These days people are scrambling to find good real estate deals. Markets are hot, supply is tight and getting discount deals takes some work and creativity.
With that said, I still like to find the path of least resistance. When it comes to deal finding I think properties with code violations fits that criteria.
Using Code Violations to Find Real Estate Deals
Before we get into where to find code violation leads, lets discuss an example and how these can lead to deals.
Rules and regulations vary from city to city and even the ability to negotiate the violations do as well. Here in my local south FL market code violations exist more than you’d expect, but they are often not hard to remedy and most cities will take a reduced payout on the fines once the violations are remedied.
Trash and Landscaping Violations
This is one of the most common and easiest ones to remedy. We always talk about finding unkept properties that the landlord is clearing down with mentally or emotionally. Overgrown grass and shrubs represent that and also represent a possible discount opportunity.
If an owner has a property with landscaping violations that have been in effect for a year or more, with fines and penalties stacking higher and higher it becomes an overwhelming item they don’t want to deal with, many times not even realizing they can negotiate the fines down with the city.
In this instance, you will not only negotiate with the seller on a price but also the city on a payoff for the code violations.
Say $25K in code violations exist (and yes this happens often, I’ve seen code violations as high as half a million!). You negotiate with the city and get an agreement for a $5k payoff once the violations have been remedied.
Well, you just created $15K in value right there. If the property is worth 200K as is (ARV is a whole separate piece) and that is what the seller wants, you now have some wiggle room. In this instance you can offer what they want, less the violations, an offer of $175k and work from there.
Even if they are being stubborn about the 200K, you have room to work because in the end, the violations are only costing you $5K. Say for example, you get them to come down half of the violation costs. Now your are at a purchase price of $187.5K plus the $5K you negotiated on the violations, bringing you to a total cost of $192.5K and netting you an instant $7.5K in equity or a possible wholesale fee.
Again, this is just using the as is price. If its a value add reno then you may have even more meat on the bone there.
Where to find code violation leads:
- Contact your City Secretary or Clerk
- Contact your local health department
- Ask your city/ward councilmen’s office
- Visit your city hall and meet with violations inspectors
Some of these options may or may not be available in your city and sometimes its just matter of who you end up dealing with, but one of these options will get you the list.
What I love about the code violations is you can focus on simple ones like landscaping and trash, easily remedied. Or you can take it up a notch and go after the bigger issues like electrical panels and windows.
We all need an edge when it comes to finding deals, code violations may be that niche that increases your deal finding. Happy hunting!