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there are some things to look into if you're considering investing in a CCLBA property for sale

I keep my fingers on the pulse of local news and lately, I’ve noticed consistent coverage on local real estate investors winning big by buying Cook County Land Bank Authority (CCLBA) properties. You’ve probably seen it too—it’s an opportunity to buy inexpensive properties in promising neighborhoods without lots of red tape. Several articles, for instance, showcase Jason and Esther Williams of the Ultimate Real Estate Group who recently purchased a Washington Heights bungalow for $17 thousand through CCLBA. They put it on the market for $154 thousand. That gets your attention, right?

These “Cinderella stories” are especially appealing for newer investors because before 2014, the Chicago market primarily consisted of larger firms buying foreclosed homes. This drove prices up through competitive bidding and many larger investors paid cash to amass significant rental portfolios. Smaller investors simply couldn’t compete. But the debut of the CCLBA removed key barriers that previously impeded smaller investors’ private investments in blighted and affordable properties.

How Does the CCLBA Get All These Cheap Houses?

The CCLBA was formed as a unit of the Cook County government to address the overwhelming inventory of vacant and deteriorating properties. Chiefly funded through grants, donations, and, more recently, transaction revenues, the organization aims to support the redevelopment of 13 targeted areas in the Chicago metropolitan region. The goal is to stabilize neighborhoods, promote economic development, and create jobs. At least 230 mostly-residential CCLBA properties have gone to investors so far.

The reason investors are flocking to CCLBA properties is clear. The organization acquires properties through donations, forfeitures, and inexpensive purchases. They then clear any taxes, liens and other ‘red tape’ from the titles in order to reintroduce the property back into the market. In addition, they can close escrow with an investor in as little five days. In effect, CCLBA’s targeted offerings save investors the time of researching up-and-coming neighborhoods, waiting for a complicated escrow to close. Plus, investors save thousands thanks to lower transactional and legal fees.

Clearing a property’s title is huge, as dealing with back taxes and liens can intimidate or even price out less experienced investors. Yet, for some, the risks may still outweigh the benefits. To understand why, let’s take a closer look at CCLBA’s mortgage requirements.

To ensure that the properties are rehabilitated and used within the guidelines of CCLBA’s organizational mission, each purchase agreement contains a defeasible fee. It’s legal jargon, I know. But, this is important.

The Nitty-Gritty of the Legal Terms

To put it in real-world terms, a sale contract with a defeasible fee has a “soft mortgage,” or certain conditions, placed upon it. If the specified conditions are not met, the property automatically goes back to the original seller or, sometimes, a third party.

It is our understanding that CCLBA’s “soft mortgage” requirements are currently twofold, but should be verified for assured compliance. First, the sale agreement contains a deed restriction with the right of re-entry. In other words, the land bank retains the right to take the property back if the second condition is not met. The second provision necessitates that all property rehabilitation work must be completed within 12 months. Throughout the project, CCLBA keeps the lines of communication open with investors to avoid problems. Sometimes, they may allow for a six-month extension to complete the work if there’s good reason. But, even with this small dose of leniency, however, the timelines are tight given the extent of the overhaul that’s required on many of these properties.

In order to sidestep a financial disaster as a result of failing to meet the terms of sale, newer investors should evaluate how well they are financially positioned to handle an expensive rehab before jumping into a Cook County Land Bank Authority property transaction. Here are some points to consider:

  • Understand the sales contract. There are numerous ways to structure CCLBA deed conveyance conditions. You should either have years of experience in understanding and negotiating terms or you should hire a competent legal professional to advise you.
  • Hold enough working capital. Experienced investors understand that every property rehabilitation brings some “uh-oh” moments—especially when dealing with the deteriorated homes that CCLBA offers. You need sufficient money on hand to see the project through to the end, or partner with others who are more financially equipped.
  • Bring experience to the table. Those without extensive know-how should be sure to bring on a contractor and other professionals who have solid experience finishing projects on deadline. Otherwise, you run the risk of failing to meet CCLBA’s completion period requirements—and you could lose your investment entirely!
  • Seek assistance from seasoned professionals. A lack of experience in a wide variety of real estate transactions—especially those like CCLBA’s that carry significant conditions—could result in a poor investment decision, lost time, and financial casualty.

Land banks like CCLBA can provide compelling and lucrative opportunities for investors who are well-prepared to captain a project under complex contractual circumstances. For novices, however, it makes financial sense to seek help from a seasoned real estate business support service. This guidance can be useful as you strive to identify potential properties, find vetted contractors, and receive specialized guidance based on knowledge of your particular local market dynamics.

Positioning Yourself With Knowledge

If your interest in low-input real estate investment opportunities have been kindled by all those stories in the paper and you’re eager to dip your toes in the water—while ensuring that all your interests are safeguarded with years of experience—HomeVestors® can help you maneuver the complexities and achieve your best. Reach out today to get support and mentoring for help investing with security in mind.

 

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Photo Credit: Flickr CC user Alan Cleaver

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