2nd Investment Property, 1st BRRRR Tucson, AZ

[Kao Saeteurn]

Scroll down for TLDR numbers.

BLUF: Home purchased as a REO via auction.com, found a tax lien after paying 5% earnest money, which delayed closing, couldn't sell because the property did not have a rooftop deck, ended up renting, and only cashed out 60% of the loan because rents didn't support more than that.

Purchased this property via an online auction on auction.com. The property is in a really good development in a great area in Catalina Foothills area of Tucson, AZ.

I won the property for $238,740 plus a 5% buyers fee of $11,937. Total purchase with closing cost was $252,276. Right away we put a 5% earnest money of $12,533. We estimated $310,000 for the sale price. We wanted to flip this to make some quick cash. This ended up being a REO and the selling agent let us look at the house before we closed. It was in good shape and needed close to no work.

I had the title company do a quick search on the property before bidding and it showed no issues. However, the title company didn't realize it was a REO and she did a different kind of search. Once I was working with the title company to finish closing, they found a $82k Federal Tax Lien! Did a lot of research with the IRS regulations, talked to lawyers, title companies, and researched biggerpockets on what to do. Found out that since it was a foreclosure, the tax lien falls off as long as the foreclosing lawyers followed the steps for foreclosure and notified the IRS 25 days prior to the foreclosure auction, which they did. However, the IRS has 120 days from the auction date to redeem to property. The REO bank allowed us to close 120 days from the auction with no additional cost.

Lesson #1 was learning what a tax lien and the process of it

Lesson #2 be clear with the title company and understand what the property you are bidding on is.

Closing was uneventful. Within a few weeks we put the property on the market for $300,000 and had a lot of showings. However, we did not get any offers, not even low ball offers. Come to find out, our property was 1 of 4 in the neighborhood of connected townhomes that did not have a rooftop deck and no one was interested in purchasing! Lowering the price to $290,000 sparked more interest, but no offers. We decided to pivot and rent it out after a few months.

Lesson #3 be ready to pivot to your secondary plan. Renting out was our secondary, moving into it and renting out our primary home was tertiary.

Lesson #4 research your market extremely carefully, even down to the subdivisions and their requirements or needs of buyers.

We ended up just replacing all the carpet with LVP, fixing the private elevator that was not running, and various little items. Total repair and holding costs were about $7,000 for a total all in of $259,900. It took a few months to rent but once the spring/summer time hit, we got a lot of attention and found good tenants.

When we started the refinance process, the appraisal came back at $305,000! We were only able to cash out 60% because the numbers wouldn't work with the rent we got. We got a loan of $183,000 at 3.49% 30 years fixed and after closing costs, we took away $175,800.

Lesson #5 research your market even harder than before because we thought were would be able to rent the property for $2,500 because another was listed at that price. Turns out that was too high and we rented for $1,910.

TLDR Info

Purchase: $252,276 (Price: $238,740, Buyers Premium $11,937, Title Closing Costs $1,599)

Rehab: $7,630 (Install LVP in bedrooms, bathroom reglaze, other small items)

Total: $259,906

Appraisal: $305,000

Cash out: $183,000 (60%) @ 3.49% 30 years fixed

Refinance closing costs: $7,200

Rent: $1,910

Mortgage: $1,170

HOA: $177

Maintenance: $150

CAPEX: $200

Vacancy: $100

Cash Flow: $113

Not as much cash flow as we would have liked, but from first look HOA was $150/quarter. It ended up being $177/mo so that lowered cash flow by $127/mo.

Overall, a lot of good lessons. Went through a lot of processes and learned a lot from each one. I'm excited to buy the next one and work this with better results.