Buying My First Tax Deed

Tax Liens & Mortgage Notes
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Buying My First Tax Deed

Account Closed
Realtor · Hartford, CT · Member since 2023 · 19 posts · 7 votes

Hello everyone,

My name is Mike Rethis, and I'm brand new to the Real Estate world. If you read my bio, you will learn quickly where I am at in my journey to the unforeseen future. After just getting my agents license about a month ago, I will be signing with a broker in the next few weeks. During my days working as a contractor, I am ambitiously learning every inch of real estate building for an extensive range of investment possibilities; while networking and learning from other trades. I'm 22 years old, thirsty for knowledge, and eager to attack and conquer the RE world! 

I'm sure many of you started out like me! I have a lot of money for my age, but I am nowhere ready to buy a house cash or even put 20% on a multi family house, pay the closing costs, and then pay more money for renovation. Even just 20% down on something ~$300k would be a stretch. 

I live in CT, a Tax deed states. I am looking to go to the next auction, get the lay of the land, and see what happens at these auctions. My thoughts are that if I can find a good enough deal but don't have enough liquidation, I can pool money with other people I know to make the auction happen. Worst comes to worst the owner pays the money back and we all get our money back plus interest. Best case scenario (for me of course) is that I get the deed for a greatly reduced price after 6 months. Most times I wont end up getting the property but at least I'm not losing something. I would like to buy 3 families, and take advantage of the BRRR method, but I feel the economy is not in a good position for me to be getting one at this point and time. This may be the best bet for me getting a property for under market value. I also think getting out there as an agent and doing a couple listings/buys will help me come into the BRRR method more confidently, effectively, and accurately.

Many people that have done more deals than me (>1), I value any opinion you can give to me on this thought process good or bad. Is my thought process on a good track here? What should I look out for here, and am I missing anything? 

There's 1 more thing I am hoping to clear up. Lets say for example the taxes owed on the property are only $20k but I bid to $50k, win the auction, and the seller pays me back 3 months down the road. Am I making interest on the $50k, or just the $20k owed in taxes and getting my $30k back with no interest?

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Bruce Lynn
Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
3y

Not trying to kill your dream, there definately can be opportunities, but it's probably a little more or a lot more complicated than meets the eye.

#1 Don't partner with anyone, this just complicates an already complicated process.  Until you are an expert and can explain the risks and rewards.  If you are going to raise money to purchase tax deeds you will also want to learn the securities laws of your state.  Probably not worth going through the legal steps and expense to raise money for single family properties.   Also this is a cash game typically, so you have to have the cash up front day of the sale to bid and buy.  So if you raise money, your friends and family have to front you the cash in most cases.  Are they willing to do that?  Ask them today to see if that is even an option.   Think of what that conversation looks like....hey can I borrow $5000-$10000-$25,000 to invest in tax sales.  I've never done it before, but I think I can get you 1.5% a month.  Not sure when I will give you the money back.  Maybe next month, maybe next year.  By the way you might loose everything because this is risky.....and their response is...if I give you $5000 in case, I might make $75 and you'll give me that back plus the $5000 next month, but I could loose it all?   Then again that's if you make no profit, so are you only going to give them back $50 or $60, so you make $15 and they make $60?   You said you have a lot of cash saved up, so if one of your buddies came to you with that proposition would you be interested?   Also remember if you've done a fund raise, you'll probably want a CPA to do your accounting, so you're giving some kind of documentation (maybe K1, maybe 1099) about earings to your investors....so out of that $15 you made, you have to pay the CPA.

#2.  Before you get too excited go to an auction in your area with your list.  See what people bid and compare to what you would have bid.  Not sure about CT, but in my area people often pay amazing prices for tax sale properties.  Retail or better in many cases.  Often they have different motivations than you.  You have to bid an amount that makes sense to hold for six months or maybe longer if it is occupied, maybe you'll have to hold for a year before you start rehab, by the time you file and get eviction, start rehab, etc.   If the next door neighbor is bidding because they want their mom to live next door, they'll probably pay more than you and have more info than you.

#3 Tax sale properties often need more rehab budget than other homes and remember you can't see inside normally before you bid.  So take that into account.  Very often lots of surprises and normally in worse shape than you think...and that costs money.

#4 Are you familiar with eviction process and how long that takes and what it costs?  If you have to go that route?

#5 I would expect most of the time it is not as simple as just picking 2-3-4 houses, you show up and win and get the house six months later.  Maybe, but normally there is plenty of competition.

Here is some info about CT that I found:

https://www.somersct.gov/downl...

You might want to check to see if NTLA.org has a white paper for you to review.

Also check this website... http://cttaxsales.com/

One great thing there that not all other states have is a list of the results... 1st one I clicked on the handful of properties look like they sold for $100,000 or more, some nearly $200,000.

I see one property, looks like condo that sold for $145,000, but probably previous owner sold a month later for $161,000.  So maybe the tax deed investor made about $2000 in one month on $145,000 investment.  Not bad, but fair amount of risk for 18% and if not paid off, if they would have actually received the property, they might have lost money.

Maybe you can pull 10 of those sheets of sold prices, go back and research the properties, find the values, estimate your rehab budgets, holding costs, resale costs, cost of money, etc and then determine if the ROI is interesting to you. Then decide if you want to play in this space.

Let us know what you find.  And if I am totally wrong and offbase and you crush it over the next year buying homes for pennies on the dollar, call me out.  No better satisfaction than doing what others say can't be done.

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  • Bruce Lynn
    Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
    3y

    Not trying to kill your dream, there definately can be opportunities, but it's probably a little more or a lot more complicated than meets the eye.

    #1 Don't partner with anyone, this just complicates an already complicated process.  Until you are an expert and can explain the risks and rewards.  If you are going to raise money to purchase tax deeds you will also want to learn the securities laws of your state.  Probably not worth going through the legal steps and expense to raise money for single family properties.   Also this is a cash game typically, so you have to have the cash up front day of the sale to bid and buy.  So if you raise money, your friends and family have to front you the cash in most cases.  Are they willing to do that?  Ask them today to see if that is even an option.   Think of what that conversation looks like....hey can I borrow $5000-$10000-$25,000 to invest in tax sales.  I've never done it before, but I think I can get you 1.5% a month.  Not sure when I will give you the money back.  Maybe next month, maybe next year.  By the way you might loose everything because this is risky.....and their response is...if I give you $5000 in case, I might make $75 and you'll give me that back plus the $5000 next month, but I could loose it all?   Then again that's if you make no profit, so are you only going to give them back $50 or $60, so you make $15 and they make $60?   You said you have a lot of cash saved up, so if one of your buddies came to you with that proposition would you be interested?   Also remember if you've done a fund raise, you'll probably want a CPA to do your accounting, so you're giving some kind of documentation (maybe K1, maybe 1099) about earings to your investors....so out of that $15 you made, you have to pay the CPA.

    #2.  Before you get too excited go to an auction in your area with your list.  See what people bid and compare to what you would have bid.  Not sure about CT, but in my area people often pay amazing prices for tax sale properties.  Retail or better in many cases.  Often they have different motivations than you.  You have to bid an amount that makes sense to hold for six months or maybe longer if it is occupied, maybe you'll have to hold for a year before you start rehab, by the time you file and get eviction, start rehab, etc.   If the next door neighbor is bidding because they want their mom to live next door, they'll probably pay more than you and have more info than you.

    #3 Tax sale properties often need more rehab budget than other homes and remember you can't see inside normally before you bid.  So take that into account.  Very often lots of surprises and normally in worse shape than you think...and that costs money.

    #4 Are you familiar with eviction process and how long that takes and what it costs?  If you have to go that route?

    #5 I would expect most of the time it is not as simple as just picking 2-3-4 houses, you show up and win and get the house six months later.  Maybe, but normally there is plenty of competition.

    Here is some info about CT that I found:

    https://www.somersct.gov/downl...

    You might want to check to see if NTLA.org has a white paper for you to review.

    Also check this website... http://cttaxsales.com/

    One great thing there that not all other states have is a list of the results... 1st one I clicked on the handful of properties look like they sold for $100,000 or more, some nearly $200,000.

    I see one property, looks like condo that sold for $145,000, but probably previous owner sold a month later for $161,000.  So maybe the tax deed investor made about $2000 in one month on $145,000 investment.  Not bad, but fair amount of risk for 18% and if not paid off, if they would have actually received the property, they might have lost money.

    Maybe you can pull 10 of those sheets of sold prices, go back and research the properties, find the values, estimate your rehab budgets, holding costs, resale costs, cost of money, etc and then determine if the ROI is interesting to you. Then decide if you want to play in this space.

    Let us know what you find.  And if I am totally wrong and offbase and you crush it over the next year buying homes for pennies on the dollar, call me out.  No better satisfaction than doing what others say can't be done.

    4Reply
  • James McGovern
    Flipper/Rehabber · Bloomfield CT · Member since 2020 · 1k+ posts · 408 votes
    3y

    Tax Deeds in Connecticut are often overpriced and a newbie will lose their shirt pursuing them.

    0Reply
  • Bill R.Pro Member
    Investor · Branford, CT · Member since 2014 · 131 posts · 67 votes
    2y

    @Account Closed I like your enthusiasm. People will always try to tell you that you will "lose your shirt" or that it's not that easy but if people are doing it then you can as well. However you will need to deep dive into the process in order to be successful at it but 100% achievable if that is your desire. I would suggest you explore all options available to you before pulling the trigger and then do just that when you decide. One avenue I would advise to look into is buying Subject To. Look it up, it is a way to invest into property with less overhead than tradition methods. When I first started, my first 3-4 deals were Subject To deals. Once again, deep dive and learn the process in and out before jumping in though. Good luck   

    3Reply
  • Wendy PattonBusiness Member
    Real Estate Consultant · Clarkston, MI · Member since 2009 · 864 posts · 350 votes
    2y

    @Account Closed After reading your post, I agree with Bill R above - buying Subject-To would be a great option for you. I began investing in my early twenties as well and you just have to find the right tools / methods that work for you. I would be happy to help with any questions you have.

    Michigan Real Estate Investors535 Reviews
    WebsiteView Page
    1Reply
  • Account Closed
    OP
    Realtor · Hartford, CT · Member since 2023 · 19 posts · 7 votes
    2y
    Quote from @Bill R.:

    @Account Closed I like your enthusiasm. People will always try to tell you that you will "lose your shirt" or that it's not that easy but if people are doing it then you can as well. However you will need to deep dive into the process in order to be successful at it but 100% achievable if that is your desire. I would suggest you explore all options available to you before pulling the trigger and then do just that when you decide. One avenue I would advise to look into is buying Subject To. Look it up, it is a way to invest into property with less overhead than tradition methods. When I first started, my first 3-4 deals were Subject To deals. Once again, deep dive and learn the process in and out before jumping in though. Good luck   


     Thank you Bill for the advice! After going to a few tax deed auctions simply as a spectator, I decided that although it is a good idea, it's a lengthy process and is better suited for me when I have the available liquidity to not worry about my cash being tied up for months/year. 

    I'm familiar with the Subject To approach broadly. I see people like Pace Morby that swear by this approach, but I'm a little skeptical to how well it works and the expected returns from it. In your experience, how is it dealing with the banks once they figure out what's going on? Do they usually figure out, and when/if they do, how hard do they press? Do you work with a lawyer that helps you with these types of deals? What kind of returns on average should people expect from a Subject To property?

    0Reply
  • Bill R.Pro Member
    Investor · Branford, CT · Member since 2014 · 131 posts · 67 votes
    2y
    Quote from @Account Closed:
    Quote from @Bill R.:

    @Account Closed I like your enthusiasm. People will always try to tell you that you will "lose your shirt" or that it's not that easy but if people are doing it then you can as well. However you will need to deep dive into the process in order to be successful at it but 100% achievable if that is your desire. I would suggest you explore all options available to you before pulling the trigger and then do just that when you decide. One avenue I would advise to look into is buying Subject To. Look it up, it is a way to invest into property with less overhead than tradition methods. When I first started, my first 3-4 deals were Subject To deals. Once again, deep dive and learn the process in and out before jumping in though. Good luck   


     Thank you Bill for the advice! After going to a few tax deed auctions simply as a spectator, I decided that although it is a good idea, it's a lengthy process and is better suited for me when I have the available liquidity to not worry about my cash being tied up for months/year. 

    I'm familiar with the Subject To approach broadly. I see people like Pace Morby that swear by this approach, but I'm a little skeptical to how well it works and the expected returns from it. In your experience, how is it dealing with the banks once they figure out what's going on? Do they usually figure out, and when/if they do, how hard do they press? Do you work with a lawyer that helps you with these types of deals? What kind of returns on average should people expect from a Subject To property?

     @Account Closed I am not exactly sure how Pace Morby is teaching subject to however I used subject to when buying to rehab and sell property. All my subject to deals were relatively short - longest maybe 4-6 months and the bank/mortgage company never approached me with the due on sale clause. My comfort with subject to was relatively short term not as a long term buy and hold scenario. I do work with a attorney but I have all the paperwork for subject to purchases and put it together myself. Profit margins will vary with the type of deal you are able to negotiate  - there really isn't an average on subject to deals any more that any other type of deal. Good luck

    0Reply
  • Will Sifert
    Investor · Covington, LA · Member since 2012 · 517 posts · 317 votes
    2y
    Quote from @James McGovern:

    Tax Deeds in Connecticut are often overpriced and a newbie will lose their shirt pursuing them.


    Insert any state name where "Connecticut" is in that statement.  

    There are no easy investments. None. There is nothing out there you can just start doing with little to no experience or knowledge and be successful at it. Maybe get lucky once but you will ultimately lose. Educate yourself as much as possible, then start very slow, learn from your mistakes but make them small mistakes. Once you get a much better understanding and have some wins, then increase your investing.

    Some people do very well from different types of investments because they are very experienced and knowledgeable. This enables them to avoid most mistakes, know exactly what to look for and to have specialized techniques or angles that they know first hand that it works and they focus on that. None of that is going to be known by someone who is new or just starting off. Much of this comes from experience and knowledge of the area.
    2Reply
  • Bill R.Pro Member
    Investor · Branford, CT · Member since 2014 · 131 posts · 67 votes
    2y

    @Will Sifert Agreed, education is key. Read books 🧾📙📔

    0Reply
  • Bruce Lynn
    Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
    2y

    @Will Sifert    

    • Risk comes from not knowing what you're doing.
    • -Warren Buffett
    0Reply
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