I wanted to post a update on what I’ve been doing this week, I’ve been really quite busy with real estate , I closed my first USDA loan property 2 weeks ago, which was really interesting. I will be posting more information on that at a later date, but I’ve been working on something a little more interesting.
This week, I bought (or at least went under contract) on a Tax Lien property.
If you don’t know what a tax lien property is , there’s a few explanations, the most simple is that Tax Lien Properties are the ones you may see on TV ads that say “Homes for $500, No Gimmicks”.
I’ve researched this topic for about a year, origionally I wanted to de-bunk these commercials and promos saying they were 100% false. After all this time, I’ve come to the decision that they’re not 100% false, but more like 50% (That makes it half truth).
Tax lien homes are properties homes that are foreclosed on by a party that holds overdue taxes, every state has different rules and regulations on buying them. In Ohio, they will only have tax lien auctions once or twice a year in a county that has over 200,000 population. This limits sales to very few counties in the state, and most counties choose to sell them in bulk. Unfortunately, that means unless you want to drop several million dollars in a package of these things, you’re out of luck buying them directly from the governments.
There however are a few resellers of tax liens, I’ve been dealing with one that’s quite friendly and the one I got this specific home from.
The commercials on TV (maybe they talk about them in seminars) is that you may own a tax lien on a property for a set amount (2-3 years of back taxes), you still have to foreclose on the homeowner. This is where things can get expensive, if the homeowner fights the foreclosure, you may easily have $10,000 invested in the legal action outside of the tax lien itself.
Unfortunately many new tax lien investors end up spending $15,000 on a property that’s worth $500 (or even worse, will cost them money due to violations, enviormental concerns or the such). This is why most large scale companies will buy tax liens for the interest paid on the back taxes, which is 18% per year in Ohio.
The immediate issue with tax lien properties is most of them are purchased sight unseen. Till the foreclosing entity actually acquires the property from legal action, they are not able to access the inside of the property. You may have a absolute gem, or you’ll have one that’s absolutely gutted and worthless.
I will post updates on the “gem” I purchased from the tax lien company, if you want to try your hand at this, you can email me and I’ll sell you one of them for cheap (or better yet , sell you groups of tax liens themselves).
Without further wait, here’s the property I bought in Dayton :
I’m not going to say exactly how much I paid for it, but it wasn’t much at all (4 figures) , I bought it sight unseen, and had a friend that is a REO specialist in the area go and check it out for me (Which is more than most people do).
I try to figure that I know what I’m doing with this, and estimated it was a wreck, and it is. The walls have been taken down, subflooring tore up ,ect.
The lien company from my estimation spent around $6,000 on this property, lien + attorney costs + wages of liquidation manager. I bought this home for less than the $6,000 estimate, so they most assuredly lost money.
This is where investors can loose their shirt, so this post is as much as a warning as it is a story of my purchase.
I will update as the process goes on.
Answers to questions/comments -
I am going to rehab the property (Obviously it needs it bad) , my preference is to mortgage it at repaired value and then rent it out. I may rent the property and then sell it to a investor at a favorable cap rate.
Jack, you’re about right, it’s very similar to the way a bank forecloses on a home (This is my understanding). And then all prior liens are wiped out in the foreclosure auction.
Are you SERIOUSLY Interested in buying a foreclosed home or property? If so, then we’re serious about helping you buy one. Fill out our form located at http://www.realestatecircleville.com/foreclosurerefferal.html and we will help you with the process!
