How would you close on this deal?

Question

I am currently looking to purchase a few pieces of raw ground and am looking for some insight on how to close on the properties.  I am looking to get these prior to a tax sale from an out of state owner and they are just looking to get what they owe on back taxes out of it, around $500.

I am familiar with the area and these lots are worth about $2,500.00, however to turn them fairly quick I would be looking to list them around $1,750.00.  Now with that being said these are obviously very small deals however there is money in them.  The problem is if I use a conventional title company it eats into the profit enough that they don’t seem like they would be worth the time.

As always the owner claims there are no liens or judgments against the property.  My thought was I would have a title company perform a title search to confirm if any liens or judgments are against the property.  If they are indeed clear I would purchase the property with a Warranty Deed and not use a Title Company.

The first question I have is would you even mess around with this kind of deal?

The second question is how would you close on the property?

Kenneth Z. · Answer

What sort of holding cost are you going to have? From your description the profit margin on this deal is almost razor thin. If you are going to hold them and sell on the same time frame land usually sells at then I don't see how its worth it. If my math is correct you are not even making a couple thousand dollars on the deal once you sell. Then you don't even know if they will sell in the 3-6 months you are forecasting what if it takes 9 - 12 months. I think the spread is way to thin if you can't afford to use a title company and potentially you won't be able to offload until 3 - 12 months down the line.

Account Closed · Answer

As a buyer, I wouldn't purchase on a quitclaim deed, and I don't know if many others would either.  I think that could almost appear predatory if you're selling lots of land in this fashion without an attorney.  Not saying this is your intention, but could give this impression.

If you can sell on a land contract, this would almost be like a Lonnie deal.  You get in the deal with the 500 bucks to pay off back taxes, and then sell for 500 bucks down, 200 bucks/month (or whatever number works for ya'll) for the next few years.  A little cashflow....

A better financial move would be to purchase the lots for a few bucks subject to the back taxes.  Don't pay off the back taxes until you have a buyer, and then pay them off at the closing when they pay a down payment.  This limits your out of pocket expense...

Account Closed · Answer

Do you have an idea who your target buyer is?  If you do, and are confident in the exit numbers, you can put the properties under contract and assign them to your buyer.  This would eliminate your closing costs.

Ned Carey · Answer

Here are a some ideas for you

• Put them under contract with a long settlement date
• Put them under an option contract
• Take them to auction so they sell quickly

Jared K. · Answer

1.Yes, I would do this kind of deal b/c I have done them before. A profit is a profit!!

2. I would talk to a title company that you normally use and explain that you are looking to buy multiples at once from this guy and you want a discount!! I would definitely get title insurance and have the title company close on them. The title company can insure all the taxes get paid etc but they will insure theirs no other liens FOR SURE also and you can sleep at night..lol.

I would negotiate further with the guy also on a package deal buying multiple properties that he obviously don't want. Your going to pay for title, title insurance, pay the back taxes, and clean up/maintain the properties and just tell him in this situation your coughing up the money for a lot at once so whats the best he would do if you bought several???

I seen where you stated it would cut into the profits using a title company etc and I do understand but its really the only way to go in my opinion, so much can happen with land deals that if something came back on the property after closing (which can happen) then the title company would handle it so I ALWAYS pay for title insurance. One way to offset your costs when you sell these lots would be to sell them lease purchase for a higher retail cost. Another is to have a contingency your buyer will pay 100% of all closing costs above said agreed purchase price, which includes any of your taxes and costs while held for resell.

I would do a deal all day long if it was gonna make me $$!!! I think the title costs will not be that bad and you will put some money in your pocket!!

Sounds like a good day to me!!!!

Brandon Dean · Answer

Kenneth, The holding cost is very minimal.  Basically since I am purchasing them with Cash the only holding cost is taxes and that would be roughly $150 for the year.  The only public utility to the property is power and it has been disconnected and does not really need to be turned back on since I would be selling it as raw land.  I do agree it is not much of a profit however the out of pocket expense is not very much either.

Bryan, I am glad you brought up the quitclaim issue.  I had not really looked at it that way but after stepping back and looking at it I would agree with you. I would probably be better off offering a warranty deed since that would be the same way I am purchasing it.

The land contract would be my main exit strategy, once again not huge money but hey its money.

Brandon Dean · Answer

At this time I do not have an end buyer and I could see these taking 3 to 6 months to sell so I did not want to try and wholesale them plus they have to have the taxes paid by the end of August or they go to the tax sale.  I have two exit strategies, the first is to list the property for sale by owner and sell it with a quitclaim deed.  The second strategy is to sell the property Contract for Deed on a fairly short term.  These properties are located at Lake of the Ozarks in central Missouri, however they are not Lake Front.  Most are sold to put campers or mobile homes on for weekend use.

How would you close on this deal?

Most Popular Reply