Real Estate Rehabbers May Be Facing Huge Losses Because of This Change

What may well be the biggest single change in real estate investing in 50 years is fast approaching. It could well be the end of real estate rehabbing as we know it and it has already started in a couple of cities. At first I thought it was an urban legend because a Real Estate Mentoring Student called and was telling me what happened to him – or at least what he thought had happened to his rehabbed property. A few days later another Mentor Student called and told me the same story except in a different county.

It started when I had called the first Student back to check on the status of his rehab since I had provided the hard money for his purchase of a seemingly great property. He had gotten it via a short sale at least $150,000 below fair market value (FMV). His estimate of repairs was about $35,000 so he was looking at a killer deal. I had personally inspected the property and it was what I call a “lipstick on a pig” or very light rehab – mostly patch and paint.

When I spoke to him he told me that code enforcement had tagged his “canvas” carport as illegal and as having been installed without a permit. He bought the property this way which is no excuse so he decided to simply tear it out. But it didn’t stop there – the officer had tagged the property for mechanical, electrical, plumbing violations, illegal kitchen remodel and an illegal enclosure of the original carport. Of course this all happened after the closing but what was strange was that no code officer had ever been inside the property. More importantly, almost none of the violations were valid because he hadn’t started his rehab!

The Mentoring Student was panicked and very angry at the city and the code officer. I got him to calm down and go to the city to see what was happening. If you don’t make friends with the city they can be your worst enemy and kill you financially. The first time he went to the city the code officer was not there but the staff seemed to know the “modus operandi” of this officer.

Without saying it, the city employees implied that the officer used the MLS® to find rehabbed properties that did not show permits for work that was advertised as completed and shown in the listing agent’s comments. Every time a new listing comes on the MLS® a city employee is notified by an autoresponder email notification that a local Realtor® has set up for the city employee. All the employees have to do is check their emails to see who is violating code provisions that day!

The second Student did not have the same thing happen to him but he explained that he talked to a rehabber who got caught advertising his completely rehabbed property on the MLS® and he had not pulled the necessary permits. He went on to say that this city actually dedicated employees to searching the MLS® listings for Realtor® comments that implied work was done to upgrade the property. These upgrades were then checked against the property address to see if appropriate permits were pulled and also if permits were pulled, were they closed out.

For the real estate rehabbers who are conscientious and pulls all the permits needed to complete a project it can be an expensive and frustrating experience. Jim and Viju have been working on a rehab that has lasted over a year because of permitting issues with the city. Some cities are notorious for seemingly working against investors. Of course if you are a real estate rehabber using hard money, the delays in getting permits issued and closed out can bankrupt your deal and maybe you also.

In summary, the ugly Spector of over-enforcement using seemingly necessary advertising terms to sell your rehabbed property should be reviewed carefully. If you pulled and closed out the necessary permits to do the work, broadcast it! If however, you took the quick and dirty rehab route, think twice about selling your property on the MLS® using grandiose remarks about what you replaced or updated where the work should have been permitted.

change your life mentoring click button j 300x236 1

To your limitless success,
Dave Dinkel

Real Estate Mentor Program Founder

Visit davedinkel.com for full privacy policy, terms of use, etc.  Be sure to contact us through the website at davedinkel.com if you have questions or concerns ([email protected]).  Results mentioned in this presentation and any video, article, and/or material related to Dave Dinkel and his associated businesses are not typical nor are a guarantee of any earning potential.  No advice is to be construed as legal, accounting, or professional advice EVER.  Please consult related licensed and qualified professionals before taking any action.  No person(s) mentioned in the articles and /or shown on videos received compensation in any form for their opinions.

Real Estate Rehabbers May Be Facing Huge Losses Because of This Change

What may well be the biggest single change in real estate investing in 50 years is fast approaching. It could well be the end of real estate rehabbing as we know it and it has already started in a couple of cities. At first I thought it was an urban legend because a Real Estate Mentoring Student called and was telling me what happened to him – or at least what he thought had happened to his rehabbed property. A few days later another Mentor Student called and told me the same story except in a different county.

It started when I had called the first Student back to check on the status of his rehab since I had provided the hard money for his purchase of a seemingly great property. He had gotten it via a short sale at least $150,000 below fair market value (FMV). His estimate of repairs was about $35,000 so he was looking at a killer deal. I had personally inspected the property and it was what I call a “lipstick on a pig” or very light rehab – mostly patch and paint.

When I spoke to him he told me that code enforcement had tagged his “canvas” carport as illegal and as having been installed without a permit. He bought the property this way which is no excuse so he decided to simply tear it out. But it didn’t stop there – the officer had tagged the property for mechanical, electrical, plumbing violations, illegal kitchen remodel and an illegal enclosure of the original carport. Of course this all happened after the closing but what was strange was that no code officer had ever been inside the property. More importantly, almost none of the violations were valid because he hadn’t started his rehab!

The Mentoring Student was panicked and very angry at the city and the code officer. I got him to calm down and go to the city to see what was happening. If you don’t make friends with the city they can be your worst enemy and kill you financially. The first time he went to the city the code officer was not there but the staff seemed to know the “modus operandi” of this officer.

Without saying it, the city employees implied that the officer used the MLS® to find rehabbed properties that did not show permits for work that was advertised as completed and shown in the listing agent’s comments. Every time a new listing comes on the MLS® a city employee is notified by an autoresponder email notification that a local Realtor® has set up for the city employee. All the employees have to do is check their emails to see who is violating code provisions that day!

The second Student did not have the same thing happen to him but he explained that he talked to a rehabber who got caught advertising his completely rehabbed property on the MLS® and he had not pulled the necessary permits. He went on to say that this city actually dedicated employees to searching the MLS® listings for Realtor® comments that implied work was done to upgrade the property. These upgrades were then checked against the property address to see if appropriate permits were pulled and also if permits were pulled, were they closed out.

For the real estate rehabbers who are conscientious and pulls all the permits needed to complete a project it can be an expensive and frustrating experience. Jim and Viju have been working on a rehab that has lasted over a year because of permitting issues with the city. Some cities are notorious for seemingly working against investors. Of course if you are a real estate rehabber using hard money, the delays in getting permits issued and closed out can bankrupt your deal and maybe you also.

In summary, the ugly Spector of over-enforcement using seemingly necessary advertising terms to sell your rehabbed property should be reviewed carefully. If you pulled and closed out the necessary permits to do the work, broadcast it! If however, you took the quick and dirty rehab route, think twice about selling your property on the MLS® using grandiose remarks about what you replaced or updated where the work should have been permitted.

change your life mentoring click button j 300x236 1

To your limitless success,
Dave Dinkel

Real Estate Mentor Program Founder

Frequently Asked Questions

1. What Should I Do If a Seller Ghosts Me?

If you feel you have been ghosted, act decisively and quickly. If you have tried texting and calling, it’s time to drive by the seller’s location. I always take the recorded Notice of Interest or Memorandum of Contract to leave, so the seller knows it exists. Go by at a time when you know they will be there and don’t be confrontational, just get the facts.

In our experience with new investors, the chances of losing a deal with no contract is likely over 85%. Verbal commitments do not apply in contract law; get everything in writing, especially contract changes.

Different ‘gurus’ have different opinions, but our experience is finding motivated sellers and then a buyer for your deal. Ideally, you should be finding motivated buyers from day one, so you are ready when you find a seller. Buyers are easier to find as you can see at https://davedinkel.com/products/

Prevention only comes about by thinking a Black Hat wholesaler will be coming after your deal. First, educate the seller that an unscrupulous investor may come by and illegally offer more money, have the seller sign your “Notice to Homeowner,” stating that he understands he cannot accept another offer.

There is nothing illegal about changing their mind, it is called seller remorse and occurs about 25% of the time. However, if they have signed your contract, it can’t be cancelled for any reason unless acceptable to the investor/buyer.

If price is an objection, you need to find out how important it is to sell fast and for cash. If the seller isn’t under a time constraint, has a money issue, or has a personal dilemma, he may not agree to the price you need. Offer to help move and build it into your price before you make your offer. However, never give the seller money; only pay the moving company, and only after closing (escrow with a closing agent). If fear is the seller’s issue, break it down into what the real problem is and answer their objections one at a time.

You can get to the root of motivation for a seller by asking a few questions. First, “Why are you selling?”, “How soon can you close?”, and Are you ready to sign an AGREEMENT today, if not, what do I have to do to make you comfortable?’. The answers to these questions will determine the truth about your seller’s motivations.

The best times to involve your attorney in your deals are to have him review your contracting, review the signed contracts from the seller and end buyer, have him open escrow and start the title work, negotiate with city or counties for lien reductions or mortgage payoffs with lenders, and to close the transactions.” Your attorney is not the adversary; it’s the opposing party’s attorney who is a deal killer, and having your attorney allows him to help overcome this obstacle.

The key to successful prospecting and bringing back deals that didn’t close is to follow up until the property is transferred in the public record. Some of our deals have been where the seller came back to us months and years later because they felt comfortable with us and not the other “pushy” investors who contacted them.

Your contract’s most important clauses are inspection period (as long as possible), when the EMD must be deposited if at all, your ability to access the property, any added clauses specific to the property that will protect you against seller claims later that were verbal only.

Visit davedinkel.com for full privacy policy, terms of use, etc.  Be sure to contact us through the website at davedinkel.com if you have questions or concerns ([email protected]).  Results mentioned in this presentation and any video, article, and/or material related to Dave Dinkel and his associated businesses are not typical nor are a guarantee of any earning potential.  No advice is to be construed as legal, accounting, or professional advice EVER.  Please consult related licensed and qualified professionals before taking any action.  No person(s) mentioned in the articles and /or shown on videos received compensation in any form for their opinions.