Tax Deed Sale Flip - How to fund?

Question

First, let me say this is not a solicitation for funding. I'm seeking advice.

My business partner has brought forward an opportunity related to a house going to a tax deed sale. In our state, after the sale you don't receive a warranty or QC deed, you get a tax deed, there is no redemption period, and the title is clouded. So for a flip we are building in a 6-month period to quiet the title, plus selling time after that - so let's say a 9-month holding period.

We believe there could end up being a sizeable amount of money to be made on the property if it does make it to auction and we have information that leads us to believe it will. Both of us have been investing in tax liens for a number of years but have no property deal experience, nor do we have the amount of money it would take to purchase at auction. Going in, we have a firm maximum auction bid amount that makes sense to us.

The question is, how would you fund/structure this deal? We've thought about the hard money route, the equity partner route, and the private loan route. I do have one potential prospect to pitch the equity partner or private loan route to, but I'm not sure how best to structure it with them. If that doesn't work out I'm not sure where we go from there.

As far as our part in the deal, we found the deal, would go to auction to bid or advise, would be willing to cover the quiet title action and take care of the selling process. At most we could put in 5% of our maximum bid amount if necessary.

Thoughts?

Patrick L. · Answer

I think it's going to be hard to find outside funding for because of a couple of reasons. First you're going to have to put down a cash deposit prior to the auction of a little over 5% of your maximum purchase price (5% of the purchase price plus doc stamps and recording fees). I would think it's going to be hard to get anybody to fund that prior to you owing the property. Then you're also going to need to pay the balance in full about 22-23 hours after the auction ends. You're not going to have clear or marketable title to the property even after you pay until the quiet title is completed (figure ~$2k for that if uncontested) so I'm not sure anyone would want to immediately wire funds in for a property that is that iffy as collateral. If you somehow ended up with a contested case in your quiet title claim it could take your money partner a long time to recover their funds.

I'd say your best shot is an equity partner that already trusts you because it's a pretty big risk for whoever is lending the money.

I'd also keep in mind that you probably won't be the only one interested in the property at the tax sale. I haven't been to the Pasco one in a while but I bid almost every month on the Pinellas sales and they're hotly contested and the decent ones all get bid up pretty high (generally 75-90% of what they'd sell for as an REO).

I'd say your best shot is an equity partner that already trusts you because it's a pretty big risk for whoever is lending the money.

I'd also keep in mind that you probably won't be the only one interested in the property at the tax sale. I haven't been to the Pasco one in a while but I bid almost every month on the Pinellas sales and they're hotly contested and the decent ones all get bid up pretty high (generally 75-90% of what they'd sell for as an REO).

Stefan K. · Answer

Patrick L. that's where I keep landing. Probably most likely to happen with someone we already know. We'd also meet with the lawyers to discuss the quiet title ahead of time to make sure there's no obvious issues.

We'd have our max bid and if it didn't work out, so be it. We worry more that if we don't do anything and it does sell closer to 60% of market value that we'll be kicking ourselves.

Another option we've discussed is a finder's fee. Not sure how to lock up an agreement on a finders fee without disclosing the property and risking someone just stealing the deal from us.

Tax Deed Sale Flip - How to fund?

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