Is buying Grow Ops a great opportunity?

While you can find grow ops with quite a bit of equity in it, it doesn't mean you can buy it, fix it and resell for a profit. 

I have experience buying former grow ops as well as having a property that was converted into a grow op by a tenant.

First- buying a grow op, is there money in it.  Simply said,, yes.
A few things to consider:   When buying a grow op, you can purchase properties that have been remediated and ones that haven't.  Obviously, the ones that haven't been remediated will have more equity.  Keep in mind though before you put an offer on the property that banks WILL NOT finance an unmediate grow op. Therefore, you'll have to buy it for cash.  As well, don't under estimate the cost to go from unremediated to remediated.  You can't skip on steps when remediating grow ops because the process is really out of your hands.  Once a property has been deemed a grow op, it becomes unhabitable. You can't even enter the premise without permission from the Health Board.  The Health board requires 3 air tests to be conducted. These are not cheap.  As well, depending on the severity of the "mold" you may have to rip out everything, floors, roof, insulation, down to the studs.  The reports have to be submitted to the Health Board for a stamp of approval.

I had a property turned into a grow op by tenants.  The tenants lived in the property for less than 4 months.  700 plants were confiscated. I didn't believe the mold was that bad but unfortunately because it was a safety hazard, the health board wanted everything to be ripped out (this was to cover their ass).  In the end, it cost over $85,000 to remediate it.  Trust me, I tried every angle to find the lowest possible option to remediate it but the air quality testing itself was over $40K and then I had to "rebuild" the whole house.

Can you finance a remediate grow op? Yes you can but it's difficult. Banks do not like to finance grow ops because of the marketability of the property.  If the property went into foreclosure then the banks will have a more difficult time trying to resell it when it has been deemed as a grow op. 

I put an offer on a property where the neighborhood values were around $440K.  I found a remediated grow op for $340K.  What a deal.  I didn't even have to renovate it or anything. My plans were to buy on an open mortgage and flip it.  Potential profits were $100K

However, I couldn't get the banks to finance it.  Although CMHC was willing to finance it, banks did not want to. It was too much of a risk for them.  I backed out of the property believing another investor will jump at the opportunity to buy it.  Funny that the property sat on the market with no interest.  In the end, the owners decided to just keep it and rent it out.

In the end, be very cautious when trying to buy a grow op.  Once a property is deemed a grow op, the label is placed on the Land Titles system, making this property an undesirable purchase.  As well,  grow ops are difficult to finance especially in this tough market. 

Tigher Mortgage Rules coming in March 2011

The Federal Government has again, brought out rules to curb cusomer spending habits and made for tougher mortgage lending rules.

Effective March 18 - the maximum amortization will be reduced from 35 years to 30 years

Effective April 2011- Refinancing your home to a maximum of 85% of the value as oppose to the current 90%
As well, the Federal Government will no longer insure Home Equity Lines of Credit.

While these strict guidelines are being imposed to prevent consumers going into further debt, this will also prevent a number of consumers from entering the real estate market as first time home buyers.   It won't be long when the government will reduce the amortization back to the original 25 years.

Rates are still very low so this is the best time to secure a mortgage loan!