Pickle in a Fix and Flip

25 Replies

Hi Everyone,

So, I took the plunge. I bought a house (Tax Lien). Last year. 8 to 10 weeks to renovate, but I got road blocked with a redemption and lost about 2.5 months of work and holding costs. Then house gets broken into, $1,500 bucks gone, then battle with contractor and costs. I finished paying what was explained to me as fair but locals know it wasn't. Second theft of the house happens, costs me $6,000 dollars for repair. All said 9 months it took to complete on a $4,059.00 house. 3 bed, 1 bath. 

All in costs- $54,000= holding costs, renovations, (NO HVAC) thefts, legal problems, utilities, appraisal and inspection.

House is worth $41,000 as it currently sits (Was told it would be worth $55K to $60K when renovations are done.)

I am out of money, out of credit, out of time and in a major bind! House is "rented", insured and what not, but I cannot float all the debts on the rent. I am unsure of how I will get the HVAC system installed yet. My credit score has tanked bad in the last 45 days!

1: Should I just sell it out right, take the cash and invest in other project and use those returns to pay off the debts sooner than the 4 years projected by my debtor agency? (ideal, if it can be sold)

2: Not sure what option 2 is. 

Help, ideas, thoughts, buyers...all are welcome. 

the house is rented ? 

If so , it doesn’t cover expenses? 

Please clarify. 

You should probably at least put your location in your profile and then probably at least the zip code of the property. A Texas expert isn’t an Arkansas expert isn’t a Mississippi expert. 

Originally posted by @James Bordeaux :

Sorry, not clear. House is rented. 

house is in birmingham alabama. I live in vermont. 

This is why I think it is not a good idea to buy houses out of state unless you have some connection with the states. In Mississippi a house with one bedroom is not going to be in a good area. And I trust zillow before I trust a wholesalers APV. To be honest, I did have similar problems my first rental property. My mother and I bought a 4/2 for 15K only to find out later that all the wires and cooper pipes had been stolen! We ended up putting in 30K to rehab. But it did appraise for 50K and I was able to get a HELOC to pay off my credit cards. It now gets $900 a month rent, so I can't complain.

 

Alex. My intention overall is to sell the house, just not sure who would buy it. 

thank you Jermaine, another quiver in my pocket for good advice.

quick update: did a title search and found there is an overdue mortgage debt on the property from a previous owner. I contacted the bank and they are not willing to realease the debt wihout proof that it should be released. They aaked for a title or deed to the property but not sure a quit claim deed would exempt me from the debt? 

my only option here is looking like chapter 13. 


James, Chapter 13 would further tie you to a house you need to separate from.  If I were you, I would first try to unload the house through Craiglist, Facebook Marketplace (e.g. "Motivated out-of-state landlord must sell a rental property quickly...yada, yada, yada") or an online auction by way of a quitclaim deed. 

If you're $54,000 in, then you can still make this work. According to the realtor.com calculator, $60K debt on a house, with $100 a month in taxes and $100 a month in insurance, plus an extra $52 PMI (which you shouldn't have to pay, but this could also be extra liability insurance), AND if you are being charged a very expensive 12% rate (think hard money lender), then this house should still cashflow at $950 per month, with your total cost of $869 per month. Am I missing something?

I would find a hard money lender and ask for the $5K-$6K you need for an ac unit, or go cheap and put in window units, and make the house self-sustaining. Unless I overlooked something, you should be able to do this if you're willing to get a hard money loan. It doesn't have to be 12% either, I am just trying to make it expensive to show that it can be done. I included a pic below that explains the details. Please give feedback if I am missing something, or if this will lead to disaster.

@James Bordeaux I don't know tax sale law in AL. However in most States a tax sale wipes out any mortgage. So even though you got a quit claim deed, It may have come from someone that had clear title.

Regarding how to sell it, an auction may be an option. I sell properties at auction all the time. You can set a min sale price (reserve- the reserve can be higher than the starting bid)) so that if the auction does not get that high you are not obligated to sell. However if you change your mind you can choose to accept a bid below the reserve.

In my mastermind group we have a saying. "accelerate the splat" If you are going to have a financial crash anyway it is much better to get it over with quickly and then move on. With that in mind, even if you have to sell at a loss, is probably better than dragging it out.

Originally posted by @Warren Helmer :

If you're $54,000 in, then you can still make this work. According to the realtor.com calculator, $60K debt on a house, with $100 a month in taxes and $100 a month in insurance, plus an extra $52 PMI (which you shouldn't have to pay, but this could also be extra liability insurance), AND if you are being charged a very expensive 12% rate (think hard money lender), then this house should still cashflow at $950 per month, with your total cost of $869 per month. Am I missing something?

I would find a hard money lender and ask for the $5K-$6K you need for an ac unit, or go cheap and put in window units, and make the house self-sustaining. Unless I overlooked something, you should be able to do this if you're willing to get a hard money loan. It doesn't have to be 12% either, I am just trying to make it expensive to show that it can be done. I included a pic below that explains the details. Please give feedback if I am missing something, or if this will lead to disaster.

I’m Not sure what hard money lender would do a note for just 5-6k? That would be more like borrowing from a friend. 

I agree with @Ned Carey , you want to sell this property as quickly as Possible and move on. I’d get your finances in order before buying the next property. Though houses costing a few thousand dollars can be tempting, More times than not they will Just cause a world Of hurt. You can great much more equity and cash flow in 100-200k properties down there, and they can be leveraged / refinanced / sold more easily. 

Investing out of state, you need a team in place. Your single greatest asset is going to be your property manager who can tell you what and what not to buy, do rental turns for you, etc. there are plenty of good wholesale deals in Birmingham. 

You’ll recover from this and laugh at it one day when you’re an expert! 

Yeah my train of thought was basically similar to the math that Warren did. If you're above the 1% percent rule, and not only that but close to the 2% rule on this house, the thing that must be killing you is the interest rate. You really may want to consider just some alternative financing options and trying to keep it.

Just to clarify, I would ask the lender for $60,000, not $6000. But I think my misunderstanding is in the title and ownership. If the debt service is all from one source, and totals $60,000, then this can still work. But the lesson here is far more valuable than the house itself. My very first house was purchased for $44,000, I put almost that much into it, and then sold it for WAY LESS and that was a happy day because I desperately needed to get rid of it. I have never come close to making that mistake since then. So I'm giving different advice than what I did many years ago, because I'm suggesting making it work, but I sold my mistake for a loss and never looked back.

The advice about looking back at this and laughing is 100% correct. So stay at it and you will succeed.

A few points you might consider.  1.  To @Ned Carey 's point above there is an excellent chance you don't owe that mortgage being as this went through tax sale.  I know of know state where a mortgage survives a tax sale.  Two.  No worries on a quit claim.  We own a ton of houses with only quit claims.  The only issue is when seeking financing but you can quiet in most states for about $1,000 is it is not contested.  And the people who actually run the bank will not contest if it has gone through tax sale.  I can't guarantee that but we have done dozens of these houses.  Finally how about looking into introductory credit card deals with zero interest for a year or 6 months just to give yourself breathing room so you can make a decision going forward.  You can probably get one for attorneys fees to quiet the title and than get better financing when it is done.  With your rental number if you can work through that your house makes sense as a rental even if you spent more than you should have.  Message me if you want to discuss.

Good morning Everyone,

I am really thankful for this community! Lots of good ideas and options here. So, I am going to add one mix to this now. Found out yesterday (speculation and putting 2+2 together) that my renter isn't "renting"- in fact it would seem my new contractor who was "taking care" of me and the house, decided to take my money to "fix" my house, get me a renter and install a security system. With false promises to pay on time and scattered payments and after a week, no communication it would seem my new contract has the keys to my house and has brought his "employee with 3 kids" into my home to live with no intentions of paying. His voice mail isn't his anymore and the tenant has just a generic voice mail greeting.

My lawyer and I are speaking today about my options. Selling I think is going to just get rid of the head ache. Get my money stuff in order and try again at a later time. 

SO, update for all who has helped me with this property. My credit is tanked (590's) My 0% Business Cards, personal cards and name are maxed out and way over due. The bills on the house are climbing- I still have to pay utilities on the house, but don't know if anyone is even in the house, but the water bill shows someone is flushing an awful lot! Legally, I can't shut of utilities. I have no way of knowing what the condition the house is in or paying someone to check on the house for me. I got into a bad deal, just have to get out of it. 

I am filing Chapter 7. I am giving the house to the Bankruptcy Trustee to handle it and walking away. I'll quicker repair my credit by dumping it than dragging it on and on and trying to cover lawyer fees in two states (Vermont for filing and Alabama for Evictions/Notices or just in general help) more repairs and lending options...etc. I don't have time, money or energy any more to deal with this house.

Rip off the band aid, let it bleed a bit, start healing. 

@James Bordeaux - I really hate that this is happening to you. Unfortunately, “wholeselling” tax certificates has become somewhat popular in Birmingham. It’s sound like you are now working with an attorney, but a word of advice for anyone else looking at doing this. Some of these “wholesellers” are tying up properties that are tax sale properties from the State, then marking then up and marketing them. It sounds great to get a house for $4500! However, tax properties can be a legal nightmare. These people will tell you that you can fix these up and rent them (which isn’t a lie, but it isn’t that clear cut and dry either). Do your research on BiggerPockets. Denise Evans has written a ton about tax sale properties in Alabama. You may have never had legal rights to fix the property and most likely wouldn’t be able to sell it without clear title.