It's official... Today I bought my fist REI.

20 Replies

There was a Tax Sale (Judicial Sale) today and I scouted out some properties and set my max bids for each property. I lost on two properties, but got one SFH for $10k or just over $11k after transfer taxes. My first call was to get fire and liability insurance...

I was told that I couldn't go in to the property until I get the deed in 45-60 days.  Is that correct?

Congrats @Kevin D.  ! That's super exciting.  $10k!? That's a cheap property. I can't help you on the deed thing, as it's state specific and only for Pennsylvania (I'm assuming that's the state you bought it in?) 

Congrats! Let us know how it goes!

Thanks @Brandon Turner !  It is cheap.  In this neighborhood, this house (in good/updated condition) will go for $65k or so.  It's exciting and nerve-wracking.

@Kevin D.  - Can't speak as to Pennsylvania, but here in my county the results of the sale have to go before a judge to be finalized before a deed can be issued. And if there are any Federal Tax Liens on the property you have to wait a year for the feds' right of redemption to expire. Up-side is you get the property free-and-clear for pennies on the dollar! Good job! :)

Congrats Kevin on what sounds like a great buy! One thing I've learned is that if you buy it right... you'll never lose money. Sounds like you got that part covered!

Congrats @Kevin D. on purchasing your first REI property. I wish you much success in your future endeavors.

congrats!

almost 500% return is not bad

I am also looking forward to that first REI here in Fresno.

Sorry, didn't mean to insinuate that the property is work $65k now, it's going to take some cleaning up...

Thanks for the kind words everyone.  I couldn't have done this, or maybe wouldn't have done this without the knowledge gained here on BP.

Fist thing i would do is get title insurance - if you have not done this already? Congrats and good luck with it, looks like you're on a steep learning curve which is cool. 

sounds great I'd love to hear more about your whole tax sale experience 

@David T.  I don't believe the title is insurable just yet.  In PA, as I understand it, I will get a Tax deed in 45-60 days from the time of the sale.  In some of @David Krulac's posts, he said that even with this deed, it would be difficult to get title insurance.  Once I actually receive the Tax Deed, I'll have to have my attorney file an action to quiet the title.  That's the way I understand it anyway.

@Drew Vukov   As far as the experience goes, it's really too early to tell if the venture will be profitable yet, though I'm optimistic.  In PA, there is a judicial sale done by the tax claim bureau, so they are selling properties free and clear of any encumbrances, though it is feasible for a lienholder to claim that they weren't notified and could cause a bit of litigation.  To mitigate the chances of this happening, I researched the properties on both the County Prothonotary's website and at the Recorder of Deeds office.  I'm not pro at title searches, but you can get a basic handle on what liens are on the property, and then confirm that they were notified.  I also drove by and "inspected" the properties.  I picked the properties that were in decent areas and if they structure wasn't in complete disrepair, I made a note of resale value after I fix the property.  Then based on worst case scenario construction costs, I set a max bid for each of the 6 properties that I was interested in.  As time went by, some of the properties were taken off the sale list, and the day of the sale, I was down to 3. 

To remove the possibility of "auction fever" by brother, who is an attorney, registered as a bidder on behalf of my LLC. I gave him the property list and my max bids and wished him luck. When it was over, I won 1 property.

So far, I think this could be a good strategy in the future, but it is definitely not risk free.  I still haven't been in the house and have little idea of what to expect when I get in. Technically, it is trespassing if I enter before getting the deed.  I have gone by and introduced myself to some of the neighbors.  I explained that I bought the house and I plan to fix it up which would help their property value.  They were nice, helpful and gave me some history of the property.  Next time, I will do this prior to the purchase to get more data.

I bought the property for $10k.  I'm hoping (because I don't know what to expect) that I can clean it up for under $20k.  The house across the street is currently listed for $80k, but its a little bit bigger.  If all goes well, which I doubt will be 100% true, I will be in to the property for <$30k, and sell it for ~$65-70k.  That's the plan anyway.

By the way, I devised that plan based almost solely on the information that I've gathered on Bigger Pockets.

Hello Kevin, how did this venture all work out?

Hi Kevin Doyle any news to share on how this deal went?
Originally posted by @Kevin D. :

@Drew Vukov   As far as the experience goes, it's really too early to tell if the venture will be profitable yet, though I'm optimistic.  In PA, there is a judicial sale done by the tax claim bureau, so they are selling properties free and clear of any encumbrances, though it is feasible for a lienholder to claim that they weren't notified and could cause a bit of litigation.  To mitigate the chances of this happening, I researched the properties on both the County Prothonotary's website and at the Recorder of Deeds office.  I'm not pro at title searches, but you can get a basic handle on what liens are on the property, and then confirm that they were notified.  I also drove by and "inspected" the properties.  I picked the properties that were in decent areas and if they structure wasn't in complete disrepair, I made a note of resale value after I fix the property.  Then based on worst case scenario construction costs, I set a max bid for each of the 6 properties that I was interested in.  As time went by, some of the properties were taken off the sale list, and the day of the sale, I was down to 3. 

To remove the possibility of "auction fever" by brother, who is an attorney, registered as a bidder on behalf of my LLC. I gave him the property list and my max bids and wished him luck. When it was over, I won 1 property.

So far, I think this could be a good strategy in the future, but it is definitely not risk free.  I still haven't been in the house and have little idea of what to expect when I get in. Technically, it is trespassing if I enter before getting the deed.  I have gone by and introduced myself to some of the neighbors.  I explained that I bought the house and I plan to fix it up which would help their property value.  They were nice, helpful and gave me some history of the property.  Next time, I will do this prior to the purchase to get more data.

I bought the property for $10k.  I'm hoping (because I don't know what to expect) that I can clean it up for under $20k.  The house across the street is currently listed for $80k, but its a little bit bigger.  If all goes well, which I doubt will be 100% true, I will be in to the property for <$30k, and sell it for ~$65-70k.  That's the plan anyway.

That's great! It sounds like you did some research and put a buffer in your corner to protect yourself from getting carried away in the heat of the moment. How are rentals in the area. Super inexpensive properties that can generate 2% or more of the purchase price can have some pretty high ROI if you hold them as long term rentals.

Congrats! Kevin Doyle I employ a similar strategy in Missouri and we can enter the property nearly immediately after sale however next door in Kansas there is up to a one year period for the owner reinstate the mortgage. So as you've researched all the states are different. I love the idea of sending somebody else to the auction to remove the emotional fever of the auction. Very smart. Good luck!

@Kevin D. so, 9 months later.. is there a status update: repaired, listed, sold? Congratulations on your 1st acquisition: nice actionable step!  

Thanks everyone for checking in.  So here is the diary of my first purchase.  I initially bought the house for $10K.  My budget was $30K once I gained access to the house.  It was a total mess.  I got to know the neighbors pretty well and they filled me in on the house.  Long story short, the mother died and left the house to her drug addict son and he lived there for two years with no utilities and no garbage permit.  Needless to say, it was a sorry state of affairs in there.

I ended up going over budget by ALOT and definitely learned a ton of valuable lessons.  Here's how the numbers worked out:

Purchase Price: $10K

Renovation Cost: $45K

All in: $55k

A conservative estimate for sales value now is about $75K, so I'm definitely not underwater. I have it leased to a family who is paying $850/month. I could have gotten more, but went with my gut on them. My CapEx is pretty minimal because everything is basically brand new (furnace, water heater, granite, appliances, refinished hard wood, 2 new bathrooms.... I know, I know... I over did it.)

I expect my returns to be ($850x12)=$10,200. I'll assume a 40% expense ratio because the property is in good shape which will give me 11% ROI annually. That, I think, is extremely conservative. Since I bought this, I'm currently up to 8 units total and have been growing the business. I'm fortunate enough that I can pay cash for purchases and renovations and then take equity out if need be. That's what I did with my second project, which will give me far superior ROI numbers because of the leverage.

Again, thanks for checking in!

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