Tax lien home in a low value market

Indianapolis, IN · Member since 2015 · 31 posts · 0 votes

Hello My name is Quinton living in Indianapolis. I would like to invest in Toledo Ohio. A family member has a tax lien of $19K but the home is worth only $20k plus repairs. The home is abandon so we all know what comes with that.

Tax owe: $19k

Current value: $20K<

repairs: $20K

comp sales: $60k

Comp rent: $800-$1000

As a new investor the numbers don't add up unless I hold it for 20years plus years

What should I look for in up and coming areas?

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Darius Ogloza

Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes

How real are your numbers? To get an abandoned house - like the ones seen by the score throughout the 05 - up to section 8 standards for only a $20K investment (including taxes, insurance and other carrying costs) seems implausible to me. Paint, flooring, mechanicals, roof (?), appliances, windows (I assume the abandoned property has been boarded up), materials alone add up quickly much less the labor.

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Christopher Abele
Investor · Toledo, OH · Member since 2020 · 88 posts · 101 votes
3y
Talk to me about "numbers don't add up."
$40k house that nets you 20k in immediate equity.
At $900 / month, you're at $10,800 / year. Let's be pretty aggressive with our underwriting costs and assume:
$200 / month taxes
$45 / month vacancy (@ 5%)
$150 / month CAPEX & Maintenance - its a fresh rehab (unless you're spending $20k on lipstick)
$75 / month insurance
$135 / month PM (@15%, which is high.)
So expenses are $605 / month. At the $800 - $1,000 price point you'll likely have a section 8 tenant and, given the price point of comps, this isn't the best of neighborhoods so you're not going to get much appreciation.
You will, however, have $295 / month in cash flow or $3540 / year. That's 9% CoC which, to be fair, isn't the worst thing in the world.
With some ballpark numbers (made up here) for an alternative exit strategy:
Rent it out for 2-3 years, then set it up with a rent-to-own program: 8 year lease at $1,100 / month. You'll pay insurance and taxes and keep title in your name; tenant is responsible for maintenance and upkeep beyond that. At the end of year 8, the tenant may purchase the home for $1; there is no equity transfer and the title and contract will sit in a land trust. When you sell, you just sold for a "loss" so there's no depreciation recapture. In 10 years you've doubled your money. I'm admittedly not being very nuanced with the numbers here, just throwing you a different idea - all while being pretty conservative with numbers and assuming no appreciation or real rent increases.
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Darius Ogloza
Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
3y
How real are your numbers? To get an abandoned house - like the ones seen by the score throughout the 05 - up to section 8 standards for only a $20K investment (including taxes, insurance and other carrying costs) seems implausible to me. Paint, flooring, mechanicals, roof (?), appliances, windows (I assume the abandoned property has been boarded up), materials alone add up quickly much less the labor.
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Quinton Washington
OP
Indianapolis, IN · Member since 2015 · 31 posts · 0 votes
3y
Quote from @Christopher Abele:

Talk to me about "numbers don't add up."
$40k house that nets you 20k in immediate equity.
At $900 / month, you're at $10,800 / year. Let's be pretty aggressive with our underwriting costs and assume:
$200 / month taxes
$45 / month vacancy (@ 5%)
$150 / month CAPEX & Maintenance - its a fresh rehab (unless you're spending $20k on lipstick)
$75 / month insurance
$135 / month PM (@15%, which is high.)
So expenses are $605 / month. At the $800 - $1,000 price point you'll likely have a section 8 tenant and, given the price point of comps, this isn't the best of neighborhoods so you're not going to get much appreciation.
You will, however, have $295 / month in cash flow or $3540 / year. That's 9% CoC which, to be fair, isn't the worst thing in the world.
With some ballpark numbers (made up here) for an alternative exit strategy:
Rent it out for 2-3 years, then set it up with a rent-to-own program: 8 year lease at $1,100 / month. You'll pay insurance and taxes and keep title in your name; tenant is responsible for maintenance and upkeep beyond that. At the end of year 8, the tenant may purchase the home for $1; there is no equity transfer and the title and contract will sit in a land trust. When you sell, you just sold for a "loss" so there's no depreciation recapture. In 10 years you've doubled your money. I'm admittedly not being very nuanced with the numbers here, just throwing you a different idea - all while being pretty conservative with numbers and assuming no appreciation or real rent increases.

Wow, thank you the only number I know for sure is the taxes owed. Being a new investor I have don't the experience to run the numbers in that way or even put together that strategy. There weren't great comps for that area. If this deal would be some thing you would be interested in I would love to talk to you about it more. I would to get this property before it goes to Lucas county.
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Quinton Washington
OP
Indianapolis, IN · Member since 2015 · 31 posts · 0 votes
3y
Quote from @Darius Ogloza:

How real are your numbers? To get an abandoned house - like the ones seen by the score throughout the 05 - up to section 8 standards for only a $20K investment (including taxes, insurance and other carrying costs) seems implausible to me. Paint, flooring, mechanicals, roof (?), appliances, windows (I assume the abandoned property has been boarded up), materials alone add up quickly much less the labor.

Well the tax lien is 19.5 the home has be ran though and damaged for my first investment I would to put in the sweat equity and get a first hand understanding. I really do appreciate your commit and you love to discuss this deal more. If you have free time.
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Account Closed
Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
3y
Why pay 20k for a house in Toledo when you can pay under 7k. Either way going into the D-class neighborhoods the level of risk is to high, and the quality of tenants is to low.
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Quinton Washington
OP
Indianapolis, IN · Member since 2015 · 31 posts · 0 votes
3y
Quote from @Account Closed:

Why pay 20k for a house in Toledo when you can pay under 7k. Either way going into the D-class neighborhoods the level of risk is to high, and the quality of tenants is to low.

Very understandable I wanted to help keep the home in the family and get my feet wet in REI
I might have to look into this home thanks
Do you live in the area?
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Rick Turner
Member since 2020 · 5 posts · 6 votes
3y
Hey Quinton, I’m from Toledo. Where’s the property located? If you’re looking to move the property I may be interested or have someone who is. Thanks Rick
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Quinton Washington
OP
Indianapolis, IN · Member since 2015 · 31 posts · 0 votes
3y
Quote from @Rick Turner:

Hey Quinton, I’m from Toledo. Where’s the property located? If you’re looking to move the property I may be interested or have someone who is. Thanks Rick

Perfect ill be sure to connect with you.
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