Wholesaling A Home That Has Delinquent Taxes???
Houston, TX · Member since 2012 · 84 posts · 14 votes
How would I go about doing this? I have a great lead and he is highly motivated to sell, but I'm not sure if the taxes will become an issue. Would I handle this wholesale like any other, or is there a special procedure that needs to take place?
I had a newbie wholesaler hit me up a couple months ago with a house that I could buy for $35,000. I crunch numbers in my head and think that it might be a deal. He tells me all about it and makes clear that I had to pay ALL closing costs. Then I finagle out of him that there are $7,000 in back taxes and he says that they will "carry" with the property.
ERRRRRRRRRR, HUH?!?
So as we talk about it and I explain to him that back taxes don't "carry" with a property that they have to be paid at closing, I end it with, "Okay so you really need $42K for this house." He says, "No, I need $35K." So I ask him about the back taxes again. He says, "Well yeah I told you that you have to pay all closing costs."
I love newbie wholesalers.
I would recommend that you always include back taxes into your price. ALWAYS. I hung up the phone not wanting to do business with this guy. Think about it like you are trying to build a long term relationship of trust and rapport with professional investors. Jickiness and not being totally up front is NOT the way to build trust with anyone, especially professional investors. Having an investor find out later that they have to pay more than you told them they would have to is a BAD idea to build trust.
I have taken money out of my profits before to make sure the relationship with my buyer is the absolute priority.
6 years ago, I was trying to sell a vacant piece of crap triplex for $28K and I called an investor that I had done several deals with. We walk through it and I tell her everything that I know from the seller that is wrong with it. She says, yes. We sign a contract and drive off. I remember 5 minutes later that I forgot to tell her that it needed a new gas line in one of the units (about a $1,000 fix). I immediately call her and tell her about my lapse. She says its fine. I tell her that I'm not okay with it. She agreed to the price not knowing that there was an issue with the gas line. I tell her that I'd like to drop the price by $1,000 to compensate for my mistake. She responds that she would still have taken it at $28K with a gas line issue, but I insist that we drop the price by $1,000 anyways.
My priority was to build the relationship of trust, not to make an extra $1,000. Fast forward a couple years and that same investor bought several more larger multifamily properties off of me. I would estimate we cleared over $100,000 in profits on those later deals.
I've had investors screw me over for $1,000 before, and what it does is destroy any future potential of business. If you want to maximize your greediness and make the absolute largest amount of money in this business, then have integrity. Integrity will make you so much more money in this business than being a snake.
The taxes simply get paid off at closing. Most contract will say the property is transferred free and clear of any liens. This means that the money to pay off the taxes will come from the sellers sales proceeds.
Reggie - Just figure this in your price when you make your offer. Like Ned said, they will be paid at closing. No big deal.
Sounds good, thanks Sharon Vornholt...going to walk the property tomorrow and make my offer, wish me luck!!! lol
So how did it go? Did you come out on top?
I had a newbie wholesaler hit me up a couple months ago with a house that I could buy for $35,000. I crunch numbers in my head and think that it might be a deal. He tells me all about it and makes clear that I had to pay ALL closing costs. Then I finagle out of him that there are $7,000 in back taxes and he says that they will "carry" with the property.
ERRRRRRRRRR, HUH?!?
So as we talk about it and I explain to him that back taxes don't "carry" with a property that they have to be paid at closing, I end it with, "Okay so you really need $42K for this house." He says, "No, I need $35K." So I ask him about the back taxes again. He says, "Well yeah I told you that you have to pay all closing costs."
I love newbie wholesalers.
I would recommend that you always include back taxes into your price. ALWAYS. I hung up the phone not wanting to do business with this guy. Think about it like you are trying to build a long term relationship of trust and rapport with professional investors. Jickiness and not being totally up front is NOT the way to build trust with anyone, especially professional investors. Having an investor find out later that they have to pay more than you told them they would have to is a BAD idea to build trust.
I have taken money out of my profits before to make sure the relationship with my buyer is the absolute priority.
6 years ago, I was trying to sell a vacant piece of crap triplex for $28K and I called an investor that I had done several deals with. We walk through it and I tell her everything that I know from the seller that is wrong with it. She says, yes. We sign a contract and drive off. I remember 5 minutes later that I forgot to tell her that it needed a new gas line in one of the units (about a $1,000 fix). I immediately call her and tell her about my lapse. She says its fine. I tell her that I'm not okay with it. She agreed to the price not knowing that there was an issue with the gas line. I tell her that I'd like to drop the price by $1,000 to compensate for my mistake. She responds that she would still have taken it at $28K with a gas line issue, but I insist that we drop the price by $1,000 anyways.
My priority was to build the relationship of trust, not to make an extra $1,000. Fast forward a couple years and that same investor bought several more larger multifamily properties off of me. I would estimate we cleared over $100,000 in profits on those later deals.
I've had investors screw me over for $1,000 before, and what it does is destroy any future potential of business. If you want to maximize your greediness and make the absolute largest amount of money in this business, then have integrity. Integrity will make you so much more money in this business than being a snake.
Well said @Ryan Webber...and I'm still negotiating with the seller Pia Gonzales, he seems stuck with his price smh
Good stuff Ryan. I run my business the same way. Recently placed a 3 family (what we call triplexes in the northeast) under contract to wholesale. I like to deal directly with the seller. However, the seller in this case is 4 siblings. The one I initially dealt with insisted that I deal with her "representative" in my negotiations. So the rep and I go back and forth and eventually settle on a price. His job was to now go around to the 4 siblings and get their signature on the contract (I guess they're paying him for this).
I'm wondering for 2 weeks why I'm not getting a final signature from one of the siblings, just excuses from the rep. The non-committed sibling finally calls me and complains that the rep, who she doesn't even know, is making false claims about her losing the property if she doesn't sign NOW and other high pressure tactics.
I calmly answer her questions, invalidate the false claims made by the rep and soothe her concerns. She was very thankful and signed the contract later that day.
It's all about integrity and addressing the seller's NEEDS.
Reggie you will find that often it's not always the price with distressed sellers. It could be the bottom line he wants to put in his pocket. This can be different from the price depending on the situation.
For instance, are there other liens such as judgments against the owner and property? Can a lien be negotiated down in order to get him his price? Find out the entire picture and be ready to get creative. I have never been much of a creative person until I got into real estate.
And I know others say include the taxes in the price but often the seller just wants to know what is he walking away with in his pocket. In this case forget including the taxes in your offer and let him know that you will pay $10k to the seller and take care of the remaining fees, costs and liens including the taxes (providing the numbers work for you).
Other sellers may not like the idea of you paying everything and paying them $10k. In their mind you're just buying the property for $10k and thus "stealing it". For these sellers I give them the whole number, $45k, and then a breakdown so that they can see that I'm not buying the house for $10k and instead buying it for $45k.
My point is that you have to LISTEN to your seller to determine his NEEDS and MOTIVATION. Not until you start speaking to his needs and motivation will you sign the seller and other distressed sellers up to an agreement that works for the both of you.
I'm surprised K. Marie Poe hasn't chimed in yet :)
Thanks for the input Ibrahim S, this is my first deal and I'm learning on the fly lol. Any knowledge is well received.
I have wholesaled many houses with back taxes due (one of my target markets). One thing to remember when dealing with the seller is that the taxes will have to be paid, no matter who buys the property. It's not like he can move on from you to another buyer and be relieved of that obligation.
The District of Columbia is serious about foreclosing on properties with delinquent taxes, so it might help to look up how long he's been delinquent and what the tax sale laws are in Houston/Harris County. This might provide you with additional leverage, to be used very judiciously of course!
Allison brings up a great point. The more you know about the seller's tax situation and (perhaps more importantly) the tax laws as they relate to delinquencies and foreclosure, the more trust you'll gain from the seller. There's nothing like being able to answer all of a distressed seller's questions on the spot.
Alison Miller, and Ibrahim S are right on. Knowing the system can be a big advantage.
I often offer a net amount to the seller and then pay all closing costs and back taxes. This gives the seller a number they can count on and gives me the ability to negotiate liens on the property.
Earlier this year I was able to negotiate the bank down from $66K to $5K because of a tax foreclosure. I also knew the tax holder had bid too much, so would have no motivation to complete the foreclosure. The tax holder was owed $16k. we bought the lien for $5k. As a bonus we got $5K that the city was holding when we paid ourselves off.
I've gone through phases where my offers were net amount to seller versus purchase price with seller paying certain costs. It used to depend on how many variables there were. Past due taxes are almost always one of the variables. Now my marketing says no fees or closing costs so I'm always working to net the seller a set number. However, I did one recently where price was net to seller, and I was paying every little thing. But there was an old code violation that needed to be released. I asked the seller how much it was for and she said $500.00. I wrote the contract to cover paying the violation "up to $500.00". When it came in at $850.00 she had no problem paying the $350, as she felt it was her share of it.
I sell everything after I close on it, with all of the title issues, liens and taxes resolved. So when selling, my buyers know exactly what they are getting with no variables.
Reggie
Make it easy, I just build up to the sales price. I take out a piece of paper and say lets see how this looks, there are at least $5,000 dollars of property taxes to be paid (use the total amount do not prorate), you have 2 judgments that will have to be paid before you can give clear title of $15,000 dollars and that doesn't include the accumulated interest which would be about $9,000 by now (figure the max legal rate plus some rounding off) so by the time you pay them off it will be $10,000. Now your mortgage payoff is probably around $120,000 plus the back payments so far of $5,000 plus the next one of $1,000. Do you know of any other amounts that may show up when we get into the paperwork? (answer always seems to be no even if the feds and the state have unpaid taxes and are lined up). OK, I estimate that there is $24,000 of work to be done that I know of, could be more. Plus all the holding costs to be paid until it is resold, plus the agents commission, transfer taxes and closing costs to be paid to transfer clear title and get title insurance.
Now i am an investor and a business man so I need to make a profit and the minimun I want is $30,000 for all my time and money and risk taking. Of course you can do everything I am going to do and make the profit for yourself and I suggest you do that but the most I can risk paying for this property is giving $ to you and taking over all the existing liens on the property and that is only if I am able to sell it to someone for $ quickly and stay within my budget (make sure to leave a cushion, be conservative on ARV). The good thing is you can get rid of this property now, wish me luck, and get on with your life.
If your able to discount items great, that will add to the profit, If the judgments are old your usually able to buy cheap. First time I had a guy like yours say I want $ and you take over the taxes I said so your really asking X for the property plus the taxes so you really want Y and that is to much for me to pay and I lost it and said maybe you would like it if I took over your car loan too, that is how much sense it makes to me. What I take out of my pocket for the property is what it costs me, that is part of the total sales price, and there is no way I can avoid taking the money out of my pocket to pay the taxes they are not free and they are not going to go away, you owe them not me and if I take them over they are part of the price I am willing to pay.
What if a property has a mortgage along with back taxes? Can it still be a wholesale deal? If so, will the asking price include the taxes, the total mortgage plus closing costs?