Purchasing a Condemned Building as a Revenue Generating Asset

[ooooskar]

Good morning,

I am currently considering looking into Condemned properties as a vehicle for generating revenue.

I have some construction experience as well as tools that would allow for most of the fixing to be performed. I would appreciate any insight on the process. Additionally, I would need to finance it which may give me trouble in acquisition.

I am mostly concerned with the time and cost prior to being able to get tenants to rent space within the building. I live in Southern California, where housing quality is comparatively lower to areas with more extreme temperature. I think this would lower the initial investment needed compared to an area where it snows. I am mostly concerned that the cost to get the property to living status as well as the approval fees.

Would the cost to return the building to living conditions as well as time lost on getting more revenue from rental income, be worth the potential saving from the purchase price? My strategy is to buy and hold.

 

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[MJ DeMarco]

There is no answer for your question as it depends on the building, the cost, the holding fees, the reno costs, the city, the laws, and a whole host of other variables that only YOU can answer.

Your question is generically poor and essentially shows that you probably shouldn't tackle a project like this.

 

[ooooskar]

There is no answer for your question as it depends on the building, the cost, the holding fees, the reno costs, the city, the laws, and a whole host of other variables that only YOU can answer.

Your question is generically poor and essentially shows that you probably shouldn't tackle a project like this.

Good morning,

I appreciate the insight. I was just exploring the concept and wanted to see if the consideration of the business model is worth the headache. I am at a crossroads where I am looking into options of property acquisition.

I may have phrased my question improperly, I was really looking into whether the business model is worth the nerve it takes to start running operational.

Thank you

 

[MJ DeMarco]

I was really looking into whether the business model is worth the nerve it takes to start running operational.

You have access to capital?

Here's a better question...

I found a building on Main Street in X City that is selling for $900,000.
I estimate it will take $1M in renovations over 1 year to bring up to habitable.
Renovated market value will be $3M and have 30 2/2b units for rent. Going rents in the area are $X per month.

Is this a deal worth investigating?

Your question is essentially like asking, "Hey guys, is starting a local business a good idea?"

 

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[Kevin88660]

Good morning,

I am currently considering looking into Condemned properties as a vehicle for generating revenue.

I have some construction experience as well as tools that would allow for most of the fixing to be performed. I would appreciate any insight on the process. Additionally, I would need to finance it which may give me trouble in acquisition.

I am mostly concerned with the time and cost prior to being able to get tenants to rent space within the building. I live in Southern California, where housing quality is comparatively lower to areas with more extreme temperature. I think this would lower the initial investment needed compared to an area where it snows. I am mostly concerned that the cost to get the property to living status as well as the approval fees.

Would the cost to return the building to living conditions as well as time lost on getting more revenue from rental income, be worth the potential saving from the purchase price? My strategy is to buy and hold.

Sounds like the question is “should I get into the business of small scale real estate development.”

A lot regional specific industry knowledge and good grasp on macroeconomic timing are needed.

 

[ooooskar]

Sounds like the question is “should I get into the business of small scale real estate development.”

A lot regional specific industry knowledge and good grasp on macroeconomic timing are needed.

Good morning,

Got it, I would have to sink more time into the local law and market conditions. I really appreciate the replies!

 

[WJK]

Good morning,

I am currently considering looking into Condemned properties as a vehicle for generating revenue.

I have some construction experience as well as tools that would allow for most of the fixing to be performed. I would appreciate any insight on the process. Additionally, I would need to finance it which may give me trouble in acquisition.

I am mostly concerned with the time and cost prior to being able to get tenants to rent space within the building. I live in Southern California, where housing quality is comparatively lower to areas with more extreme temperature. I think this would lower the initial investment needed compared to an area where it snows. I am mostly concerned that the cost to get the property to living status as well as the approval fees.

Would the cost to return the building to living conditions as well as time lost on getting more revenue from rental income, be worth the potential saving from the purchase price? My strategy is to buy and hold.

So, get out your pencil and paper. YOU need to figure this out. That's your job as an investor.

Start with the elephant in the room. That is IF the Building and Safety Department in that jurisdiction will let you rehab it -- with the intent to then rent or occupy it. Be careful to NOT take their yes-you-can at face value. They can tie a knot in your tail in 60 different ways. There are also a bunch of updated building codes that make it almost impossible to comply and bring the building to current standards -- let alone deal with the costs involved. Then there's the Planning Department. There are a LOT of buildings that are "grandfathered" in. Their uses are no longer allowed under the current zoning laws. So, if they burn down or are condemned, they cannot be rebuilt or restored. I've also seen court orders, Cease and Desist orders, that enjoins a use to continue past a certain date.

(I saw such an order when I was doing appraisals. It stopped the owner's use on a $10,000,000. industrial property. He had a huge egg processing facility. His only allowed use for the property was to raise either dairy or beef cows. Oops.)

I don't want to insult you, BUT your question shows that you're a newbie on this playing field. This game is NOT for amateurs or the faint of heart. It's a very rough sport!

 

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[WJK]

Rather than going for condemned properties, you might try a fixer. Do one and rent it out.

I mentored a young man named Jake several years ago. He was working in his dad's flooring store and laying flooring -- I was a customer. He had nothing but his high school diploma, his skilled hands, and his grit. We sat down and I outlined this program for him. Jake bought his first small residential unit building. He lived in one, so he was able to get owner-occupied financing. He worked all day and then spent his weekends and evenings fixing up the other units, one by one. Then he rented them. Jake consistently saved his money to fund his next project. After a couple of years, he moved onto another property. He did the same thing while he rented the first building. Then another and another. We then set up a program for him to pay off his properties and/or buy apartment buildings. He is now financially independent and a professional RE investor. I'm very proud of Jake and his success.

This young man did NOT create his success overnight -- talk about him having a good work ethic over the long haul! Jake's upward track was slow and steady. He built a solid cash flow that he's still enjoying.

 

[ooooskar]

Rather than going for condemned properties, you might try a fixer. Do one and rent it out.

I mentored a young man named Jake several years ago. He was working in his dad's flooring store and laying flooring -- I was a customer. He had nothing but his high school diploma, his skilled hands, and his grit. We sat down and I outlined this program for him. Jake bought his first small residential unit building. He lived in one, so he was able to get owner-occupied financing. He worked all day and then spent his weekends and evenings fixing up the other units, one by one. Then he rented them. Jake consistently saved his money to fund his next project. After a couple of years, he moved onto another property. He did the same thing while he rented the first building. Then another and another. We then set up a program for him to pay off his properties and/or buy apartment buildings. He is now financially independent and a professional RE investor. I'm very proud of Jake and his success.

This young man did NOT create his success overnight -- talk about him having a good work ethic over the long haul! Jake's upward track was slow and steady. He built a solid cash flow that he's still enjoying.

Good afternoon,

I had worked in the past with some family in their real estate investments. Unfortunately, I was too young to really understand the amount of administrative paperwork that had to be done for the unit to be habitable. I had just remembered that the property was officially "condemned". That is the reason why I had thought of the concept. I do not speak with them much anymore, thus I wanted some insight from people who have done those type of projects before.

I do have some construction experience so I believe that a fixer would be a much better option for me.

Thank you

 

[WJK]

Good afternoon,

I had worked in the past with some family in their real estate investments. Unfortunately, I was too young to really understand the amount of administrative paperwork that had to be done for the unit to be habitable. I had just remembered that the property was officially "condemned". That is the reason why I had thought of the concept. I do not speak with them much anymore, thus I wanted some insight from people who have done those type of projects before.

I do have some construction experience so I believe that a fixer would be a much better option for me.

Thank you

In my many years of experience, I have an absolute rule on condemned properties -- I don't buy them unless the land value of the lot under them makes them a good buy -- and that's the number that is left after I take off the demo costs. IF I can save the building in a cost-effective way, that's a bonus. You are wise to stick to the fixers.

Rehabbing properties is full of hair-raising moments. We always add 20% to all estimates to account for those unhappy finds. I could go forever about all the hidden damages that we've uncovered on our job sites. So, now we just assume that the problems are there. It's just a matter of time for us to find them. A lot of times it is the prior work, by someone else, done wrong. I think you can expect to find the same type of things.

 

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[Mark98]

Good morning,

I am currently considering looking into Condemned properties as a vehicle for generating revenue.

I have some construction experience as well as tools that would allow for most of the fixing to be performed. I would appreciate any insight on the process. Additionally, I would need to finance it which may give me trouble in acquisition.

I am mostly concerned with the time and cost prior to being able to get tenants to rent space within the building. I live in Southern California, where housing quality is comparatively lower to areas with more extreme temperature. I think this would lower the initial investment needed compared to an area where it snows. I am mostly concerned that the cost to get the property to living status as well as the approval fees.

Would the cost to return the building to living conditions as well as time lost on getting more revenue from rental income, be worth the potential saving from the purchase price? My strategy is to buy and hold.

At Ooooskar, this video speaks to your situation >>>>

View: https://youtu.be/f5zqLItyLHg
. Hope it helps.

 

[Guest-5ty5s4]

Came across this article about industrial infill, found it relevant to this thread:

Infill Development

What is infill development? Infill development is about making the most efficient use of land. Infill development brings a host of positive economic and social benefits.

www.prologis.com

Immediately after reading this I was thinking of all these old, nearly 100-year old buildings nearby that are almost worthless, and how they could be repositioned for success.

For example, the town I'm in has very few residents, not much retail or commercial success.. But is BOOMING industrially.

So, converting an old barbershop or shopping building into a warehouse-type setup may be good...

Even better if the property is waterfront (I don't mean pretty water, I mean the water people use for work) or by railroads.

 

[WJK]

Came across this article about industrial infill, found it relevant to this thread:

Infill Development

What is infill development? Infill development is about making the most efficient use of land. Infill development brings a host of positive economic and social benefits.

www.prologis.com

Immediately after reading this I was thinking of all these old, nearly 100-year old buildings nearby that are almost worthless, and how they could be repositioned for success.

For example, the town I'm in has very few residents, not much retail or commercial success.. But is BOOMING industrially.

So, converting an old barbershop or shopping building into a warehouse-type setup may be good...

Even better if the property is waterfront (I don't mean pretty water, I mean the water people use for work) or by railroads.

Sometimes that will work. It depends on the type of construction and the jurisdiction.

FIRST, start with the zoning. Does that location allow for another use? Can the zoning be changed if your intended use is not allowed? Or can you get a variance? In some jurisdictions, there are both overlays and then specific zoning designations that influence what you are allowed to do. Make sure that the property and the building are not protected by a historical designation.

Notes: Most states have laws that general zoning plans can only be changed every few years. And most areas have zoning boards where citizens are appointed the hear zoning issues. So, zoning changes can be a big deal.
Most planning departments have their staff assigned to different areas. Find out who is assigned to the area or who specializes in the type of construction you are interested in. That person will be a wealth of information for you. A different use may trigger problems with the street infrastructure and traffic patterns. You sure don't want to pay for a street light and street/sidewalk upgrades in order to fix up one building.

2. Find out what the fire codes are for that change of use. Sometimes it takes a lot of upgrades and sometimes almost none. Take in pictures of the interior and exterior of the building if you can. The big deal for the fire code is not just a sprinkler system -- it's the electrical system in the building. Many fires are electrical fires.
Also, some areas require quick hose hook-up points of access for the fire department. You could end up having to do the upgrades in the water delivery system. Bigger projects can require a water cistern on the roof.
And then there are the exits to worry about. Do you have proper egress if there's a fire? It sounds like an easy problem -- until you realize that many times that you can't just cut a hole in the wall without triggering a full engineering report on structural integrity.

3. Talk to the Building & Safety Department about what upgrades they are going to require. What is their process? What inspection will they require? What are their fees -- so you can plug them into your spreadsheet.

thechosen1, I hope I'm NOT telling you more than you wanna know about all this. And there's a lot more to it than this. It's technical, but IF you choose to get good at it, it's a great gig for creating passive income. And then you get to go in and pick up the hapless newbie's projects for cents on a dollar -- that you can pull out of the fire. IF you do this, become the expert for a small area and dig in deep. That way you won't have to do all the research for each building that you look at. You'll already know a bunch of the answers.

 

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[Guest-5ty5s4]

thechosen1, I hope I'm NOT telling you more than you wanna know about all this. And there's a lot more to it than this. It's technical, but IF you choose to get good at it, it's a great gig for creating passive income. And then you get to go in and pick up the hapless newbie's projects for cents on a dollar -- that you can pull out of the fire. IF you do this, become the expert for a small area and dig in deep. That way you won't have to do all the research for each building that you look at. You'll already know a bunch of the answers.

Everything you say has tremendous value, and I appreciate all of it. This thread got a whole lot better for what you said here!!!