First Wholesale Deal! Back Taxes??

Question

Hello BP,

I have my first wholesale deal under contract in South Jersey for 19k.  Repairs are in the 35-45k range.   ARV estimate is in the 110-125k range.  The issue is that the current owner of the property has 13k in back taxes on the property.   I guess you could say I am a believer in the "ready, fire, aim" philosophy but was quite excited to come across what looks my first qualified lead.   The property was inherited, owned free and clear, but current owner is unable to pay the back taxes on the property.

How should I address the back taxes issue?  Is title unable to transfer until back taxes are paid up?  or should I have calculated the back taxes into my 19k offer price presuming that back taxes would be paid up by the end buyer?

Also, when should i open up title search on this?  before or after i have an end buyer?

Nick

Nick Mazzarese · Answer

hey guys just wanted to say thank you again for all your help.  I recently closed this deal with the help of a co-wholesaler who brought in the buyer.  We ended up selling the property for 23,500 and split our profit of $4,500 down the middle each taking home $2,250.  Not much I know but hell I was stoked.  Turns out this wholesaling thing does actually work.

Next up is staying consistent with marketing with my initial goal of 50 yard signs per week.

Joseph Ball · Answer

Check the back taxes yourself. I recently almost bought one, assuming the letter from the County covered all back taxes. It didn't. I did my own research and found $31,000 additional back taxes that had to be paid. That killed the deal.

Do your own research. Also, call the municipalities to see if there are unrecorded liens.

@Michael Walker and @Ned Carey made excellent points.

I think $19K is way too high. In my wholesale deals, I generally offer the property to my buyer for not much over 50% of "retail". This deal may not fly. It wouldn't for me.

One thing I like about you? You are out there doing something. So many just say, "I want to do that", but they never do. Congratulations on taking action!

Ned Carey · Answer

@Nick Mazzarese  What does your contract say???????

This is a big misconception, you probably don't have to pay a penny extra. A well written contract will usually say the seller is providing "Free and clear marketable title" or other similar language. This means he has to pay the taxes in order to sell it to you.

He does not pay the taxes in advance of selling it to you. The title company will take the money needed for taxes out of the sellers proceeds. Instead of getting $19K he will only get $6K.

If the price was only $10K he would be legally obligated to bring $3K to the settlement table to sell it to you. Of course many deals fall apart for this kind of thing because it is not worth fighting if the seller doesn't have the money to do it.

So g back to your contract and see what it says. Most likely you are fine.

Because of the back tax issue, yes have the title company start work. There may be other issues that come up, like judgements against the seller. The sooner you know about these the better.

Ned Carey · Answer

If that was the intent of the contract and you both agree that is the intent, yes that is how the title company will handle it. The contract probably has some language that says that is how it is to be handled but it it doesn't, it really doesn't matter if you both agree.

If the contract isn't clear you can write an addendum that you both sign.

Since you need to go to a title company anyway why don't you show them the contract and have them clarify things for you. None of us know what the contract says.

Wayne Brooks · Answer

Geeze, was the seller expecting to have to pay the taxes out of the $19k, or is he expecting $19k, and You handle the taxes, which is it?  I assume you had this discussion since you said "he can't afford to pay the taxes".  We have no idea what your contract says, or what understandings (or lack thereof) you had with the seller.

Nikki Robinson · Answer

Congrats Nick! Was this deal from bandit signs?

Joseph Ball · Answer

No. Not particularly. I buy in 19 counties. Not much in Groveland

Patrick L. · Answer

I'm an investor/rehabber in the Tampa Bay market.  I've driven through Groveland a few times lately on 50 and other than the new subdivisions in Clermont it looked pretty rural around there so I was curious if you were wholesaling locally.

Joseph Ball · Answer

I have buyers all over the world. I buy all over Florida.

You?

Patrick L. · Answer

What buyers are willing to pay is all about supply and demand for the deals.   If you were in California buyers would be willing to pay well above 70% because there is just so much competition among the buyers.  It also changes things when the average home price is so much higher because if the rehabber makes a lower percentage profit the dollar amount can still work out.  If a home has an ARV of $30k and needs $5k in repairs it's going to need to be discounted more than 70% because after closing costs there's no meat left.   On a $500k house it's a whole different story.

Where are you wholesaling, in the Clermont area?

First Wholesale Deal! Back Taxes??

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