All Forum Posts by: Adam Walter

Hi @Nsisong Ekanem,

Each state is different.  You need to clarify which state you are interested in.  Also, please clarify if you are purchasing a tax lien or a tax deed.  Is feels like you are purchasing a tax lien, but its not 100% clear to me.  Thanks.  

Hi @Orian Rama, I believe that the rules for the tax auctions are state specific.  It's best to reach out to someone in the state that your are looking at to know what the rules are.  

In Ohio, where I invest, most times all liens (except for federal tax liens) are discharged at the sale.  Federal tax liens have a 6 month right of redemption, and then discharged if they don't redeem.  I say "most times", because the county attorney could miss listing a creditor in the foreclosure and also in Ohio the bank is allowed to have the sale be held subject to their lien.  Both instances are rare.    

@Andrew Cheek Since these appear to be both duplexes and triplexes, I would look at the ARV of the properties both for a retail buyer (home owner) and also for a long term hold investor (CAP rate). Figure out what expenses are needed for the fix and flip to get your retail ARV value and figure out what the expenses are for the long term hold to get your values.

It appears to me that this portfolio is why overvalued (for me anyways).  $66k a door for 100 yr old properties in C- areas doesn't excite me, but many investors are overpaying for multifamily properties (in my opinion), which is why it's probably listed so high.  Also, it appears that the seller just purchased 4 of the properties (12 doors) a few weeks ago for $22k a door.  Looks like they got a deal, and definitely some room to negotiate.   

 Interesting situation.  I'm in Ohio and I wouldn't have a problem finding a title company to handle the transaction.  I just purchased a property subject to 5 years of back taxes and a $42,000 judgement lien and went through a title company.

In your situation, it seems that having the rental company catch up the payments would be in your best interest.  I think trying to sell a note where the note holder and property owner don't match would create red flags and probably decrease the value of the note.  Would it be beneficial to redo the note in the rental company's name?  What are the pluses and minuses to doing a new loan?  

@John Underwood  This reminds me of a situation that happened to me a 5-6 years ago.  I purchased a property at the Hamilton County Ohio (Cincinnati area) tax foreclosure sale and I made a deal with the tenant to sell it to him over time.  Prior to the confirmation, someone paid the taxes and I received a notice that the property was redeemed.  The owner found out and called the county and told them it wasn't her who paid it off.  Come to find out, she didn't want the property anymore, was friends with the tenant and wanted him to have the property, and wanted the 5k overage that I paid to get the property.  She was being harassed by a neighbor who wanted to buy the property from her and missed out on the sale I presume.  

I get a call from the sheriff (he was pissed!) that it was a invalid payment and they were returning the check and not redeeming the property. I think the guy had a lawyer drop off the check.  The sheriff said he was going to pull the video and find out who it was and go after them; for what, I don't know.  

I still have the property and the tenant hasn't missed a payment!

These are my findings/assumptions:

1. You have annual rental income at $25,200 the MLS listing has it at $1320 per month or $15,840 annual

2. Property Management is 10%. I use a total of 20% for vacancy, CAP Ex and Maintenance especially for multifamily and older properties.

3. Water average is $95 per month and can only go up (I had a tenant in a multifamily who could only sleep if the shower was running!!)

4. Current Real Estate Tax is $2837 (I am using this number).  I'm assuming you believe it will go up once you purchase the building.  Not a bad idea.

5. The rest of the calculations, I used your numbers.  Total price is $235,570 ($219,000 + $10,000 + $6,570)

Findings:

1. Using current rents I have a NOI (before debt payment) of $5,683 for a Cap rate of 2.41% Cash flow is -$4158 (after debt payment)

2. Using your rent which I'm assuming is market rent, I have a NOI of $12,235 for a CAP Rate of 5.19% Cash flow is $2394 for a 3.36% Cash on cash return

I'm not sure how you are calculating CAP rate. For a 10% CAP your investment will need a NOI of $23,500

If you like these numbers, I have a bunch of rentals, I'd love to sell you :)   

@Tonye Jack  Congrats on the good appraisal!!!  Like @Bill Ward said what you plan on doing with the money depends on whether or not this makes sense.  This is how I would look at your situation: 

Let's assume the following:  Let's say the cost of the refi is $2,000 (you need to know what this number is)  and the increase of yearly interest is $1700 ($112k @ 4% - 77k @ 3.625%).  Don't confuse cash flow with cost (don't get me wrong, cash flow is very  important) your loan could be 7% interest only which will give you the same payment, but will cost a lot more.  Ok, so what can you do with the 28k to offset these costs and make money.  I can give you two examples:

1. Invest the 28k with my Hard Money Loan friend at 10%.  This is very passive and he does all the work.  This will generate a return of $2,800 per year which and give you a break even of your new loan in about 1.5 years, and then generate a yearly return of investment of $1,100 per year ($2,800 - $1,700) for a net 4% return.  This will generate a nice cash flow.
2. The second example is more active and will generate a bigger long term return.  Find a turn key rental for $100,000.  Let say it generates an 8% return and you get a loan for $75,000 at 4%, you put $25,000 down and it costs you $3,000 to do this deal (your $28,000 from your refi).  Annual return will be $8,000-$3,000 interest is $5,000 per year on this new investment.   The break even for your refi is about 1.5 years ($2k refi + $3k new loan + $1.7k interest) and the annual return is $3,300 ($5,000 - $1,700) Cash Flow will be less than $3,300 because I am only looking at interest payments and not principal payments.  It will probably be close to zero.  

Example #2 is how your create long term wealth.  With no additional cash, you can purchase a cash flowing property that will give your tax write offs, appreciate in the future, hedge against inflation, and hopefully put enough additional cash to go out to dinner a few extra times per year.

Good luck, hope this helps.  

@Tonye Jack

A couple things to consider which hasn't been mentioned is what interest rate are you paying vs what the new loan rate will be.  Also, how much is it going to cost to do the new loan?  Taking those numbers into factor, can your additional 13k generate a return to offset those costs?  

@Brian Kempler

It all depends what your financial goals are.  I currently have a foreclosure in the works and if I took it back at the sale (which is unlikely in todays market where I am located), I would probably sell it via lease option.  The reasons I would do this is:

• It allows me a second bite of the apple
• I can get a loan on the property and wrap it with a land contract 
• The property is close to where I live and I know the area well

Most note investors want the most passive form of income and would probably sell.  I am a full time investor and I look at my return on investment and passivity together before making a decision.  If the property was out of my state, I'd would be more likely to sell, since I don't know the laws as well as I do in Ohio. 

I am closing on a property today that I purchased in 2010 and then sold on a land contract in 2015, I took it back in 2020 and resold it on another land contract and made and extra 30k while charging 10% interest on the remaining balance.  It's a 4 unit apartment building and the second buyer fixed it up and sold it yesterday, I have to sign off on the deed today.  The second buyer hasn't paid any real estate taxes, the water bill, or insurance since he took over, so I had to deal with those phone calls and letters, but the extra income was definitely worth it in my opinion.  

 I feel this one would definitely fall under that category.  Part of me wants to keep it in my name (land contract) vs the homeowner's (note and mortgage).  With the non performing land contract that I purchased last year, the vendor past away and the family walked away from the house.  I performed a quiet title action to clear the title and take possession of the property vs having to foreclose.