Is this a good deal?

Question

So, I've been eyeing a property that has been abandoned for a few years now and has some back taxes and tax liens totalling around 22K. My plan was to buy the property. The current Zestimate is around 115K. My only concern is this is my first purchase and I'm not in the position to fund the flip. I figured that if it is rehabbed it will probably sell for 140-150K. Should I just buy and hold the property until I can fund a rehab or consider wholesaling the property if the title comes back clean? Is this a good deal based off of this information?

Will Fraser · Answer

Hi @Anthony Martin!  This is an interesting deal to consider for sure.  I would say, based on the information, this is NOT a good one to pursue.  Here's why:

- It's complex . . . complexity and potential for return go hand in hand, but so does complexity and the likelihood of losing your mind and destroying credibility.

- It's slow and risky  . . . all real estate investing has a degree of risk involved, but when you start talking about a house with tax liens, has been abandoned, and operating off estimates what I hear is "this thing could end up anywhere" which is not what you want with your first flip.

If you decide to do it I would highly recommend reading J Scott's Book on Flipping Houses first and living by it.  If you don't decide to do this deal then still read the book and look for a "layup" to start.  Preferably something that needs a "facelift" . . . which in my market this time of year would be paint, some landscaping, and a good cleaning.  Then complete that deal as quickly as possible.  Then do another, maybe with a bit more complexity.  By the time you work up to a nasty deal like an abandoned tax lien house you'll have 3+ flips under your belt and a wise co-investor will rest easier and fund quicker, which is good for both parties.

Lydia R. · Answer

@Anthony Martin I think none of this matters until you find the homeowner and the homeowner wants to sell. Dont over analyze a property that isnt a deal yet. Find the owners, find out if they want to sell and THEN start strategizing.

Jon Kelly · Answer

@Anthony Martin, it sounds this may end up trapping your money and potentially discouraging you from doing any future deals. Who will pay for the rehab? When will the rehab be completed? You are expecting an ARV of $140-150K, but it's very difficult to predict what real estate values will be in 6-12 months.

Why not take the $20-25K in cash and buy a $100K property that you can begin renting on day 1? Start making $200/mo in cash flow and you will be on your way!

Kesete Thompkins · Answer

@Anthony Martin, I agree with most of the thoughts on this thread. If this is your first deal, I say walk away. Here are my thoughts...

You have the right idea for sure, but you seem like you don't have a clear idea on exactly what you want to do. You can make money in this game in various ways, you need to identify how YOU will do it. I think that you need to reach out to someone in this thread or find someone who knows what they are doing and pick their brain. No matter what strategy or market (neighborhood) you are interested in, there's someone doing this work at a high level. Link up with someone who has more experience and build that relationship. Don't be seduced by 'diamonds in the rough' if you don't know what you'll do with them when you get them. I've made that mistake already and I'm imploring you not to do what I did. It will only cost you time, money, and energy that could be spent on a true asset.

Stay away from this deal and anything like it until you know what you want to do. When you do jump in, be steadfast in understanding your strategy, your market, your limitations, and your team. I'm always available to chat if you need help navigating the Pittsburgh market.

Dominique Pradel-Lewis · Answer

Have you contacted the seller yet and have they expressed their desire to sell?  If so PM me

Mark Allen Kenny · Answer

Hard money lenders will finance 100% of the rehab.  I would partner with a very reliable and trustworthy contractor and make sure you know exactly what the rehab costs will be before you move forward with it.  Then increase that budget 15-20% just in case.  Also, talk to several realtors and get some feedback on your exit price.  PRO TIP: Zestimates should never be trusted.

Peter Walther · Answer

I'm not sure where you're located but I recommend you find a Real Estate Investors (REI) group in your area and join.  You should be able to meet some experienced investors and get some pointers.  If it's really a good deal you should be able to find someone to mentor you or possible partner with you.  You should also be able to someone with money available to lend to fund the rehab.

Anthony Martin · Answer

@Steven Ko , to answer your questions directly...I'm looking at this from 2 angles. Again, this is all hypothetical to get an idea of if I'm looking at things correctly.

Option 1: Having 35K in readily available funds, I would consider wholesaling this deal. The property is in distress and the owner doesn't want to deal with it. To solve their problem I would consider the 22K lien and make sure there is not a mortgage attached. Title insurance and any mortgage lien would be paid by seller and I would make sure to get a warranty deed. So, if indeed there is only 22K in liens and back taxes and the seller is paying for title insurance as part of my contract, I personally would try to find a buyer for 50K. Given that a home sold last month for 175K about 20K above asking price and it is about 300sqft smaller with 1 less bedroom.

Option 2: Use my readily available cash to pay off liens provided the title comes back clear and free and there is no mortgage attached. Partner with someone(s) to fund flip. I have a contractor, just no funds. Providing I get him out to give me an estimate. If the estimate were 60K (accounting for major repairs), I would be 85K all-in. With a listing price of 130K-150K. Again, that would be low considering the location and comparable comps. 45-65K profit, minus any closing cost, etc. I would be willing to do a 40/60 split in favor of other investor in turn for the experience.

Anthony Martin · Answer

@Steven Ko , thanks for the insight. Though, I feel the need to clarify a few things concerning this property and my intentions. I am a complete noob and do not yet know all of the terminology. However, I learn by doing or foresight and calculations. I want to get feedback from seasoned pros if my approach to looking at this is correct. I feel like you and many others have answered that. However, a part of learning for me is knowing why this wouldn't be a good idea? There are currently 2 houses on the market in the neighborhood going for 125K and 140K respectively. A 844 sqft home a few doors down recently sold for 175K. This one is over 1100 sqft. The home is in a really great neighborhood seeing that the home has been abandoned for over 4 years and there is no broken windows or vandalism of any kind. The owner lives out of state and hasn't paid taxes resulting in the lien. Like @Lydia T. mentioned, I would have to get with the owner first to see if they're willing to sale. I'm purely looking at this as speculation and what strategies should I use in a case like this. From what everyone is saying, this isn't a good deal. I guess that's the part I'm not understanding. Again, probably because I'm a complete noob. I'm trying to make as little mistakes as possible, while making the most money as possible. Of course there is a need to get a contractor to look at the property to get an repair estimate, but looking at the property and inside the windows, I'm not seeing much on the surface. Hypothetically speaking, why would any of you pass up on this opportunity? Inexperience set aside.

Steven Ko · Answer

Absolutely not. And it’s not about the deal, it’s you.  I like the think BP has the Bigger Pockets Money podcast because it plays an integral part of wealth building.  You don’t got the money part figure out homie. When will you find the time to learn and fix up the property and hustle to make money? Abandoned house usually mean problems and if you don’t have a team, going in blind is a huge risk.  You don’t know what under those walls and without money....well you know.

And then let’s talk about “eyeing one property”. The common saying goes, don’t fall in love with a property. David green/Brandon turner say it alllllllllllll the time.  Practice running your numbers on multiple properties.  Get good at the grind and hustle, not some hopium.  Your first deal most likely won’t be a home run Or a grandiose flip that you make 50k on.  It might

Be, but most likely won’t be.

Baby step.  Learn to crawl before you walk and learn to walk before you run.  There are plenty of deals now, there will be plenty of deals later, and there’s more than enough deals for everyone.  Just focus on gaining the skills you need to build a business (more than just a spreadsheet) and soon you’ll be rolling in experience to tackle those abandoned houses like cake.