I purchased a home to BRRR in Cuyahoga County and I need some advice

[Christian Maher]

Hello Everyone,

I'm looking for some advice here, I bought a home in Cuyahoga County late last year for 64k through a tax lien sale. It's 3 bedrooms and 1 bathroom. So far we have dumped 70K not including misc fees like insurance, utilities and other stuff.  So the house wound up needing the drywall, kitchen, bathroom, roof to the garage, Plumbing, Gas and other stuff done.  I have been told by several investors that I was overcharged but I guess at this point it is what it is since I have already almost finished everything. I'm completely fed up and I am trying to figure out if it's worth keeping to rent out or if I should just cut my losses and sell it.  It's still only 3 bedrooms and 1 bathroom and I am in the hole about 140k and fair market value is about $145K-50K.  I welcome all thoughts regarding the situation. 

[Andrew Postell]

@Christian Maher this is all about math and time.

So, when I sell a property, I know I will get 92% of the sales price - why?  Because I have to sell the buyer's realtor 3%...the listing agent 3%...and then about 2% in closing costs.  So, $145,000 x 92% = $133,400.  Are you ok with selling with that type of a net?

If not, then you will keep it for about 5 years.  Why?  Because in 5 years, your property will be worth $185,000.  Now you have some higher returns.

There's other decisions to consider to - owner financing for example. You aren't "dead in the water" by any means.

However, there's a piece here we don't know - how much do you owe on the property? If you don't owe anything, then it's easier. If you owe a HML at 14%, then that means you have to refinance into another loan at 8% (or so). Now, your numbers change.

The math isn't difficult, but you need to know the proper math in order to make a decision. 

Hope all of that helps in some way. 

[Rose Jones]

It is nice to find another tax lien and deed property. I bought some properties in Mississippi earlier last year and I still have not sold them. I have not marketed them either - so there you go! I have decided that the best way to get past my potential loss is to sell them seller finance.

There are lots of calculators online - I found one by searching for an advanced seller finance calculator. If you sell the property for what you want but decide to be the bank, you can send up with a fortune even if the house did not turn out exactly the way you wanted. Like I said - look up that link ( I don't know if the moderators want us to put in links,) I would look up contract up deed - hold onto the deed until it is paid for . Then you can get it automatically set up so that you will get the  property back without having to go through a 
And don't beat up on yourself because this deal didn't work perfectly. Let's tell the truth - learning these schemes can be hard and boring at the same time. You actually did it. For the people who criticize you for paying too much to contractors ask which contractors they used when then fixed up their tax sale property. Oh, they didn't do it? Hmmmmmm - Best of luck and keep us apprised.

[Christian Maher]

Quote from @Andrew Postell:

@Christian Maher this is all about math and time.

So, when I sell a property, I know I will get 92% of the sales price - why?  Because I have to sell the buyer's realtor 3%...the listing agent 3%...and then about 2% in closing costs.  So, $145,000 x 92% = $133,400.  Are you ok with selling with that type of a net?

If not, then you will keep it for about 5 years.  Why?  Because in 5 years, your property will be worth $185,000.  Now you have some higher returns.

There's other decisions to consider to - owner financing for example. You aren't "dead in the water" by any means.

However, there's a piece here we don't know - how much do you owe on the property? If you don't owe anything, then it's easier. If you owe a HML at 14%, then that means you have to refinance into another loan at 8% (or so). Now, your numbers change.

The math isn't difficult, but you need to know the proper math in order to make a decision. 

Hope all of that helps in some way. 

 Thank you so much for all your input, so we did half cash and half equity line of credit from our house in California.  If we keep it we would need to do a cash out refi for as much as possible. So we would probably cash out $112,500. Not sure what the payment would be at that point.  So I guess my main question is:  With these numbers, would this be considered a good investment to rent or should I cut my losses and start over somewhere else?   

[Ko Kashiwagi]

Hi Christian,

What is the projected rent looking like? I know Cleveland properties can have great cash flow so you can start there. A key question to ask is - is this an area you'd be okay renting? There are severals reasons to not keep a rental like high crime, high vacancies, tenant laws, bad cash flow, opportunity cost, etc. If you don't mind keeping it, it's probably a good idea to rent out.

[James Wise]

Quote from @Christian Maher:

Hello Everyone,

I'm looking for some advice here, I bought a home in Cuyahoga County late last year for 64k through a tax lien sale. It's 3 bedrooms and 1 bathroom. So far we have dumped 70K not including misc fees like insurance, utilities and other stuff.  So the house wound up needing the drywall, kitchen, bathroom, roof to the garage, Plumbing, Gas and other stuff done.  I have been told by several investors that I was overcharged but I guess at this point it is what it is since I have already almost finished everything. I'm completely fed up and I am trying to figure out if it's worth keeping to rent out or if I should just cut my losses and sell it.  It's still only 3 bedrooms and 1 bathroom and I am in the hole about 140k and fair market value is about $145K-50K.  I welcome all thoughts regarding the situation. 

 Run the numbers, does it make money as a rental? Do you want to be a landlord? If yes and yes, keep it. If no, sell it. You have a $145k-$150k house that you paid $140k for, this isn't rocket science. What do you wanna do?

[Andrew Postell]

@Christian Maher you got some good posts above too.  There's probably no "do this" and it works for everyone so keep gathering different opinions.

The way I view a "good deal" might be different than how you view a "good deal"...so let's look at it from an "average" person's perspective.  One who may not know all of the more advanced techniques. 

A "regular, average" buyer would need to put 20% down on an investment property.  So, 20% of $145,000 = $29,000.  And then closing costs...of $10k?  Let's just use that for now.  So, $40k.

Did you come out of pocket more or less than $40k to execute here?  Because, if it's less...then how much less?  If you executed coming out of pocket $20k...that seems ok.  If you came out of pocket $50k...that's not ok,

See if you can work on that "out of pocket" number.  Take into consideration your refinance costs (you'll probably need to be prequalified to know that) and see where you sit.

Maybe that will tell us what we need to know.

[Jack Schwartz]

Quote from @Christian Maher:

Hello Everyone,

I'm looking for some advice here, I bought a home in Cuyahoga County late last year for 64k through a tax lien sale. It's 3 bedrooms and 1 bathroom. So far we have dumped 70K not including misc fees like insurance, utilities and other stuff.  So the house wound up needing the drywall, kitchen, bathroom, roof to the garage, Plumbing, Gas and other stuff done.  I have been told by several investors that I was overcharged but I guess at this point it is what it is since I have already almost finished everything. I'm completely fed up and I am trying to figure out if it's worth keeping to rent out or if I should just cut my losses and sell it.  It's still only 3 bedrooms and 1 bathroom and I am in the hole about 140k and fair market value is about $145K-50K.  I welcome all thoughts regarding the situation. 

Hi Christian and BP members, 

You bought a property through a tax deed or a tax lien sale. What if the original owner pays their debt and reclaims the property? How do you handle that potential risk?

I’d appreciate your insights on this matter.

Best,

[Jake Baker]

@Christian Maher

Do you like the location of the property? If it is in a part of town with a lot of growth potential, it may be worth keeping. If that is the case, consider doing a cash-out refinance since you have your HELOC tied up in it.

[Stacy Raskin]

If you want to keep the property as a rental, you can pull cash out on the new appraised value with a DSCR refinance loan if it's been 3 months since when you last purchased or financed. If using the new appraised value it can be a good way to recoup some of the cash spent.

More on DSCR loans:

DSCR loans won't use your income to underwrite the loan.

DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.

Here's a bit more in detail about how rates are calculated for DSCR loans:

1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.

2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.

3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.

4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.

I've included an example below to help illustrate this.

So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.

See example below:

DSCR < 1

Principal + Interest = $1,700

Taxes = $350, Insurance = $100, Association Dues = $50

Total PITIA = $2200

Rent = $2000

DSCR = Rent/PITIA = 2000/2200 = 0.91

Since the DSCR is 0.91, we know the expenses are greater than the income of the property.

DSCR >1

Principal + Interest = $1,500

Taxes = $250, Insurance = $100, Association Dues = $25

Total PITIA = $1875 Rent = $2300

DSCR = Rent/PITIA = 2300/1875 = 1.23

DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.

Happy to connect to discuss further. 

[Bob Stevens]

Quote from @Christian Maher:

Hello Everyone,

I'm looking for some advice here, I bought a home in Cuyahoga County late last year for 64k through a tax lien sale. It's 3 bedrooms and 1 bathroom. So far we have dumped 70K not including misc fees like insurance, utilities and other stuff.  So the house wound up needing the drywall, kitchen, bathroom, roof to the garage, Plumbing, Gas and other stuff done.  I have been told by several investors that I was overcharged but I guess at this point it is what it is since I have already almost finished everything. I'm completely fed up and I am trying to figure out if it's worth keeping to rent out or if I should just cut my losses and sell it.  It's still only 3 bedrooms and 1 bathroom and I am in the hole about 140k and fair market value is about $145K-50K.  I welcome all thoughts regarding the situation. 

 We are always buying props, All I need is the address to tell you if you are underwater, and if so how much. ANOTHER reason OOS investors should not go it alone. I post weekly, do nothing without a team, happy to help 

[Bob Stevens]

Quote from @Jack Schwartz:

Quote from @Christian Maher:

Hello Everyone,

I'm looking for some advice here, I bought a home in Cuyahoga County late last year for 64k through a tax lien sale. It's 3 bedrooms and 1 bathroom. So far we have dumped 70K not including misc fees like insurance, utilities and other stuff.  So the house wound up needing the drywall, kitchen, bathroom, roof to the garage, Plumbing, Gas and other stuff done.  I have been told by several investors that I was overcharged but I guess at this point it is what it is since I have already almost finished everything. I'm completely fed up and I am trying to figure out if it's worth keeping to rent out or if I should just cut my losses and sell it.  It's still only 3 bedrooms and 1 bathroom and I am in the hole about 140k and fair market value is about $145K-50K.  I welcome all thoughts regarding the situation. 

Hi Christian and BP members, 

You bought a property through a tax deed or a tax lien sale. What if the original owner pays their debt and reclaims the property? How do you handle that potential risk?

I’d appreciate your insights on this matter.

Best,

 they dont and cant once yoy buy it . I have purchases about 100 from tax lien sales, 

[Bob Stevens]

Quote from @Jake Baker:

@Christian Maher

Do you like the location of the property? If it is in a part of town with a lot of growth potential, it may be worth keeping. If that is the case, consider doing a cash-out refinance since you have your HELOC tied up in it.

 Shes all in 160k, it better be in CH, South Euclid or best part of the west side. IMO she's buried. but will see 

[Bob Stevens]

Quote from @Christian Maher:

Quote from @Andrew Postell:

@Christian Maher this is all about math and time.

So, when I sell a property, I know I will get 92% of the sales price - why?  Because I have to sell the buyer's realtor 3%...the listing agent 3%...and then about 2% in closing costs.  So, $145,000 x 92% = $133,400.  Are you ok with selling with that type of a net?

If not, then you will keep it for about 5 years.  Why?  Because in 5 years, your property will be worth $185,000.  Now you have some higher returns.

There's other decisions to consider to - owner financing for example. You aren't "dead in the water" by any means.

However, there's a piece here we don't know - how much do you owe on the property? If you don't owe anything, then it's easier. If you owe a HML at 14%, then that means you have to refinance into another loan at 8% (or so). Now, your numbers change.

The math isn't difficult, but you need to know the proper math in order to make a decision. 

Hope all of that helps in some way. 

 Thank you so much for all your input, so we did half cash and half equity line of credit from our house in California.  If we keep it we would need to do a cash out refi for as much as possible. So we would probably cash out $112,500. Not sure what the payment would be at that point.  So I guess my main question is:  With these numbers, would this be considered a good investment to rent or should I cut my losses and start over somewhere else?   

 rent will be about 1500- 1700 , so do the math, 

[Christian Maher]

Quote from @Ko Kashiwagi:

Hi Christian,

What is the projected rent looking like? I know Cleveland properties can have great cash flow so you can start there. A key question to ask is - is this an area you'd be okay renting? There are severals reasons to not keep a rental like high crime, high vacancies, tenant laws, bad cash flow, opportunity cost, etc. If you don't mind keeping it, it's probably a good idea to rent out.

Hello,  are you familiar with the Cleaveland area?  the property is located at zip code 44102 in Cuyahoga County. I am not really familiar with the area since I have never been to Ohio my self.  I am actually planning to fly out there on Monday to check it out and do some good research.  It looks like if we rent for section 8, rent can go for about $1,700 or so, so we are looking into converting the attic to a 4th bedroom, but it will only have 1 bathroom.  We ran out of money since the original bid from the project manager more than doubled as the project progressed, and it has taken almost a year to complete.  It's a bit of a mess and we are trying to find all the possible silver linings.  At this point, if we can sell for $150k, we will still be losing some money, but the monthly bleeding of the line of credit will end, and we can at least be free from this and put it behind us.   

[Christian Maher]

Quote from @Jack Schwartz:

Quote from @Christian Maher:

Hello Everyone,

I'm looking for some advice here, I bought a home in Cuyahoga County late last year for 64k through a tax lien sale. It's 3 bedrooms and 1 bathroom. So far we have dumped 70K not including misc fees like insurance, utilities and other stuff.  So the house wound up needing the drywall, kitchen, bathroom, roof to the garage, Plumbing, Gas and other stuff done.  I have been told by several investors that I was overcharged but I guess at this point it is what it is since I have already almost finished everything. I'm completely fed up and I am trying to figure out if it's worth keeping to rent out or if I should just cut my losses and sell it.  It's still only 3 bedrooms and 1 bathroom and I am in the hole about 140k and fair market value is about $145K-50K.  I welcome all thoughts regarding the situation. 

Hi Christian and BP members, 

You bought a property through a tax deed or a tax lien sale. What if the original owner pays their debt and reclaims the property? How do you handle that potential risk?

I’d appreciate your insights on this matter.

Best,

 You know this is a pretty interesting point, We contracted a service to help us with all this and I did ask this question, and I was told that Tax Liens sold in auction did not have the ability to reclaim the debt.  Do you have any more information on this.  This is actually a pretty scary thought since we have dumped a good $140k+ with all the fees and fees of the person who we contracted as the tax lien expert.  Where can I find more information, I'm pretty terrified!  I am sorry for responding so late to this.  After I posted this, I had a medical situation that we were dealing with to top it all off.  So I thank you for all your input, and I look forward to any additional information regarding this.  

[Bob Stevens]

Quote from @Christian Maher:

Quote from @Jack Schwartz:

Quote from @Christian Maher:

Hello Everyone,

I'm looking for some advice here, I bought a home in Cuyahoga County late last year for 64k through a tax lien sale. It's 3 bedrooms and 1 bathroom. So far we have dumped 70K not including misc fees like insurance, utilities and other stuff.  So the house wound up needing the drywall, kitchen, bathroom, roof to the garage, Plumbing, Gas and other stuff done.  I have been told by several investors that I was overcharged but I guess at this point it is what it is since I have already almost finished everything. I'm completely fed up and I am trying to figure out if it's worth keeping to rent out or if I should just cut my losses and sell it.  It's still only 3 bedrooms and 1 bathroom and I am in the hole about 140k and fair market value is about $145K-50K.  I welcome all thoughts regarding the situation. 

Hi Christian and BP members, 

You bought a property through a tax deed or a tax lien sale. What if the original owner pays their debt and reclaims the property? How do you handle that potential risk?

I’d appreciate your insights on this matter.

Best,

 You know this is a pretty interesting point, We contracted a service to help us with all this and I did ask this question, and I was told that Tax Liens sold in auction did not have the ability to reclaim the debt.  Do you have any more information on this.  This is actually a pretty scary thought since we have dumped a good $140k+ with all the fees and fees of the person who we contracted as the tax lien expert.  Where can I find more information, I'm pretty terrified!  I am sorry for responding so late to this.  After I posted this, I had a medical situation that we were dealing with to top it all off.  So I thank you for all your input, and I look forward to any additional information regarding this.  

 It's NOT an interesting point, once sold and transferred that's it, it's yours. I have purchased about 100 tax liens there, never one issue. 

All the best 

[John Underwood]

I'm not sure what state you are in. Do you still have a tax deed or do you need to do a Quiet Title to get a General Warranty deed?

I sell houses all the time by just listing them on Zillow, so don't think you need to pay a listing agent and if the buyer doesn't drag their realtor into the mix, you might not need to pay a buyers agent either.

[Jay Hinrichs]

Quote from @John Underwood:

I'm not sure what state you are in. Do you still have a tax deed or do you need to do a Quiet Title to get a General Warranty deed?

I sell houses all the time by just listing them on Zillow, so don't think you need to pay a listing agent and if the buyer doesn't drag their realtor into the mix, you might not need to pay a buyers agent either.

this is a cautionary tale of the risks of remote rehab with little to no experience looks good in the book but in practice can be very very difficult.. stick close to home.

[John Underwood]

Quote from @Jay Hinrichs:

Quote from @John Underwood:

I'm not sure what state you are in. Do you still have a tax deed or do you need to do a Quiet Title to get a General Warranty deed?

I sell houses all the time by just listing them on Zillow, so don't think you need to pay a listing agent and if the buyer doesn't drag their realtor into the mix, you might not need to pay a buyers agent either.

this is a cautionary tale of the risks of remote rehab with little to no experience looks good in the book but in practice can be very very difficult.. stick close to home.

And also paying too much for a property at a tax sale that you don't know the condition of the property.

[Regina Blake]

Hi, yes you need to personally figure out what you want to do with the property. Do you want to be a landlord or not and see what makes sense to you on a personal level.

[David Leggett]

I'm a little late to this party, but I would definitely consider leasing it and trying to get some of your money back over since rental rates, I believe, are near all time highs, especially in Cleveland.  Also, 44102, depending on the neighborhood, could be really valuable moving forward.  Lakewood is a very sought after rental area with high rental rates, and a lot of people will pay high rents to live in close proximity to Lakewood, and downtown Cleveland, which this area is right in the middle of those two, as well as right by lake erie.  

Seven years ago these properties were selling for 80-90k, now they're selling 125-140k and I don't see any reason this will reverse over the next 5-7 years.

Also, like you were saying, Section 8 just increased their rates in this area and there's always tons of demand for Section 8 on the west side.  You might not quite get $1,700, but you can definitely get a good amount.  I would consider holding it a few years and see if there's any appreciation, get some of your money back in rents, and reevaluate after 2-3 years.

[Samuel Diouf]

Well, if ARV is $140k and you're all in at $140k, it doesn't sound like you're too deep under water. I would probably hold on to it and try to make some returns from the rental income. Maybe ARV will increase over time as well. Ohio is a rapidly growing market.