All Forum Posts by: Brian Cole

Investment Info:

Single-family residence buy & hold investment in Pensacola.

Purchase price: $62,000
Cash invested: $8,000
Sale price: $160,000

Small townhome in a higher end suburban neighborhood.

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

Location and cost were the two driving factors, sales prices for townhomes were significantly less than single family homes.

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

Had a fantastic realtor who I still use to this day bring me the deal. She handled the negotiation with the selling agent.

How did you finance this deal?

FHA loan, refinanced into a conventional after 3 years.

How did you add value to the deal?

Basic remodel. Installed two sets of double french doors where two outdated sliding doors were. Paint and carpet.

What was the outcome?

After renting the property for a few years and with the rise in the market prices I decided to sell. Sold for $160,000.

I've found myself over the last few months obsessed with the world of purchasing homes at tax foreclosure auctions. I've spent my quarantine days researching my county and their process, looking at properties, and even planned on attending an auction before the coronavirus caused my county to postpone everything. 

I felt the need to educate myself as much as possible before bidding so I started with the BP forums, blogs, and podcasts. While searching through the podcast app I discovered the "Tax sale podcast" Hosted by Casey Denman.

lots of great info, all free, a pretty reasonable amount of advertisement for his own pay for academy program. Eventually, after listening to the podcast library I decided to order his book. $4.97 was the total cost to my door.

After finishing the book earlier today I would recommend it to anyone who is considering obtaining properties through tax foreclosure. It is organized well and provides a process for researching along with helpful tips, examples, and ideas. I would say it is appropriately titled as a "Playbook" with the first chapter being an about the author. it is 184 pages long and only 2 pages are spent advertising his other material. I do have to say the website has a very guru feel about it and I recommend using a junk email address when you order the book. 

If anyone has any other resources dedicated to investing in tax defaulted real estate please share!

Hi David,

Kody took the words out of my mouth, but I will add a few things. Don't rush into buying a property. Rent something you can comfortably afford and take some time to really get to know the market. Duplexes are still an eligible property type for the VA, I would think this would be your best bet on starting out given your wife's disapproval of roommates. Since 15k is your total savings I would be very slow to spend it. You will need an emergency fund for when things go wrong. As a younger man, I implore you to look up Dave Ramsey. His approach to personal finance will keep you safe in these transitioning times.

Hi Mike,

In my experience, there is normally a rate difference for about every 5% under the max you take. If you finance $93500 that should put you at 55% LTV, replace your initial investment, and leave you a mortgage payment you should be able to cash flow off of. Some mortgage companies have no rate advantage after 60% LTV. In that case, I would consider financing for $102,000 and having that extra $8500 for my next project.

Hi Andrew,

I personally started out in the same way. I bought a small townhome and spent the next couple of years upgrading, renovating, and preparing the home to be a rental before refinancing it to fund my next investment. My advice is to start small, look for the lowest cost of entry for your home. In my area, it's older townhomes or trailers. She may not be up for the house hacking but you really cannot beat the tried and true formula of buying a duplex living in one half and renting out the other half. It would allow for cash flow sooner and get you an established history of rental income that you could claim on your taxes. Most banks are going to want to see a couple of years of rental income before they include that in your debt-to-income ratio.

Hello Cody,

The first and easiest thing to do is start with fixing what's broken. Broken light switch covers, wobbly ceiling fans, loose towel rods, and little 30 minute projects are great. After that, I would consider doing some Tennent proofing. Painting under kitchen and bathroom sinks to protect from leaky faucets, reinforcing the towel rod with a painted 1x4 behind it. Landscaping is great but can get expensive. If you have high/low spots in the yard you can move dirt around for free or If you have any bushes that need to go they can be riped out. These are some good $20.00 projects, and before I started spending $1000 on anything I would make sure I did all of these I could. 

Depending on the layout/age/condition of the house you may have the opportunity to improve the energy efficiency. Cleaning out the condenser coil on the outside HVAC unit can be done with a garden hose. Look at the insulation in the attic, look at your soffits to make sure you're getting enough airflow through the roof. Lower utility bills are one thing you can start seeing savings very quickly.

After that, you're looking at upgrading light fixtures, paint, trim, and newer appliances.

Look hard and you will find things to fix, clean, or replace everywhere!

Hi Jack,

If you own a property worth $125,000 and a bank is willing to finance 75% in a cash-out refi that means they will loan up to $93,750 (125,000*0.75). In this situation, the previous mortgage's balance of $20,000 would have to be paid to allow the new mortgage to be the "First mortgage" leaving $73,750 to pay off your partner and refill some of your cash reserves. When I was writing loans, even on investment properties 75% LTV (loan to value) was doable and the rates compared to HELOCs were always better.

Your agent sending you a lease out of the blue with no explanation or having discussed you signing a lease previously is absurd, did they ever explain the purpose of the lease? Are they trying to get you an updated closing date?. I've always been very reasonable for closing dates when a seller is the one holding up a deal. But this sounds like this could take much longer then anyone should be prepared to wait.

Lawyer. Get one specializing in Oregon real estate laws, find out what your options are if this deal is likely to go through. I'm of the opinion based on what you've described, your realtor isn't relaying everything that's being discussed on the seller's side big no-no and would put me off from using said realtor again.

Hi Jack,

A couple of things to consider. 

I would assume the value this partnership brings to the table has to do with the rehab of the project. With only 12k in repairs estimated I can't imagine this is a large rehab. Paint, carpet, updating appliances, and a handful of actual repairs will eat up 12k in a minute. Consider the scope of the work and each trade involved. Certain things go beyond a weekend warrior flippers skill set and require an experienced sometimes licensed professional. Painting is something anyone can do and if you take your time, watch some re-runs of this old house, and buy the proper supplies I doubt you will need any help. 

Now I quite like how this partnership was presented. In this situation you presented, you're splitting the balance of the mortgage when the  house is sold making his investment 46k and yours only 25k. This is appropriate for a 2/3 split of the profit. 

I would consider passing on the HML or the HELOC. If this is going to appraise for $125k you could simply refinance the home with a conventional loan. Paying him 61k and paying off the 20k remaining balance of the mortgage puts you around 65% LTV. This allows you to duck the realtor's fees and capital gains tax and should put you at a fantastic rate.

Sounds too good to be true,

I would let him do it under the conditions that these updates are approved by you and maybe some kind of written agreement that the updates actually cost you nothing. No pink cabinets and no coming back later saying you owe him.