Should I buy This property at Auction? 30K max bid. Worth 220k

Question

Hello Everyone!

I am planning on participating in an auction to purchase a house through a Tax Deed.

The comparable for houses sold in the area shows the house could be sold for 220K after the title is clean and repairs are done to the house.

The House has liens worth 190K due to code violations.

I have contacted the city and was informed that the violations could be negotiated down if approved by a judge.

I am willing to bid up to 30k for the property and use this opportunity to learn the process.

1) Any advice if I should or I should not buy this property?

2) Anyone has experience in this kind of situation?

Thank you in advance for your time and suggestions.

Have a great day!

Don Konipol · Answer

Should I pay $220K for a house that needs repairs, costly legal advise, and significant time so that I can sell it (hopefully) for full market value of the same $220K I paid? And maybe, I don't know, I could get the liens knocked down by an unspecified amount, which was told to me by an anonymous city employee IF a judge approves. Unless you are quite certain of the probability of getting the liens lowered by a VERY significant amount, what are you doing? Learning process? Start learning with a deal that has the potential to be something other than a complete disaster!

Rocky Griffin · Answer

You are effectively willing to pay market value for an investment property. If you have been a member of BP long I am sure you have heard the phrase "all the money is made at the buy." Several issues to consider. The first being $190K for code violations! You are banking on the fact that the city will make adjustments. Assume that they will not. After the fees are paid, you have to actually bring up to code the issues that created the liens. Consideration needs to also be given to the current owner and their redemption period. There is always the possibility of other unseen liens/mortgages. Also consider legal fees for both quite title and lien negotiations. I would strongly advise against this purchase and encourage you to get your feet wet with something a little more straight forward.

Bruce Lynn · Answer

Doesn't sound like a lot of margin to me? You should always price in some risk.

Wayne Brooks · Answer

The competition in S FL is fierce at tax deed and foreclosure auctions. Expect the bid price to go way up.

Ray Lai · Answer

@Diego PerezYou got some cajones to consider it, but from your post history and the situation, this is a bad bet. There's too many 'ifs' in the equation for you to succeed. $190k of code violations that "if" they can get negotiated down you would earn a profit. There's no buffer for you at all. Profits are made when you buy, and buying at market value means you don't value your time. The opportunity cost of your time to 'learn' is high. You'd be much better of looking for off-market properties and doing a JV to learn. You first couple of deals should be slam dunks, not high-risk situations full of ifs. Why? Because if you make a mistake early on in your investing career without huge buffers, you will delay your progress significantly.

Account Closed · Answer

@Diego Perez What are the violations? How much are the back taxes?This is the kind of thing where local insiders get rich. If the people at the city knew you well they might give you an unofficial amount of the discount before you buy it.

Justin R. · Answer

@Diego Perez I don't know jack about how code violations work in other cities, but I've gone through this in my own city. In my case, the City couldn't care less about the violation fees - they just wanted the property fixed and were using the fees to force the owner to either sell, walk away, or fix. In this case, the owner walked away, the home was foreclosed, and I bought it.In my case, after purchasing, the fees that had accumulated over 3 years were waived once I (A) submitted plans for a permit to resolve it and (B) did the work and (C) finalled all 3 permits I had to pull.Doing the work under a code compliance case was terrible and I'd prefer to never have to do that again, but that's the price of opportunity.No idea how your city works, but that was my experience.

Josh Carr · Answer

@Diego Perez I would find out what the price would be negotiated for the code violations which do not go away on the property first. Since you can't really do that without owning the property it seems like you have to equate the full amount of code violations into the amount. If you paid 30K and took on 190K the you are already at the 220K amount and there is no wiggle room for repairs or rehab of any kind. It's a very risky deal unless you have rehab money and are able to get much more than 220K ARV.

Diego Perez · Answer

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Diego Perez · Answer

Hello @Ray Lai ! it's "COJONES" The word "cAjones" means drawers.Just kidding! Thank you for your advice. Have an awesome day!