Dealing with ‘Red-Tagged’ Homes: A Cautionary Tale for Real Estate Investors

Ut-Oh! Someone Got “Red-Tagged”!

This morning, I visited a home with one of our real estate clients. This is a HUGE problem for the investor who purchased this home to flip it!

It’s called getting “red-tagged” (which is weird because it’s actually orange). This means a neighbor called the city to complain about work being done without a permit. Permits must hang in the window.

A lot of quick flippers try to do the work without permits because of the “holding costs” for a home like this. To get in line for a permit, it may take 9-13 months to get the go-ahead to do the work. That means the investor-flipper bought a property that still had a mortgage that had to be paid with no monthly income coming in. HUGE GAMBLE!

And now, some of the subcontractors doing the work have placed liens against the property. Any contractor who performs work without a permit will have their license revoked, so this home may head toward foreclosure. Be very careful about buying a property to flip without understanding the permitting process.

I actually went next door and introduced myself to the neighbor who reported this investor. Neighbors love to talk! She was right to do so. This is a hairy mess with liens and encumbrances. Most banks won’t loan on it because it’s been torn to the studs inside.

These are the properties I love to buy. They are hard to unwind, but it is my skill set. This investor should have rented out this house for a year, which would have covered the debt service, and it would have bought him time to get all the permitting done.

This is why investors call me first. All my properties were hairy messes. But I had a mentor that showed me how to unwind them, and the rewards have been fantastic.

When you need us, just reach out! We Sell the Sound!

-Don
#ronanddonsitdown #seattlerealestate #wesellthesound