With this article, we’re introducing a new series designed to help weekend warriors avoid difficult situations. It’s called Lessons Learned. These valuable gems will help you steer clear of some of the pitfalls in the real estate rehab business. Our hope is that by sharing these stories and experiences, we’ll help you avoid unforeseen expenses. Kicking things off with buying NSRES properties seems very appropriate.
What Is NSRES?
Here in Albuquerque, New Mexico, you can drive around and eventually find abandoned properties with big, bold letters — NSRES. It’ll either be spray painted directly on the door or walls, or on an attached sign. It stands for Not Suitable For Residency. Basically, these are properties that have been condemned by the County — for any number of reasons. It could be months of unpaid utility bills, taxes, or unsafe and unpermitted modifications.
Incidentally, NSRES also stands for Native Sons Real Estate Services — a company contracted by the city of Albuquerque to board up these properties years ago. A scandal insued and you can read about it here.
Note that buying NSRES properties isn’t the same as foreclosures and always include vacant houses that have had the utility meters removed. NSRES houses have been inspected and found unlivable AND a County lien is placed on the property so that if someone comes along and buys it — hoping to just slap some paint and carpet on that puppy, without a permit, and resell it… well, guess what? You need an inspection from the County to remove that lien and that inspection is completely separate from any City permit inspections you might need green tags for.
In short, you’ll be forced to bring the property up to code AND pay up to get liens removed.
What Constitutes NSRES Criteria?
To help clarify what you’re getting into when buying NSRES properties, let’s use one of our recent examples.
We bought an NSRES house last year. This property had an addition that was obviously added decades ago without permits. Also, a separate “apartment” was built at the back of the lot with a water line, an above-ground gas line, and an extension cord for power supply! That’s why it was NSRES — none of those features were up to code or permitted. We knew all that going in.
What we did NOT know was that, after we finished our rehab, the first thing the County inspector asked for was the plumbing, electrical and HVAC final inspections (green tags). We had all that, but we had tried to grandfather in some of the original electrical because it was built with the original part of the house.
Unfortunately, while we got the new panel green-tagged, that inspector made us redo a lot of the original wiring. Fortunately, we bought this fixer at such a screaming low price we still made over 38% ROI on the project, though it took us extra time and resources to bring it to the finishline.
Is Buying NSRES Properties Profitable?
Does all this extra fuss mean you shouldn’t buy NSRES properties? Well, not necessarily. If you understand the basics, there’s a lot of profit to be made.
I love buying NSRES properties because most other light rehabbers avoid those properties — they’re a lot of work. After all, the County wants to make sure these homes are brought up to code so folks can live in them safely. Fortunately, we have a system that allows us to identify needed repairs and schedule them before they even become an issue. As long as we know what the extra cost impact will be from the very beginning, it’s just another item on the list.
The good news about NSRES is that they’re usually available at really low prices and there’s very little competition for them. Now when we buy NSRES, we have inspectors stop by for a Q&A before we even begin. When you make the effort to reach out and don’t try to sneak around the system, they’re usually helpful and will let you know what will be required to satisfy the lien.
Follow our media channels for Problem-Solution and Lessons-Learned articles so you can learn from our mistakes and victories. “There’s never any pressure working with us and there’s nothing to buy here because we’re not selling gimmicks or systems. We’re IN the investment and rehab business and we DO the work. If you can benefit from our efforts and knowledge, we have succeeded twice.”