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Municipalities Compete for Real Estate Investor Dollars…Whether They Realize It Or Not!

Pennsauken Township in South Jersey gave a rather revolutionary presentation to our local SJREIA recently and I am hoping, maybe naively, that other townships will see the light and change their policy for their own good. That is up to each township.

What was so revolutionary?

They decided that the code enforcement officials will focus on compliance with safety, health and environmental ordinances and won’t hit investors (flippers and landlords) and other homeowners with code violations for ridiculous stuff on the books such as the color of a mailbox.

Why is this important?

Because the townships are competing with each other for our investor dollars, expertise and time, whether they realize it or not.

Let’s face it, who solves the problem of vacant and blighted properties? Investors do! The township doesn’t.

Managed properly, the township doesn’t have to invest anything except cooperation to get us investors to invest millions of dollars of our own money (or other people’s money), thousands of hours and unmatched expertise to beautify THEIR towns!

Investors are the best solution to the vacant and blighted property problem. The majority of rehabbers are mom and pop investors who do a limited number of deals per year but we still bring $100K+ to each house renovation, we bring our own equipment (or the equipment of the contractors WE pay), we invest our valuable time and effort and then we pay taxes to the municipality, often when taxes were not being paid by the previous homeowner.

Municipalities have other reasons to attract investors, especially the BEST investors.

Benefits brought by the BEST investors:

  • We renovate to much higher quality than owner occupants. Investors like me live by the guideline to “provide best house at the price point." That also raises the value of the neighboring properties as well as the quality of the tenants and buyers.

  • We file for all permits…much more than owner occupants.

  • We comply with code. We are not afraid to invest in highly qualified licensed contractors vs questionable DYI homeowners. We actually cooperate with code officials.

  • We maintain houses in good to excellent condition as landlords, more than average owner occupants.

  • We diligently screen residents for responsible citizenry.

Pennsauken Township figured this out. Many other townships have not.

I will not mention specific names in this article, but there are a few townships in our area in which I will never invest unless they change their attitude toward investors and bring proof that they have changed to be somewhat reasonable.

In one case, I did a major renovation on a $170k single family home in 2012 that was an eye sore to the subdivision, a stinky mess inside, it had an underground oil tank and a pool that was a haven to mosquitos and other wildlife.

Knowing this would be a significant rehab, I went to the township construction department a week before I closed on the house, with a list of a dozen compliance questions about the renovations I planned, especially the oil tank, the pool, fencing, extensive drywall replacement , plumbing and electrical, including what permits they required. For example, some townships require a permit for a water heater, others don’t. Some townships require a permit to replace 25% of the drywall in a room, others don’t. In theory, the code comes from the state, but different townships have different ways they implement and enforce code.

On the day of purchase, I went straight from settlement to the township with the permit package, signed and sealed permit applications for electrical, plumbing, building and fire and zoning application to remove the pool (yes, zoning needs to approve the removal of a pool in this township!). I brought a copy of the deed and HUD-1 (this was before TRID) to prove that I own the property.

None of that helped. They took their time with the permit applications, as they were allowed by law which is 20 business days (4 weeks). Over the course of the renovation, I failed every first inspection. I was using highly compliant highly experienced licensed and insured contractors. But the inspectors in that township had such a deep gotcha attitude that they couldn’t leave without showing who is boss.

For example, the electrical inspector failed the rough electrical inspection despite an extremely detailed permit application with diagrams like they have never seen before and I was using a veteran licensed and insured electrician who was a stickler for detail. Later I found out that my electrician filed a complaint with the state against the electrical inspector several years earlier and won. We can’t prove this to be the case, but it is not unreasonable that when he saw the electrician’s name on the application, he came looking for something, anything to fail. He found a wire clip that was 1/8” off where it was supposed to be. Of course, the township collected a reinspection fee.

The building inspector failed an inspection on a wall we opened when he found that one of the studs was bent that was wedged near a corner during the original construction in the 1970’s. It was one of an unprecedented 11 studs in a 4-foot wide segment of wall. Code calls for a stud every 16 inches, so there was a crazy high number of studs in that segment and the bent stud made no difference. The inspector failed the inspection and removing that stud required us to open the wall on the other side, which was in the kitchen, that had other ramifications. We replaced the stud instead of just moving it, just in case he would fail us again. We paid for a reinspection.

The same building inspector was present for the inspection of the pool removal. We dug out the pool and removed every last bit of debris from the hole, as required. I asked the inspector to look at the hole and approve it for fill since he was already there for the other inspection. He said that he didn’t have the paperwork for the pool, so he will have to come back to look at the hole. After all, the ordinance says he has 20 business days to complete the permit paperwork, so he was covered by declining to look at the hole. The day before the inspection, there was a heavy rain and the ground around hole became unstable and the heavy equipment used to take out the pool could not be used to fill the hole. We had to use different equipment and that cost me an extra $750, not to mention the lost time. Did the inspector care? Of course not. Not his problem. He didn’t have the paperwork with him on the first visit, so he was covered when he said he couldn’t look at the hole for 5 seconds to see that there was no debris in the hole.

By the way, the smoothest part of the renovation was the removal of the underground oil tank.

When the project was finished and we passed the final inspection for certificate of occupancy, the building inspector who failed us on the bent stud and refused to look in the pool hole during his first visit, volunteered that we did a GREAT JOB on the house and he strongly urged me to look at two houses on his block of his personal residence saying that he hoped I would buy at least one of them and renovate to the same level of high quality as the house I just renovated. All of a sudden, this inspector’s attitude was cooperative. The inspector considered his actions to be so acceptable that it never occurred to him that he and his colleagues should have acted differently.

Some inspectors feel they have power and they will get compliance if they are tough. They indeed got compliance from me. Their mission was accomplished. They won the battle, but they lost the war.

What such inspectors don’t understand is that the best investors, like me who are compliant and strive for high quality, we take our money and expertise elsewhere. I invested more than $1 million (my money and other people’s money) to buy and renovate several single family homes a nearby township, where I have a reputation for high compliance and high quality. The neighboring township doesn’t treat me with kid gloves but they are cooperative and they appreciate the fact that I file for all permits, don’t cut corners, use highly qualified licensed and insured contractors, say what I do and do what I say.

The point is that municipalities compete for our investment dollars, expertise and effort. If I have a choice between renovating a property in Pennsauken or in the township that hassled the living daylights out of me and my contractors, guess where I will invest a million dollars to beautify and remove blight?

Pennsauken got it right. The Pennsauken township manager in charge of reducing vacant house inventory who gave the impressive presentation to our group, invited me to give a presentation to the township administrator and mayor’s representative. I commended them on their code enforcement policy and we discussed practical steps to attract investors to invest to beautify their township.

Guess who wins? The township, the neighbors, the police, the schools, the tax roll, the investors, the buyers and the tenants.

Guess who loses? All those same people in the other townships that hassle investors for items that are not safety, health or environmental.

Some people say that when investors encounter abusive code officials, we should call them out (like my electrician did). Remember that I don’t NEED to invest in THAT township or any township for that matter. I am doing them a favor by beautifying their town. I have choices. Townships need investors like me. They get one shot at the “interview.” I already invested more than $100,000 in their township by the time I get to the first rough inspection. If they want to be abusive, that’s their choice. Are people suggesting that on top of my $100K+ investment in THEIR community, it’s my job to educate them on code?

The townships make their choices. I make my choices.

I don’t need praise from township officials. All I need is alignment of interest in doing what is right. If I have the opportunity to beautify a township that recognizes that good compliant investors and townships have alignment of interest, everyone wins.

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