Homes that formerly held marijuana operations may have a tempting price tag for real estate investors, but it’s wise to be wary of stigmatized properties.
I had a client who was interested in buying a grow op as an investment. They were sure that if they did all the remediation required by the municipality and upgraded the interior that they would easily flip the property for a tidy sum. The purchase price was a steal. These clients could do it. They were successful renovators in the past, but could they overcome the stigma of a grow op with enough work or money?
Grow ops pop up in most municipalities. In the last year, grow ops have been found in the tony neighbourhoods of English Bluff, Morgan Crossing, Ocean Park, Marpole and Kitsilano in apartments, basements, bunkers and garages. The RCMP indicate they vary in size from the small (18 plants ) to the massive (15,000 plants). It is the size of the crop that causes the most damage. Not all are listed on the RCMP site.
Municipalities all have different ways of reporting grow ops. Some don’t at all, some list certain information and some only confirm their existence. If damage is linked to size, confirmation of a grow op that had three plants 10 years ago is pretty different than for 10,000 plants three years ago.
The additional challenge is the length of time that you must disclose the grow op. Currently it’s in perpetuity — once a grow op, always a grow op. Some municipalities put a caveat on title for as long as the building stands, regardless of remediation, and some put a caveat that can be removed once the appropriate remediation is completed. And what exactly does remediation entitle? How big was the grow op and how long did the house sit without power? The kind of remediation work required will depend on the damage and the bylaws of each individual municipality. They aren’t all the same.
Properties do not need to be remediated before sale. Some are sold before remediation is completed, leaving that responsibility to the buyer. Those that aren’t sold sit on market for up to two years (or more — I found one listing that sat for 53 months) are either torn down or rented to unsuspecting tenants.
Forewarned of the dangers of grow ops and all the necessary due diligence, some buyers — we’ll just call them Dick and Jane — purchased a former grow op in a quiet suburb. They sunk thousands of dollars into the property, got an occupancy permit and put it back on market and there it sat empty for a year. Then they rented it out. Still on market, it sat for another 12 months. As per normal market conditions, they lowered the price hoping to hit that magic price point where lookers become buyers. Essentially they sold it at cost — the original purchase price plus the renovation cost less the commissions and taxes. They netted zero dollars and wasted two years of their lives.
While this isn’t an example of everyone’s experience with grow ops, the warning is the same. In the current system, stigmatized properties will always be stigmatized. The history does not go away. However, if an owner brings the house up to the acceptable municipal code, then why is disclosure still required? The house it is fixed, no?
So until then, when you see a great smokin’ deal, remember you may need to resell it as a smokin’ deal as well.