Entry Level REI--Tax Sales or Something Else?

Question

I would like to start investing in real estate as soon as possible, but I am not exactly sure where I should begin. Here is some background information on my situation

Going into 3rd and final year of law school at UGA in Athens. Will have about 90-100k of debt from undergrad and law school.
Will have around 4000 saved by the end of my summer job to use for REI. I am also pitching the idea to family and friends with the hope of convincing someone to invest with me.
No car payment, current lease ends in July; main expenses will be insurance, rent, which I am trying to minimize as much as possible, and living expenses. These expenses will mostly be paid for out of Dept. of Education loans.

I have been researching tax sales back home (Carroll County, GA) and was planning on going that route to start because it seems like the cheapest way to enter the market. I am open to other ideas/locales, but the reason I chose my hometown is because I have family there that could manage the property and also have a local family member who is a contractor. I have also gained some knowledge of the tax sale process this summer at the firm I am interning for, and I am confident that I could complete any legal work myself. I am open to going another route, so any advice on tax sales or other relatively cheap methods of entering the market for someone in my situation would be much appreciated.

Ethan Morris · Answer

@Dennis Weber I have not considered buying defaulted notes, so that is something to look into. Georgia has a 12-month redemption period, but you are correct that GA is one of the better states with tax deed laws because O.C.G.A. 48-4-42 mandates that anyone redeeming a property must pay the purchaser a 20% premium on the purchase price + any taxes/special assessments paid in the 12-month period. I have yet to attend a tax deed auction, but I plan on going to a local auction July 5th with a few thousand dollars to get my feet wet. Most of the deeds there will start at around 1k, so depending on the competition I may or may not walk away with something.

Dennis Weber · Answer

I wouldn't think you could get a tax deed for $4000. At least one standing. You'll need OPM. Which it sounds like you might have. GA has a redemption period, don't they? Will your investors be okay with tying up their money that long?I'm not discouraging you from considering GA tax deeds because I understand it to be one of the better places with the laws. Have you ever considered buying defaulted notes? Notes aren't exactly passive but would allow a young man to concentrate on his studies. Possibility of monthly income (after a modification). And high returns. Just suggesting. Being able to do your own quiet Title and foreclosures. Sweet! I just spent $26k on title certifications on 13 properties I got at tax lien sales.

Josh Carr · Answer

@Dennis Weber GA will allow you to continue with another year after the first year of redemption if you choose not to foreclose and acquire is a payment of 10% in interest. Because you are buying the deed, even though it has a redemption period, you still need to consider that it will be more than one year of back taxes as an opening bid price. You will be paying deed prices but you will have a year redemption period prior to an option of foreclosure. Check the opening bid prices and then set a ceiling of what you would pay. I know a few people that have had a few great deals from GA this way.

Ned Carey · Answer

@Ethan Morris I don't know the best way for you to start. It depends on your unique combination of skills, knowledge, interest and resources. There is no one right way to start. Tax sale is one of the first things I did. I can make tax sale sound great; easy and safe with high returns. But I could also scare you away with the horror stories. The same is true with just about any other kind of investing.

Ethan Morris · Answer

Thanks for the info @Ned Carey. The legal work I was referring to was the ensuing quiet title action that I would file after the 12-month redemption period expires and I take control of the property. You are correct that there would little to no legal work until that point, which would leave me plenty of time to finish school and pass the Bar exam. I am also trying find a property that I can rehab and rent rather than simply selling, unless the price is right. Do you recommend tax sales for an entry-level investor like me, or do you think there is a better alternative? Thanks again, Ned!

Ned Carey · Answer

@Ethan Morris welcome to BP! I believe GA is a tax deed state, so there is not likely much if any legal work to do. However doing your own legal work for tax sales, unless and until you are an attorney is a bad idea. You are not likely to be able to get title insurance on anything you do your own legal work on. No title insurance usually = unable to sell.