Is it possible that any transfer or sale of a property can become a profitable deal using only what means are available to an investor such as creative financing, income tactics or other means to fund and close on a property?
The answer depends on the facts and the alignment of the necessary ingredients that make any deal work. These include a motivated seller, equity or the ability to create equity or income with the property.
Here are two situations that were turned into profitable deals. Some of these “far-fetched” and somewhat crazy deals are the most profitable ones:
1. Does the property have a marketable and insurable title? Let’s assume that a property has a clouded title with judgments in excess of its value. If the judgments can’t be negotiated, the property doesn’t have equity, so it likely isn’t a deal for a conventional buyer.
However, an investor could have the seller deed the property to him and keep the judgments with the property. As long as it wasn’t sold and the judgment holders couldn’t foreclose, the investor could enjoy the benefits of the property, including rental income.
For example, if the seller agreed to walk away from the property for $1,000 because of the headaches (a motivated seller) and the rental income was $600 a month, you can see the return on principal is astronomical.
2. Are there excessive municipal code violations that can be cured or the municipality in question won’t negotiate? There are different types of code violations including building permits, nuisance issues and safety issues.
The safety issues are important to be resolved for the sake of people living in the property. If code violations are considered safety issues they must be resolved, but what about nuisance issues such as noise or un-mowed grass?
For example, if a citation for not having the property’s grass mowed was served to the homeowner and he then mowed the grass, but the code enforcement officer was never alerted, the citation could become a lien accruing at $50+ a day.
The homeowner wouldn’t necessarily know about it, but at the end of a few years when he went to sell his property the code lien could be a $100,000. I have seen where the cost per day is $1,000 and the lien is over a million dollars for a property worth $100,000!
Usually code liens can’t be used to foreclose a property which would allow the new buyer to live in the property or rent it forever. Taxes still have to be paid or a tax deed will eventually be issued which will foreclose the property. Always try to negotiate the liens or judgments away before you buy a property so your title is as clear as possible to start.
In summary, an investor should not assume that a real estate deal won’t work simply because of title defects, judgments or liens attached to the property. Almost any deal can happen if the seller cooperates and the investor/buyer has the patience to see the deal to completion.
Always ask a local attorney who closes real estate transactions for the strategy that will clear the title (Quiet Title Action) or allow you as the new owner to stay in the property and enjoy its benefits without being evicted because of a foreclosure.
By Hubert Crowell