All Forum Posts by: Ross Carpenter

Quote from @Matthew Malagarie:

Quote from @Will Sifert:

As of July 1st, 2024 Colorado will be making a change from a traditional tax lien state to a system that is hybrid, more like Florida. I have glanced over some of the new law, from my initial interpretation the new system will:

- Premium bidding to win a tax lien, non refundable premium bid will remain the same.

- 3 year redemption period will remain the same.

- You no longer simply apply for a deed after 3 years and get it after the county attempts to find the owners. Now you would go through noticing requirements to schedule an auction. Property will be sold to the highest bidder at auction. Starting bid will include past taxes interest and county costs/ fees. * Your premium bid amount will not be included and not recovered. Any overbid amount at the auction will go to the property owner.

Here is the problem, almost all tax liens in Colorado were won by paying premium bids that were 10,20,30,50,100% or more of the lien amount, especially on vacant land and property that had a higher chance to redeem. Personally I have spent tens of thousands buying liens in Colorado over the last 3 years and have calculated the premium bidding as a cost that I would recover from actually getting a few deeds. I have lost thousands of dollars on premium bidding on liens that have been redeemed. I also have several deeds that have not redeemed and the profit I would make from selling those would more than pay for the cost to win those liens (premium bid amounts).  All of that has changed.... Now, instead of getting the deed and who knows what additional costs I will have to pay to initiate these auctions, I would have to bid against the public and pay more money to win the deed.

I hope Colorado realizes how  much this is going to cost them in tax sale revenue. Some of these cheaper vacant land properties get bid up 700-800% over the lien amount because there was a decent chance you could get the property .  I can't imagine anyone would premium bid more than 1 -2 % if any on these types of properties now.  Most years you only making 9% - 10% interest in Colorado.  Who is going to pay much of a premium when there is no chance to get the property?  If you are paying a premium to just win the lien to make interest, most redeem with in the first year so even on houses and properties that will redeem 99.9% of the time, who would pay more than a few % over for those because you are not going to make much in interest and if they redeem in the first couple months you will lose money on all of those.

For example, on a $100 lien I might have paid $50 premium on a vacant parcel of land that might be worth about 15-20K.   I knew if I bought enough of these I would get a few deeds.   Most redeem and at 9% interest I would lose anywhere from about $25 - $50 on each lien depending on how long it took to redeem. So now, after 3 years instead of paying about $400 to the county for a deed, I have to pay noticing costs and then go bid against other investors at an auction.  If I do not win or choose not to bid, I get back my $100 plus 27% interest (9% x 3 years).  So now instead of getting the deed, selling the property and helping to recover the losses from all of the redemptions, I end up still losing money on the liens that do not redeem. My only chance is that no one bids at the auction, if I wanted to bid at an auction I wouldn't have bought the lien and I would have gone to tax deed states... this sucks.

Thoughts..... 

Link to new law: 

https://leg.colorado.gov/sites/default/files/documents/2024A...

 Hey Will, I feel your pain. I’m in a similar position, but not as bad. I’m curious to hear if you (and others like us) have a law suit case, really anyone that has a tax lien in motion at the moment. Some of us have thousand of dollars committed for years and our return on our investment model just is now likely lost. 

I'm also curious if anyone has anything in process after July 1. Please DM me if you have started the new process.

We have dozens of small land liens that are coming up this year and I'm very curious how this changes the timeline. The concept seems to generally make sense, but it's unfortunate that there doesn't appear to be a grandfathering of older liens before they changed the rules and cost thousands of people tens of thousands of dollars in lost bid premiums. This completely disincentivizes a large segment of lien investors on vacant properties. 

So someone can just stop paying taxes and create a funding gap for our public schools, firefighters, and county road maintenance and now private investors & Counties are going to bankroll the cost and administrative overhead to sell their property at auction and give them back the net auction proceeds?

There are many rural counties in CO with vacant lots owned by out-of-state LLCs that will have significant budget shortfalls from this change.

The only silver lining is a right of first refusal for the lienholder to match the final auction price to buy the property within 8 days of the auction.

Quote from @Nicholas L.:

@Ross Carpenter

i don't think i understand your question - what do you mean by 'work'? you likely won't find a DSCR loan for 6%

Thanks Nicholas, I was mainly trying to see if the assumptions were reasonable (i.e. is 6% too low or should I assume 70% LTV). When you say that a DSCR loan has a higher rate, are you referring to FHA vs Conventional?

I haven't looked into 4-Plex financing structures in a while and wanted to see if my assumptions are reasonable for a property we are underwriting.

Does 25% down at 6% on a 30 yr amortization schedule work for a simple investment acquisition, or are there better options? Thanks for any feedback you can provide.

I'm looking for a single ticket if anyone has to cancel. 

Thanks,

Ross - 303.570.5171

I'm looking for a single ticket if anyone needs to cancel!

Thanks,

Ross - 303.570.5171

We are looking at a property in Denver zoned U-SU-C (allows for single family home only) but has been operated as a triplex for many decades, and shows up as "RESIDENTIAL-DUPLEX" in the property type on the assessor website. 

My plan would be to complete a $150-$200k remodel, but I wasn't sure if by pulling permits it might jeopardize the grandfathered status of the property. Has anyone had any experience with this? 

What about if we demolished the detached garage and constructed a new (larger) garage?

Thanks for any advice you can provide.

Summary: I have the opportunity to purchase several tax liens which return 9% at face value (no premium). They would typically sell for a 5-6% premium at auction, so should I exercise my right of first refusal with the thought that I could re-sell the notes later on if I needed liquidity (and on what market)?

I know what this answer would be if I were a "typical" lien investor pursuing yield, but this situation is a bit nuanced. I was curious if anyone who has institutional experience in lien investing could provide feedback. Our investment strategy has been to target a very specific type of unimproved land and specific types of commercial property primarily for potential foreclosure rights, but we have also purchased several liens for a yield hybrid since they could be acquired at par value.

We currently hold a few dozen tax lien notes in several counties purchased at sales last year. Over the next few weeks, we have the first right of refusal to purchase the lien note for this years’ taxes. I can’t find any info online related to the pros and cons for purchasing the liens for subsequent years, and I was curious for feedback on your thoughts. Below are the pros and cons of purchasing the subsequent year liens on properties for which I own the prior year as I understand them:

Pros?:

- You are effectively purchasing a note at par value which will immediately yield 9% interest (i.e. there is no premium bid like you would typically pay at auction)

- Assuming you think there is an opportunity to eventually foreclose on the lien, by purchasing the lien in subsequent years it will keep the property off the sale list and therefore will keep other investors from contacting the property owner?

Cons?:

- Capital is tied up with an unknown repayment period and relatively low liquidity (I understand that liens can be sold/assigned, but I am not aware of any real secondary market for them).

- Limit’s capital available for purchases of new liens this year.

- Purchasing subsequent liens doesn’t improve rights to ultimately foreclose on the property as the senior lienholder would just pay off junior lienholders in the event of a foreclosure.

Most of the institutional investors I have seen at the larger auctions were purchasing liens at a 5-6% premium last year (on a 9% note). Therefore, couldn't I purchase this year's liens at par value and then re-sell them at a 5% premium (assuming they meet the general criteria of the institutional buyers and I pay for all transfer fees)?

I would prefer to have all of my available cash ready to invest in additional liens at the end of the year, but if it is possible to re-sell/assign some liens on the market if needed, I will probably exercise all of them.

Any thoughts or advise would be helpful.

One of the municipality auctions I am going to has a large number of tax liens on delinquent HOA common areas (i.e. things like the right of way at a main entrance to a suburban housing development). The properties would have no commercial value, so there would be no intent to foreclose on the lien, but I was wondering if this would be considered a relatively solid investment (meaning that I would hope the HOA would NOT immediately pay/cure the lien, but would do so eventually in the next 2-3 years). I don't think it is common for HOA's to declare bankruptcy or otherwise try to get out of debt, so my goal would be to receive the monthly interest on the note for as long as possible, while still knowing that it is a secured debt instrument.

The note amounts are small (less than $50 each), so I don't think it would ever make sense to try and spend the hundreds of dollars required to foreclose. Does anyone have any experience in this realm? I have experience with commercial and residential liens with are a bit more straight forward, but the HOA angle is a bit confusing. Very little exists online for this topic, and there aren't enough notes available to warrant consulting an attorney on the issue.

Thanks for any guidance you are willing to provide.

I am looking at a property that has 4,000sf of commercial/retail (3 units) on the first floor and 2,400sf of residential on the second floor between 3 apartments. Does anyone have any idea what financing looks like for something like this? I assume I could get a 10 year loan (with 27 year amortization) at ~4-5% interest and ~70% LTV, but I really am not sure for this size asset. Purchase price is under $1m :) Does anyone have any ideas who would underwrite this type of loan? Would it be possible to use an SPE LLC for purchase and avoid personal recourse, or is that a pipe dream?

Thanks John - My main concern with this was that the contractor said that their entire process of documentation becomes public information. He specifically told me that they have a check box on the form they need to fill out that literally catalogues if the interior plumbing connection is a pipe that potentially contains lead. Although I had lived at the property and was pretty certain that the interior pipes were NOT lead, in the event there were lead pipes found interior to the home, it would probably trigger significant liability and cost issues for most landlords. My tenants texted me after the contractors left and said that they determined that the home did not have lead pipes, so I would imagine that the would inform tenants if the opposite was the case...

Are there any attorneys out there that have an opinion on what should be done here?

They are set to replace the main line to the house next week and I will be taking before and after photos to make sure nothing is damaged.