Tax Sales / Line of Credit

[Nathan Frost]

Hi all, I am trying to understand this process as an investor. If I have a line of credit how can I purchase a tax sale home at the courthouse? I understand you use the LOC as cash but what can I do after that? Say I purchase and fix up the property can I sell it immediately or do I have to wait 2 years for the redemption period? How do investors use their LOC to buy homes at the tax sales and turn around and flip them? I am worried about the 2 year redemption period, or can I just disclose that in the sell of the home? My goal in theory would be to use the LOC to but the tax sale home, fix it up, and then sell it immediately, is that possible?

[David M.]

@Nathan Frost

I've looked into this but haven't done this...  I thought even after you purchase the tax sale you still effectively have to foreclose to take Title to the property....  That's where the 2yr redemption comes into play.  But, that could be part of the difference of the tax lien and tax deed systems and perhaps state or county specific.

[Charles Thomas]

I haven't done one of these in quite a few years, but what I remember is this:
In Texas,
1. There are two different redemption periods. 24 months for primary residence and 6- months for non-primary residence.
2. You can sell the home before the redemption period expires, but you'll have a difficult time getting title insurance.
3. You can purchase the previous owner's redemption rights and effectively eliminate the wait time to sell and the buyer get a title policy.

[William Knox]

@Nathan Frost Check out "The 16% Solution". Great break down. Last edition was 2009 so info might be a little dated but it does a great job of outlining the overall structure. 

This is my basic understanding for Texas (Please correct me if I am wrong). It is a tax deed state so you are purchasing a redeemable deed. Redemption periods differ. 2 years for primary residential properties. 180 days for anything else.  That means that the owner has the redemption period to redeem. As an investor you would get your initial investment back plus a premium of 25% if redeemed in year one and 50% if redeemed in year two. Not a bad return (especially during this market!) The Texas Property code isn't the most fun to read but it is pretty cut and dry (always go to the source document!). 

https://statutes.capitol.texas...

So basically you are holding the deed as an investment for the length of the redemption period. If it is not redeemed then the property is your and you are cleared hot to do with it what you wish. It sound like from @Charles Thomas that you can purchase the owner's redemption rights which would negate them potentially redeeming the deed. The Texas Property code expressly forbids this (Section 3, Article XI, Texas Constitution.) and says that any such transfer is void. I'd talk to a real estate attorney. 

I think it is a fascinating vehicle and would love to learn more about it. Let me know if you end up following Alice down the rabbit hole as I would love to hear how it goes! 

[Eliott Elias]

The same you you buy any property, the property gets deeded to you and you get to do what you want with it.