Funding for Tax deed properties 'under contract'

7 Replies

hi. I invest in tax deed properties in Ohio, which has a slightly unusual system in that if you 'win' a property at auction, you only have to pay a deposit on the day (usually around 10%), and the full amount is not due until the sale is confirmed by the court (ohio is a judicial state), which is usually a few weeks later.

This is sort of like having a property 'under contract', when you would normally go off and try to get funding for the rehab / a buyer etc. Problem is, you have no legal right to enter the property until until after the full amount of the bid is paid, and this risk of 'potential unknowns' makes getting even hard money virtually impossible, no matter how good the deal is.

I always allow for an absolute maximum cost total rehab in my figures on any property I bid on (and always check the property externally), and there's still plenty of 'meat on the bone'. No real problem refinancing at 50% ltv after the purchase either, but just cant find a way around that original 'deposit', as it were. Obviously genuine 'private money' would work, but so far I haven't been able to access any.

I am going crazy, as time after time I see great deals go begging - e.g. Several times I could have secured a property with a 15k deposit on the day (which I had), against a winning bid of 150k on a property less than 15 years old with an MLS and local realtor assessed fmv of over 300k (even the county tax assessor agreed!), but was unable to take advantage of the opportunity due to the problem of funding the extra $135k due a few weeks later. Yes, these deals were at the top end of the range, but there are many to be had with an easy 40k plus profit, even allowing for a worst case rehab.

As this section is called 'creative financing', I was wondering if anyone had some thoughts as to a potential way around the problem? If you do, just think, you would also be providing a community service, helping counties provide schools, police etc, once these houses are again paying their way!!!

Deborah Tuck

Gou probably need a cash partner, not just a lender.

@Deborah Tuck

  Money partner... is the way to go as @Wayne Brooks

 states no lender is going to be able to do a deal for tax sale props.

how long does the defaulted owner have to redeem in your fair state?

@Deborah Tuck

What kind of terms were you thinking of offering or would consider reasonable?

Originally posted by @Wayne Brooks :

Gou probably need a cash partner, not just a lender.

 How do you find a cash partner, and what sort of terms would they expect?

Originally posted by @Jay Hinrichs :

@Deborah Tuck

  Money partner... is the way to go as @Wayne Brooks

 states no lender is going to be able to do a deal for tax sale props.

how long does the defaulted owner have to redeem in your fair state?

 Hi Jay,

There is no redemption period (props have already been through the courts). Again, how do you find a 'money partner', and what exactly are they?

What sort of terms would such a person be looking for?

Are they any different from 'genuine' private money where you really need to know someone personally?

Guess I better do some searching on bp!

Originally posted by @Alex Morstadt :

@Deborah Tuck

What kind of terms were you thinking of offering or would consider reasonable?

 Probably 50% of the profits? Finding the houses is my thing, rather than all sorts of schemes and ploys to wring out cash afterwards. Because of the margins, Can do deals pretty much all day every daywhere you basically just aquire the property, sometimes a bit of 'mop and glop', then just hand it over to a realtor with say a 20k markup, move on to the next one etc. Not competing with the full rehab fix and flip pros, who have to add their profit to yours, so not a wholesaling type operation.

E.g bottom end. Last month bought house at tax sale for $16k. Needed probably a 20k rehab for an ARV of $55 to 65k. Rent apx $730 month. (My backup position!). Sold it in 2 days for 22k to someone who wanted to do it up themselves, have lots of equity at a low starting point, and maybe be landlords themselves in the future. Huge untapped market for these type of deals.

Not looking for funding at this level, but it explains the principle.

A current deal i have is purchase price $43k, (deposit on day of 4.3k) remainder due several weeks later. Property currently occupied, but probably needs 20 to 30k rehab for ARV of apx 110k, rent apx $1000. Would market this one with a realtor for around 65 to 70k and expect it to sell pdq to a similar buyer to above. These are 'bread and butter' deals, (could generally find about 8 a month without having to spread the net too wide) but the ROI is pretty good, even at 50% split. No HMB etc will touch it though, even though I have it 'under contract', because of the internal access / right of inspection problem.

The 'home runs' above? There are 2 coming up in the next few weeks, but can't guarantee if they will be redeemed previous to auction, or what they will be bid to. If the stars align on the day, I can use my own money to secure the property, but am still stuck as above re finance, so can't take the risk to bid.

Hence this post for creative thinking!

Deborah

@Deborah Tuck

I think 50% sounds good for terms in the early days. Once you've established a solid track record with your investors, you could probably get more favorable terms.

As for finding investors there are the usual, as on BP, go to meet ups, talk with friends and family. Im not sure those will work on your timeline. BP might be the best option quickly.

My wife and I are setting ourselves up to have a couple "lines of credit" type fall backs that we own and control. But we've approached a wealthy friend who is very interested in being our bank to secure good lien deals. We purchase the liens with our cash, if the Lien redeems... he wont even hear from us. But if it doesn't, we get on the phone with him to start talking terms.  

It took being abused by big money companies to learn that having the same sort of money to back up the bids is the only way to get involved.

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