that your profit is in direct proportion to what you can negotiate with the bank and shortsales take a LOT OF TIME AND EFFORT to negotiate. Also, in a shortsale...depending on the homeowner, it's hard to tell them a shortsale is not going to help them keep their home.

The best way is to look for a no-money down deals by finding Buyers First. It's easier to look for properties for a Buyer than look for a Buyer for a property.

Dedicated to your financial success,
Trace Trajano

Thanks for all of your inputs. Here's my answer:

The answer is d. followed closely by the e. And yet every time I watch TV or notice the billboards on the streets, I've seen these sins violated again and again. Most marketing is boring. And most marketing is not clear about what they are trying to sell. And most marketing to sell houses are boring. Yes, they might be clear that the ad is for a house for sale, but most of the time, the marketing is not clear as to why I, as the potential buyer should be interested in the house they're selling.