Philadelphia Tax Sale

6 Replies

Hello BP,

I'm fairly new to BP (first post!), and I was hoping someone could talk me out of a bad idea.  There's a rowhome down the street from me.  It's been empty for the last two years at least and has a notice of unsafe structure from L&I, I think because the masonry is pretty dicey.  It's always struck me as a shame - it would need to be taken down to the studs, of course, but it's a corner rowhome in a solid, up-and-coming neighborhood.  As it stands now, though, it's an eyesore on my otherwise lovely little block.

A little digging reveals that it's coming up for auction at a tax sale.  A peek at the Philadelphia Property Atlas reveals no deed transfers since the 80s, no mortgages or other encumbrances, etc.  (Of course, were I to go to the auction, I would pay a title company to first do a search in order to minimize the chances of an unfortunate surprise down the road.)  Theoretically, it could be a fix-and-flip, turned into a duplex and rented (many corner properties in my neighborhood are duplexes), or I could even just trade up from my current place and live in it after it's rehabbed.  But I know I've seen respected contributors around here caution people about tax sales - @David Krulac and @Steve Babiak among them - and in any event, the place looks to be in pretty rough shape (though I know it was occupied as of a couple years ago, so it hasn't sat empty for 10+ years).  So, on the off chance the title report came back ok and it was available for a song at auction - yes, this is very hypothetical - is any of these the proper response:

Mike, you're crazy.  Tax sales are full of traps even for experienced RE investors - and you, my friend, are definitely NOT an experienced RE investor.

Mike, you're crazy.  That rowhome may collapse for all you know, or need to be bulldozed, and there's no way you can really know before you buy.

Mike, you're crazy.  [Fill in your own response.]

Or is there a chance this might make sense?

Thanks,

Mike

Mike -- if you've worked out the numbers and process, and built a contingency for any unforseen events that come up along the way, and the deal looks worth it to you, you aren't crazy.

But in my mind, I don't know enough about any of these "barriers" - tax sale, zoning for a duplex, structural issues in a home, etc. If you've worked all that out and aren't concerned, go for it!

Thanks, @Joe Papp.  I suppose the problem is, I can't get access to the property to put together a rehab estimate.  A contractor acquaintance looked at it from the outside and guessed $150k total; a realtor friend looked at it and thought that sounded pretty high, and that $100k might do it.  It's about 1,800 square feet and I'm assuming it'd need to go down to the studs, or maybe even the joists, with new mechanicals/electric/plumbing/roof and a good amount of masonry work.  

Recent rehabs in the area have sold in the $210-$220 per square foot range over the past year, but even at, say, $180 per square foot (which is roughly the median for ALL sales in the area over the past year - rehabbed, fixer-upper, and everything in between), the place might be able to fetch $320k as a SFH (it's currently zoned as mixed-use). But without being able to even ballpark a rehab estimate, it's tough to determine what an appropriate bid would be, or if this is one of those houses that would be too expensive even if you got it for free. Like I said, I think it was occupied within the last five years or so, but it's theoretically possible the place is in rough enough shape that I could just be buying a corner lot that comes with lots of demo costs.

@David Weintraub It's in Newbold.

And thanks for the heads-up on title insurance.  I'd figured that would be the case, but thanks for confirming.  I suppose that makes it somewhat less attractive from a fix-and-flip standpoint.

Originally posted by @Mike S. :

@David Weintraub It's in Newbold.

And thanks for the heads-up on title insurance.  I'd figured that would be the case, but thanks for confirming.  I suppose that makes it somewhat less attractive from a fix-and-flip standpoint.

 If you can keep your cash on the sideline for a year, then it could be lucrative.  I've met a number of people who have done this, but for most people it's not the best case scenario. 

Originally posted by @Mike S. :

Thanks, @Joe Papp.  I suppose the problem is, I can't get access to the property to put together a rehab estimate.  A contractor acquaintance looked at it from the outside and guessed $150k total; a realtor friend looked at it and thought that sounded pretty high, and that $100k might do it.  It's about 1,800 square feet and I'm assuming it'd need to go down to the studs, or maybe even the joists, with new mechanicals/electric/plumbing/roof and a good amount of masonry work.  

Recent rehabs in the area have sold in the $210-$220 per square foot range over the past year, but even at, say, $180 per square foot (which is roughly the median for ALL sales in the area over the past year - rehabbed, fixer-upper, and everything in between), the place might be able to fetch $320k as a SFH (it's currently zoned as mixed-use). But without being able to even ballpark a rehab estimate, it's tough to determine what an appropriate bid would be, or if this is one of those houses that would be too expensive even if you got it for free. Like I said, I think it was occupied within the last five years or so, but it's theoretically possible the place is in rough enough shape that I could just be buying a corner lot that comes with lots of demo costs.

You asked a realtor how much a rehab would cost? Do you go to your car mechanic for brain surgery? ;) 

Your contractor friend is close but still likely a bit low. We usually spend around $100/sq ft for a full gut rehab and I'm a GC. You're also forgetting a bunch of other costs like architecture, zoning, permits, utilities, financing costs, taxes, insurance and probably more I'm forgetting off the top of my head. 

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