Money Pit, what to do?

Question

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $12,250

Cash invested: $7,250

I was trying to do the Tax Deed investing taught by the Ted Thomas group only to fall into this money pit. Yes, I didn't see the inside of the property before I bought it, but I had already spent hundreds in sending people out to take pictures for other properties I couldn't even win at auction. It seems that the tax-deed market is flooded which makes it unreasonable to make consistent money. At this point I want to just get rid of this property.
https://www.zillow.com/homes/1014-Barcelona-Dr-Weidman,-MI-48893_rb/77814307_zpid/

What made you interested in investing in this type of deal?

I was actually able to win an auction.

How did you find this deal and how did you negotiate it?

I found it on an on-line auction for Michigan.

How did you finance this deal?

Credit card.

How did you add value to the deal?

Credit card and cash. I only cleaned it out by ordering dumpsters and tossed out garbage and ceiling debris.

What was the outcome?

The house is in such bad shape that the contractor estimated the costs for it to be move-in-ready to be more than the ARV.

Lessons learned? Challenges?

See the inside of properties before you buy, and don't invest in informercial type of tax-deed systems.

Chris Seveney · Answer

Sometimes the best deals are the ones that you did not win. That sinking feeling when you win and no one else bid etc. like "uh oh".

For the original poster, some thoughts to sell might consider seller financing as clearly this is not going to sell to owner occupant. If the ARV is higher than repair what will convince an investor to buy this asset? For example, if it needs $75k worth of work and the ARV is $100k, then basically you would need to give it away for free to an investor.

Depending on how you financed it (if it was via credit card), you should evaluate and consider sales price and look to limit losses if the interest kicks in soon

Michael Smythe · Answer

@Richard Arakelian do you have clean title?

If you bought at tax foreclosure, you only have a tax title and will need to get quiet title done or find everyone with a claim and have them sign QCD to you.

If bank foreclosure, you should have clean title.

Start networking with wholesalers that cover the area and hope they can bring you a buyer that can make the numbers work.

Your other option is to sell on 3-5 year land contract with a balloon due to someone looking to fix it up and live in it. Just be careful you understand the LC legal risks.

For more options, you should share the rehab bid!

Rich Inman · Answer

I don't think it is particularly nice to laugh at others' experiences. We are all here to learn and support each other.

I'm also new to tax investing. Tax deed and lien markets are becoming more competitive, and as a result, risk is increasing.

Bummed to hear @Richard Arakelian ended up in a less-than-ideal position, but I hope that it turns out well and we can learn from shared experiences.

Logan Laperriere · Answer

What was your exit plan when your purchased the property? Fix and Flip or turn it into a rental? Would this cashflow as a STR? How much will you lose by selling in its current condition?

Jonathan Bock · Answer

@Richard Arakelian

Posting an old article about one of the O.G Gurus of Tax Deed and Lien Investing - John Beck

https://www.sfchronicle.com/bayarea/article/Reputed-victims-...

You can make some great profits in this arena but doing it from your home office in Cali is not going to work I am grateful that you just did a small deal

Cut your losses and learn from it

Jonathan Bock, CPA

Richard Arakelian · Answer

Like I said, I'd like to sell the properties for value of the land so I can move on. I realize that the rehab value is very high, that's why I'm hoping to sell to someone that does construction themselves. The area doesn't have comps for this size house so the ARV is difficult to know. I'm not looking to rehab this house or tear it down myself, so I don't have a complicated strategy. People don't seem to rent in this area so there is no cash flow to discuss. I simply want to sell it for the value of the land at this point.

I was answering Michael's question and I posted this because this is the real estate I'm involved in and I wanted to share with the community. This isn't a standard property that's usually discussed in BiggerPockets, so common calculations don't seem to apply. I'd like hear what people themselves have to say... Perhaps there is a creative solution to this or that there are companies that buy distressed homes like this, or that someone themselves is interested in buying it for cash because it's so cheap, etc...

Richard Arakelian · Answer

Like I said, I'd like to sell the properties for value of the land so I can move on. I realize that the rehab value is very high, that's why I'm hoping to sell to someone that does construction themselves. The area doesn't have comps for this size house so the ARV is difficult to know. I'm not looking to rehab this house or tear it down myself, so I don't have a complicated strategy. People don't seem to rent in this area so there is no cash flow to discuss. I simply want to sell it for the value of the land at this point.

I was answering Michael's question and I posted this because this is the real estate I'm involved in and I wanted to share with the community. This isn't a standard property that's usually discussed in BiggerPockets, so common calculations don't seem to apply. I'd like hear what people themselves have to say... Perhaps there is a creative solution to this or that there are companies that buy distressed homes like this, or that someone themselves is interested in buying it for cash because it's so cheap, etc...

Jaron Walling · Answer

@Richard Arakelian Without an accurate ARV nobody can help you. You don't have a target to go after. You're not discussing strategy, cash-flow, or ROI on a flip.

"I'd like to get $40K for it so I can pay the debt and use the rest to reinvest" - This is extremely cheap real estate. Our credit union would never give us a loan for this property. The rehab list you created contains way more than $40k worth of work. You said it yourself - the more I read that list of issues the more I lean towards tear down. Sub parcel the lots, sell, profit, and move on.

Richard Arakelian · Answer

Sure, Michael Smythe. Here's the Zillow link which has many good pictures of it. I'd rather not upload many pictures here bcz it's laborious.

Basically,

- The bathroom on the second is sinking and cannot be stepped on,

- Roof has many holes including a giant 5X3 ft. one above the tub and it's snowing a lot!,

- There's a massive exposed wall on the second floor where the sliding glass door fell in and the frame around it is rotted,

- There's black mold growing all over and probably wood rot considering the weather exposure,

- The previous owner installed sliding glass doors instead of windows on the second floor that lead nowhere,

- The subfloor in the kitchen has massive holes in it and it's hard to walk and stand there,

- All the flooring needs to be redone,

- The entire ceiling, drywall and insulation, has come down in the upstairs living room exposing the rafters and the sky at the holes,

- There's many random holes in the drywall all over the house,

- The garage has three layers of jerry-rigged windows. One on top of each other and the outer layer is thick plastic sheeting stapled,

- There's exposed wall from the back room to the garage,

- Low hanging ceiling fans that are head height and drooping,

- Small side room has no wall to the hallway. I think there was an accordion compacting wall there bcz of the track on the floor. That part is the mobile home,

- Punctured hole in door with hot water rubber tubing going through it and traveling across the hall and across the bathroom!,

- Second bedroom floor subfloor is has a giant three foot bubble raised,

- The garage's middle support beam, which are three 2x4s stacked together are bending. This holds up the second floor living room,

- I'm not sure if the first floor back bedroom is legal and seems to have no foundation but is built wood on soil! Yikes!,

- Wood stove and massive wooden base on the second floor that needs to go so the insurance will cover he house. This mean HVAC in the second floor addition needs to be installed,

- Damaged garage door wont close all the way,

- Not sure if water or septic would run,

- Electrical lines in some places the previous owner messed with and added some,

- Mismatching handrails on the stairs,

- Kitchen has many animal dropping in the cupboards which I cleaned up but is still dingy. There's a hole in the kitchen ceiling with a net stapled around it so the previous owner could catch the animals that were running around above the ceiling!,

- Broken and out-dated cupboards and countertops,

- Many minor damaged areas all over.

There may be more I'm missing, but as you can see there is a lot. The entire roof needs to be re-done with the OSB underneath that needs to be replaced.

In that specific area half acres of raw land goes for $20K. I have two lot side by side at 0.45 acres each. They each have a separate address and APN but are on the same title. The septic system was redone just five years ago.

Yeah, I know it could be torn down. It's kind of in this middle state where it could go either way. That'll cost a lot of money to do so. Houses in the area are not that valuable, even though it's by a lake. This is Michigan, the lake state. So they're not scarce. There are Amish communities there! That's pretty cool!

I just want to get rid of it. Any more suggestions?...