How can I work this deal?

Question

I've made contact with a homeowner of a 4-plex that is set to go to tax sale on January 6th. I'm supposed to meet her Friday. Given her situation, I'm pretty positive that I can get her to seller finance at a great price.

The issue is that she owes $35k in back taxes. How can I make this deal work for me since I definitely do not have that kind of cash and the deadline is 3 weeks away? I've called the trustee, and they said DO NOT buy it unless I know I can pay the taxes before tax sale. Otherwise, they will place a judgement on my credit.

Do I hunt for a hard money lender?

Do I look for a partner investor?

Do I try to "wholesale" it in a 3 week period?

or do I let this one pass me by...

FYI, I've only done 1 real estate deal (6 months ago). Please let me know if I'm not thinking of other options.

David Krulac · Answer

@Jenna Stonecipher

Absolutely contact an experienced and knowledgable real estate attorney, who is familiar with your local laws and the tax sale procedure.

Tax sales are treacherous and are strictly buyer beware, there is no seller disclosures, and no inspections if bought through the tax sale.  By purchasing directly from the seller you can get a seller's disclosure and home inspections.

Jenna Stonecipher · Answer

@David Krulac Ohhhh! Interesting idea! I need to contact an RE attorney to help me work through this. Thank you for the suggestion!

David Krulac · Answer

@Jenna Stonecipher

What I was suggesting but obviously was not clear, was to keep the property in the seller's name, pay the partial taxes in conjunction with a recordable document that showed your equitable interest in the property, but the record owner would remain as the seller.  There are some risks to this strategy, such as more debts being levied on the seller and further encumbering the property.

The idea was two fold, one to buy some time to work out the funding and two tie up the property so that no other buyer could purchase the property without going through you.

Jenna Stonecipher · Answer

@David Krulac Thanks for the suggestion. I called and asked that yesterday. They explained that I could do that, but that they would still have to put a judgment on my credit for being delinquent the remaining unpaid years. So, that's not really an option :/ Good idea though!

David Krulac · Answer

@Jenna Stonecipher

Perhaps the $35,000 is for multiple years and you may be able to pay only the oldest year, stop the sale for this year and give yourself another year to figure out how to raise the rest.

Contact you local tax office selling the property and see if you can make a partial payment, or even spread out payments.  I know that is some areas they do one or the other or both.

Jenna Stonecipher · Answer

The house appraises for 180k, but I want to be in it around 130k.

Each unit will rent for about 600 a month. Only 1 of the 4 units are currently rented, leading me to believe the repairs needed are extensive. I'm estimating blindly around 50k. I visit the property on Friday. I'll have better estimates then. Unless I could find financing for repairs as well, it will be a slow rehab with alot of my own work involved...which I don't mind. I still think it's worth it--and I could afford to foot the payments until it starts cash flowing.

Once it's rented. I'm not worried about vacancy much. The area is highly desirable. I have two apartments directly across the street that only need a week's turnover and they are rented again.

@Darrell Shepherd There is a redemption period of 1 year here. I was hoping to avoid that by buying directly from the original owner. She does own it free and clear. Buy maybe it would make more sense to buy the right to redeem the property after it is sold at tax sale? That may buy me enough time to figure out the $$ situation.

I completely agree that I should be making the connection before finding deals...I just didn't expect to land this one...and especially this late. I might be able to collect a finder's fee for an investor who I know could close the deal. Perhaps I should be happy with that.

...but I'm going to take your advice and post it as an offer first to other investors. I didn't realize bigger pockets served as a platform where people felt comfortable making deals with one another!

@Thomas Hart I noticed the condition of this property and researched it, realizing it was going to be sold at auction. I then befriended the only tenant, who eventually gave me a phone number for the owner. I just kept texting her, like once a week, being persistent but also respecting her space.

Darrell Shepherd · Answer

Yeah, we could be more help if you can post the other numbers.  Does your seller own it outright and the only money owed is the taxes?

Whats the value of the property?

What are rents?

Any repairs needed?

Is there a redemption period in Tennessee?  I dont know if they do liens or deeds up there.

To answer your question, if you can structure a seller finance deal with the seller and the property is worth over $70k then finding a lender to be in first position should be very doable.  There's a lot of money out there, I was talking to my realtor and she said her mom has $40k and she had $10k she wanted me to put to work like 3 hours ago.  That was unsolicited.  That stuff just shows up as people see you do well and do what you say.  The first one or two are toughies, though.

You should be making those connections before you need the money, hard to build that kinda trust under a tight timeline with a private lender that doesnt do real estate regularly.  Your first one or two you may have to pay more on, simply to gain trust, then you'll get them lower.  Tell them that up front, btw.

Its a pretty easy sale to someone when you say "hey, I want to pay you 2 points and 12% to do this deal.  The house is worth $100,000, it kicks off $2500/mo in rent, and you'll be in first position for $35k.

You'd probably get someone on here to do that if you posted it.

You could probably find a buyer to act that quickly if you left enough meat on the bone on a wholesale.  I popped on one yesterday that I've gotta close before New Years.  There are plenty of people out there that can do that, the best way to find them is to tap into someone else's buyers list if you dont have one.

I'm assuming this thing is worth considerably more than the $35k, btw.

Tell us more about the numbers and situation and I'm sure you'll get some good ideas from BP.

Steve Baldwin · Answer

HI Jenna,

I'd look at the other numbers in the deal then consider if a 35k loan is right for you.

ie. Rent, repairs, purchase price/down payment, occupancy rate, ARV

If these numbers are all good, i'd say go for it!

Steve

Thomas Hart · Answer

@Jenna Stonecipher

How did you find the deal if you don't mind me asking?

Zac P. · Answer

If it's such a great deal, then I'd find a way get the money! Never, ever let money be your obstacle to buy an investment property. There is so much money and people willing to lend out there. Use a hard money lender for a last resort. If you can find an investor that would be willing to lend you the 35K, then maybe, based off of that, the seller would seller finance her property at a 0 down, low price and a low, locked interested rate. Crazy to think about, but the 35k that she owes could be a great opportunity for YOU to negotiate and to snag a great deal!

How can I work this deal?

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