The Benefits of REI Education

[David Dachtera]

Here's a current story of the mistakes made by an uneducated investor.

The subject property is a 2-story, 4 bedroom, 2 bath with a basement.

The current owner acquired it in 2017 in either an estate sale or a probate - not sure which. He bought it in a corporation for $80,000, apparently for cash. The property is vacant. The owner did put a new roof on it and some newer windows in it.

Fast-forward three years ...

The corporation has been involuntarily dissolved by the state. Apparently, he didn't keep up with his annual filings / fees.

The property taxes for the years 2017 and 2018 have been purchased by two different buyers. The 2019 taxes will probably be sold at the end of October unless the owner pays them.

The city has recorded five liens for mowing will probably record another before the end of this month (October, 2020).

The owner took out a $120K loan against it in June of this year (2020). So, he's into it for $200K.

The tax redemption should total up to around $19K.

The house is currently encumbered to a total of circa. $135,000.

The owner just went FSBO end of last week for $129,900. The shortfall is near $6,000.

So, the whole deal is a comedy of errors.

The owner bought it right, but seems to have not had an exit strategy - the house has been sitting vacant since January of 2017. He didn't keep up with the property taxes. The property is not secured - the back door is unlocked. The neighbor tells me the local police had to kick some young people out for trespassing / partying - he didn't say when. I was able to get in and assess the interior condition. My first guess on the repair estimate would be circa. $100K to bring it up to market expectations.

So, even if I could make the seller "whole" and make the repairs - $200K + 100K, I'd be above market after repairs. ARV is around $205K.

Had he been educated, he'd have known how to find money to repair / update the house and find the resources he needed to do the work.

He stands to lose his entire investment - $80K - plus his lender's money - $120K. That's enough to pay for his education 10 times ... and, he could have made money instead of losing money.

"School of Hard Knocks" is *THE* most expensive education there is!

[David Dachtera]

Here's an update on that property ...

Found out that the current first lien was taken out in August of 2018, but not recorded until June of 2020. The first lien is 1-year balloon. So, it's already 2+ years delinquent.

The house is actually encumbered to the tune of nearly $165,000. He's all-in on it for close to a quarter $Million - well above the FMV in pristine condition. He could have paid for his education 12 times! ... AND avoided the losses! In the house's current condition, the FMV is less than half of that amount.

Add to that: Two years of taxes have already been purchased. The third year's taxes will come up for sale near the end of October, 2020. According the county, after three sales, the County takes the property. So, he stands to lose every penny he's got into it. Again, close to a quarter $Million.