All Forum Posts by: Paul Spangler

I was looking into this a while back based on the strategies that the US Tax Lien Association (one of the "guru" companies, interesting perspective but not sure about actual results) uses.  If you are buying a lien online then it didn't sell at the auction, which they say doesn't mean that it isn't a good lien, it just didn't get bid on.  Someone already brought up the fact that a lot of liens are on empty lots with little to no value to you, so it's good you already know about that.  If you happen to find a lien that is older, then it just means that you don't have to hold it as long before the redemption period is up and you can start the foreclosure or auction process.  As far as researching goes, Google Maps, Zillow, etc. are all good for preliminary research, but you want to know if the structure on the parcel is still in good shape.  For that, I would recommend contacting a local real estate agent and asking if they could stop by if they are in the area and maybe send you a picture.  You basically want to avoid a situation where the house burned down, or it was a drug house that has notices posted on the door, etc.  Never pay more for a lien than the land is worth should help you avoid a total loss, as long as it's a decent lot in a decent area.  Lastly, if you are buying online then I would check with whatever county you are looking in to see how soon they post their leftover liens after the auction.  A lot of those lists don't get updated so if it's a while after the last auction a lot of the good stuff will be picked through and no longer available, which would be a waste of researching time.

I was talking with my boss recently about our mortgages, and I wanted to see if anyone else has done this.

I just bought my personal residence and have a 30 year loan for $322k at 4.65%.  He suggested that I get an interest only loan and take what I would be paying towards the principal and invest it in the market.  As long as my investment does better than 4.65%, I'm actually better off than paying down the loan.  I don't know a whole lot about interest only loans, and it sounds like the interest only aspect of it only applies for a portion of the loan repayment period and not the whole thing, so eventually you have to start making larger payments to cover the missed principal payments.  You end up paying the same amount if you let the loan go to term.  

Anyway, has anyone else done this or is there something that I am missing, because an average of 4.65% seems very doable in the market, even with the volatility we have seen lately.

I've been working with a real estate agent to browse the MLS and get notified of new 3/4plex listings, but the inventory (in general, not just MF) is the lowest it has been in a long time according to him. I realize that the MLS can be a great strategy when there is tons of inventory and a buyers market, but I know that I need to change up my approach if I am going to find anything around my area soon.

My girlfriend and I are looking for a 3 or 4 plex, but I'm not sure where I would start if I wanted to start a direct mail campaign to find my own leads off the market. What makes it harder is that the Washington County (Oregon) website doesn't let you view the owners information, they make you go down there and look it up in person. I'm not saying that I won't do the work, but I also don't want to reinvent the wheel. We would like to use an FHA loan for this one, so I'm trying to find something that won't make my commute to work a nightmare, which is why we are limiting our search to a certain area right now.

We've been looking for around 5 months now and so far only 2 4-plexes have come on the market that would meet the 85% gross rent rule, both in terrible shape needing at least $50k in repair, and they were both listed around $400k.

I'm having the problem of 1) Not enough inventory and 2) Cashflowing properties are in terrible condition.

After doing the math on most of the multifamiliy properties in my search area, I would have to offer anywhere from $50k-$100k lower than listing price in order for it to meet the 85% rule, and that would only cash flow around $150 per month TOTAL. Is it normal for these places to be priced so high with such little cash flow, or am I just in a tough market?

I spoke with my broker again and he said that the 85% rule only applies to triplexes and 4-plexes for FHA.

It may be the lender's own rule, but it basically says that 85% of the total gross markey rent (all units including the owner occupied one) must be more than the PITI. When the appraiser comes in they will determine market rent for each unit, and if 85% of the gross market rent for all units isn't more than the PITI they won't approve the loan at that amount, and I would either have to get the seller to drop the price or I would have to put more down to make it work.

I was told by my mortgage broker that in order for a property to qualify for an FHA loan, 85% of the gross market rent for all units in a 2/3/4-plex must be more than the PITI, otherwise they won't approve the loan.

In Oregon I'm having a diffcult time finding properties that meet this rule, especially for duplexes, where most of the time my maximum offer would be $50k-$100k lower than market price. 4-plexes tend to meet this a bit, but for the most part it's been really hard to find.

A listing agent for a duplex in town said that he has sold many multifamily properties to buyers using FHA loans and has never heard of the 85% rule and didn't know what I was talking about.

Can anyone confirm that the 85% gross rent rule is actually a thing, or am I just not understanding it correctly? I'm thinking that in order to find a property that meets the 85% rule it's probably going to be in a C class neighborhood because those are the places with more cash flow. Thoughts anyone?

We found out that the two original buyers were cash buyers and backed out after inspection of the property. We went to an open house and saw the nicest unit, which looked dated but not too bad. We were told that two of the units will need new carpet, paint, kitchen and bath remodel (at least). The last unit is in okay condition. 

It's in a blue collar area and there are many multifamily houses around so we wouldn't want to fix it up too nicely if we got it. 

Given that the other buyers backed out after inspection, should we put in another offer? We are estimating around $20k in repairs to get everything looking good again. One of the units is vacant but the others have tenants right now. 

I was told by my lender that a conventional loan for a 2/3/4 plex would require 20% down, even if I occupy a unit, whereas an FHA loan would be 3.5%. A SFH would be 5% if I occupy with conventional though. That's the advantage of FHA for me because I don't have 20% of $400k for a 4-plex.

Tax liens you are fronting the delinquent tax money for the owner and they have a set time and interest rate to pay it back. If they don't pay it back by then end of the redemption period you can take the property. The interest and time limit varies by state. About half of the states do this. Tax deeds are when the state holds the tax lien and the time period to pay it back has passed. Now the state auctions off the property to the highest bidder in order to collect the tax money due. Texas is an exception. I believe, in Texas, the properties are auctioned off and you receive a Sheriff's deed of you win. You take control of the property, can make necessary repairs and rent it out/collect rent from the current tenant. However, the home owner can still redeem on the property and get it back, but you get your money back plus a penalty that they have to pay plus the cost of the repairs needed to make it livable/up to code. The amount of time the owner has to redeem depends on whether it is their primary residence or not. Keep in mind Texas is really weird and does things differently than other states. I did some research on Texas but that's as far as I went. A good rule of thumb on tax liens is to make sure the land is worth more than the lien, that way if there is a fire you aren't screwed. Also, get.a picture of the property if possible to make sure it's still standing and not a disaster.

You also want to look at your cash on cash return. If you can get a positive cash flow on 3.5% down then I'd say it's more worth it than getting a higher cash flow on 20% down. Use that 16.5% to put it into another property and get 2 for the price of one. Cash flow is only part of the equation. You gain equity in 2 properties instead of one. Use other people's money rather than your own. The bad thing about FHA is the PMI, but other than that the 3.5% down is pretty sweet. Plus, they are cutting the PMI by 0.5% here soon.