Property not yet in Tax Sale

[Lamar Norsworthy]

Hello,

So I have found a quadplex property that I appears to have the possibility to be a deal to us, but their cap rate doesn't work for our goal of $100 a door. Right now the property is listed at (104,000) about face value, if not a little over, so we are not afraid at all to throw "our offer low enough that we are ashamed of". 

But, where I'm going with this is that, in doing some of our due diligence prior to our offer brought up the problem that the property owner owes about 9,000 in taxes, (~6.5k in city and ~2k in county) and he has already received notice that his property will be sold at a tax auction if he doesn't pay the taxes plus interest. So our question puts us at how this might affect our ability to negotiate with the seller? How much leverage does it put for us to be able to work the seller, as well as knowing that he bought the property as a REO for $20,000 and after discussing with the selling agent finding out that he has had no major renovation or replacement of Cap Ex type items, so in no way shape or form has he done 80+k in appreciation other than possibly "forced appreciation" to a property that is renting at below market rents?

Any comments would be greatly appreciated!

[Roy Oliphant]

@Lamar Norsworthy

What the seller paid for the property is important only in what it tells you about how you can shape the deal.  But it is nice to know that he has lots of room for you to negotiate and can still recover his investment.

Unpaid taxes MUST be calculated into your offer.  Since you want a title policy, they will need to be settled at/before closing.  Whether it comes out of his side or your side of the closing statement doesn't matter so long as you account for it as any other cost. 

There may be a time factor that helps motivate the seller due to the tax sale (i.e., if it goes to sale, they lose control).  Check with the jurisdictional rules regarding how quickly the property will go to sale once advertised and if there is any redemption allowed to understand the level of motivation.