Collecting Keys - Real Estate Investing Podcast

Deal Case Study - Buying A Property with Code Violations

Episode 185 · · 6 min

Hosted by Mike DeHaan, Dan Austin, Dylan Koch

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In this episode

Mike DeHaan walks Dylan Koch through a Cincinnati duplex deal that nearly fell apart a week before closing, when a letter arrived listing 15 outstanding city code violations that existed before Dylan ever bought the property. They break down how the deal was sourced, the numbers, and why the title company missed the violations.

Key takeaways

  • Code violations can be attached to a property before you buy it, and a weak title company may never flag them \u2014 Dylan only found out a week before his MLS closing, after inspections and appraisal were done.
  • Take extensive before and during photos and pull permits on every rehab. Dylan was able to refute the city's allegations because he had documentation of the property's original condition and the permitted work.
  • Checking the city's code violation website is now part of Dylan's underwriting and due diligence process on every deal.
  • A buyer's agent with investing experience saved the deal \u2014 he managed the client's expectations, and since the inspection report came back clean, the buyer accepted a two-week closing delay.
  • The numbers: bought for $220,000 with hard money, budgeted $70,000 for the rehab but came in about $20,000 over (roughly $90,000 in), and still netted just under six figures \u2014 around $80,000 after holding costs, realtor fees and closing costs.
  • The property was a 1,800 square foot single family chopped into a duplex in a less desirable area, found through an SMS campaign to a high-equity absentee list, with a VA doing the initial texting before Dylan took over the conversation.

Show notes

EP 185 - Deal Case Study - Buying A Property with Code Violations

We are doing something a little different on this week’s Friday Focus episode. Our host Mike DeHaan sits down with Dylan Koch from the Instant Investor program, to talk about a deal Dylan facilitated where the home had multiple code violations.

Mike and Dylan discuss the type of property in question, how the deal was found, what type of seller Dylan was working with, the code violations presented by the city, and how this deal was actually quite lucrative at the end of the day.

Mike uses this case study as a learning tool on how to avoid situations like this as well as possibly opportunities that can be found in not so desirable situations.

So tune in to learn more about what to do when buying a property with code violations, and much more!

Topics discussed in this episode:

The type of property Dylan was working withHow Dylan found the deal and what the seller was likeThe code violations Dylan learned about after the deal was doneWhy the buyer stuck with the dealWhat Dylan learned after doing this deal

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Frequently asked questions

Can you buy a house with existing code violations without knowing it?

Yes. Dylan bought a Cincinnati duplex and only learned about 15 outstanding city code violations when a letter arrived a week before his resale closing. His title company never caught them, which is why he now checks the city's violation website himself as part of underwriting.

How do you deal with code violations you inherited from the previous owner?

Dylan called the building inspector immediately and met him the next day. Because he had photos of the property's original condition and had pulled permits for all his work, he could refute the allegations and resolve it \u2014 it cost him a two-week closing delay.

Why does the title company you use matter so much?

Dylan's title company failed to surface pre-existing code violations, which almost blew up a deal after inspections and appraisal. He no longer uses that company and calls title one of the most underrated members of an investor's team.

Deal Case StudiesHouse FlippingFinding Off-Market Deals

Transcript

Read the full transcript

Dylan Koch: [0:01] Welcome to the collecting keys Friday focus.

Mike DeHaan: [0:05] What is going on, guys? On today's Friday focus, we are doing something a little bit different. We are here with Dylan Cook from our instant investor program, and we are going to do a deal case study on a deal that he recently did in our program. And this is going to be a new format that we will do on a kind of a regular basis where we bring in either people from our community or other investors, and we do a investigation into a real real estate deal and not the typical bullshit you hear on BiggerPockets and other real estate shows where they just, like, always talk about the big wins, and they don't give you the real nitty gritty details. So, Dylan, appreciate you coming on to be the first experiment as we try this new format.

Dylan Koch: [0:48] Yeah, man. Appreciate you having

Mike DeHaan: [0:49] me on. Cool. So how we're gonna structure this is you're going to do a series of five questions that will be fixed on every one of these case studies that we do. You will give us kinda like the answer to it. You will talk about the deal, and our goal is to get the story about how it was acquired and then what the end result was. So first, with this deal, what kind of property was it? It was a duplex. Duplex. So like a like a nice duplex or just like a janky like house hack duplex?

Dylan Koch: [1:15] No. So it was a single family chopped into a duplex. Think the photo is like 1,800 square feet.

Mike DeHaan: [1:22] It's two small units. Cool. Landlord special. I love it. Did you find this deal?

Dylan Koch: [1:27] This was actually SMS campaign.

Mike DeHaan: [1:30] SMS? Nice. Was this one that you have like a VA run or do use

Dylan Koch: [1:33] like a service? So the VA does the initial texting, and it was a high equity absentee list that we were just mailing out. So big bulk list that we sent out. And then once, you know, they kinda raised their hand and say, give any inclination that they're willing to sell, that's when I kinda took over.

Mike DeHaan: [1:49] Cool. Love it. Alright. What kind of seller was this?

Dylan Koch: [1:53] So high opacency, he's owned it for a long time. It was his primary residence, I think, back in the seventies or eighties. He kept it as a rental, and then it turned out he was running it to a family member which went south. Cool.

Mike DeHaan: [2:06] Alright. And now let's hear the story of the deal, because I know this one has some twists and turns.

Dylan Koch: [2:11] Like we previously mentioned, it was in pretty rough shape when we bought it. We bought it for 220,000, hard money. It was one of the bigger deals that we do here in the Cincinnati market. It wasn't a very desirable area. So we went in, we thought we were gonna rehab it for, like, 70,000 and rehab, go it up. And then we didn't know if we were gonna keep it because it is a desirable location or flip it for some extra money. We got all the way through the renovations. We ended up being about 20,000 over budget on the renovations. We found a buyer through the MLS, and we were set to make a decent profit on it. About a week before the closing on the MLS, once we're past inspections or past appraisals, everything, I learned that we bought this place with existing code violations from the city. Yeah. Right? And so I get this letter in the mail, the basis says, like there's 15 items on here that I have to address and go through electrical, building inspector, etcetera. Okay. But of course, I'm freaking out now at this point

Mike DeHaan: [3:07] because I'd How how did that get through title?

Dylan Koch: [3:10] Good question. But I don't use that title company anymore. And now this is also part of our due diligence when we're underwriting stuff. I found, you know, the website that you can check all these on. So now, I mean, obviously, a learning experience there. Quickly called the building inspector. We were out the next day. Luckily, I guess the important part here is, you know, they were making allegations that I could refute because I had plenty of pictures of what this place looked like before, and all the work that we had done up to that point. Right? And we had pulled permits up to this point, so it's not like we were trying to go underneath the radar or anything. Uh-huh. So long story short, I mean, I was sweating bullets. We did have to delay closing for like two weeks until we got that resolved. Mhmm. But we ended up selling it, making a hefty profit regardless of over budget. Learning less scenarios, use a smart title company, and we also do that as part of our own underwriting process now.

Mike DeHaan: [4:00] Nice. I love it. And this is like a classic sort of deal about where wholesalers can make their money too. So how is it with like the buyer while you're going through all these code violations? Because I'm surprised your buyer stuck with it. I feel like typically when stuff like that comes up, they are the first ones to wanna not move forward.

Dylan Koch: [4:16] Luckily, the buyer's agent has some investing experience. Cool. And honestly, he did a good job of managing client expectations. And I've worked with him before and he kinda knew, I would say, the work that we do. Like, right? He wasn't trying to go in and be like, hey, they're trying to backdoor this or anything like that. And once we had those inspection six years, it kinda calmed us there. I mean, inspection report came back clean. It was really just, can you wait two more weeks kind of a thing. And he was fine with that.

Mike DeHaan: [4:43] Cool. No. That's awesome. I love it. Do you mind sharing the final numbers on this deal?

Dylan Koch: [4:46] Yeah. So bought it for $2.20. We end up about 90 into it, then we sold it for $454.50?

Mike DeHaan: [4:53] Yeah. Shit. So, Nat, was that 6 figures or it must be pretty

Dylan Koch: [4:56] close? After holding costs and paying the realtor fees, closing costs, etcetera, I think it was just under. I think it was like $8,080,000.

Mike DeHaan: [5:04] 80,000. Well, it's not a bad day's work. That is much more than most people's salaries, and you do that from one deal.

Dylan Koch: [5:10] Right. Alright. Was a great deal for for all parties.

Mike DeHaan: [5:12] Cool. Love it. Anything else you wanna

Dylan Koch: [5:14] add about that one? No. Just make sure that you use the right title company, because all that could have been avoided from the start.

Mike DeHaan: [5:19] Exactly. Yeah. One of the most underrated team members that people have. So awesome. Well, Dylan, I appreciate you coming on today and sharing that story with us. You guys, this is what real real estate looks like. Right? It's not all glamour. He has a nice fat check at the end, but I'm sure all those parts of the middle, you were not having a very good time going through it. So ignore what you hear in a lot of the other shows, the big ones. So hopefully, you guys enjoyed this. Dylan, anywhere that people can find you if he wants more followers?

Dylan Koch: [5:47] I mean, I'm on Instagram. I think it's eleven d cook. Facebook doesn't matter. Twitter. I'm on all social media. So just search my name

Mike DeHaan: [5:53] and you should find me. And Cook is c o c h. Close. K o c h. Oh, man. It's like the paratara all over again. But alright, Dylan. Well, appreciate it, man. Go and give Dylan a follow everybody. And if you wanna be a part of the next deal case study, hit me up on Instagram at Mike underscore invest, and I would love to hear your story for a quick Friday, folks episode. So thanks, everybody, and we'll talk to you all next week.

Dylan Koch: [6:18] Thanks for listening to this collecting keys Friday focus. Be sure to subscribe wherever you listen to your podcasts.

Transcript generated automatically and may contain errors.

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