All Forum Posts by: Damond Matthews

Yesenia,

Great question — this issue comes up often with tax deed purchases, especially in Texas.

In Texas, when you acquire a property through a tax deed sale, the tax lien has priority over most other liens, including HOA liens. However, that doesn't automatically mean past-due HOA fees are wiped out. Many HOAs will still pursue those unpaid dues, especially if their CC&Rs (Covenants, Conditions & Restrictions) tie the debt to the unit rather than the individual.

In fact, I went through a similar situation. I purchased a condo through a tax lien auction in Louisiana, and I still had to pay the prior owner’s unpaid HOA dues — because the HOA stated the balance was tied to the property, not the person. The association enforced that the obligation “runs with the unit,” and I had to resolve it before moving forward with my plans.

Here’s what I recommend:

1. Request Documentation
   Ask the HOA or their attorney for a detailed breakdown of the fees and legal basis for why they believe you’re responsible for past dues.

2. Review the Governing Documents
   Check the condo’s CC&Rs or bylaws. These often specify whether HOA liens survive tax sales. Even if they're junior to the tax lien, the dues may still remain collectible.

3. Consult a Real Estate Attorney
   A Texas real estate attorney who understands both tax deed sales and HOA law can tell you definitively if you're liable and what options you have to dispute or settle.

4. Stay Current on New Dues
   Make sure you’re paying any new assessments going forward to stay in good standing and avoid compounding the issue.

Summary: Even if the tax sale wiped out the lien, some HOAs still have legal paths to recover past dues. It’s definitely worth getting legal advice on your specific situation — especially now that you’re building your portfolio.

Congrats on property #2 and best of luck getting this resolved!

—Damond M.
Real Estate Investor | Contractor | Community Developer

It sounds like you have given a lot of thought to your real estate investment strategy and have several factors to consider. Here are some suggestions and perspectives that might help you in making your decision:

1. Prioritizing Stability and Flexibility: Given your situation, it’s wise to prioritize investments that offer both stability and flexibility. Since you’re considering starting a family soon and your partner's income is variable, choosing investments that provide consistent cash flow would be beneficial.

2. Texas as an Investment Location: Your familiarity with Texas, combined with your firsthand experience of its growth, is a significant advantage. Investing in areas you know well can reduce some risks associated with real estate investment. The idea of buying a primary residence in Texas and then renting it out could work, but be sure to understand the legal and tax implications of this strategy.

3. Tennessee as an Alternative: The strategy suggested by your tax strategist for Tennessee involves renovating and renting properties, potentially as short-term rentals (STRs). While this could be lucrative, it also requires more active management. Ensure you're comfortable with the additional effort and risks associated with STRs, especially in an area you’re not familiar with.

4. California Real Estate Market: It’s clear that the high prices and tenant-friendly laws in California are major concerns for you. While house hacking might be challenging in South Orange County, exploring other areas in California where the numbers might work better could be an option. However, balancing the desire to invest in California with the realities of the market is crucial.

5. Investment Property Type: The decision between single-family residences (SFRs) and duplexes largely depends on your investment goals and risk tolerance. Duplexes can offer higher rental income but might come with more management challenges. SFRs, on the other hand, tend to attract longer-term tenants.

6. Financing Strategies: Using an FHA loan for a California property is a good strategy, as it allows for a lower down payment. You could potentially use conventional loans for out-of-state properties. However, be aware of the lending criteria for non-owner-occupied properties.

7. Key Investment Metrics: Focus on the most important figures for your situation, such as cash flow, cap rate, and the 1% rule. These metrics will help you evaluate properties based on your financial goals and risk profile.

8. Overcoming Analysis Paralysis: Since you have a tendency towards analysis paralysis, setting clear, achievable goals can help. Perhaps start with one property that meets your criteria and learn from that experience. This step-by-step approach can build your confidence and knowledge in real estate investing.

9. Seeking Mentorship: Finding a mentor or joining a real estate investment group can provide valuable insights and support. Learning from others’ experiences can be incredibly beneficial, especially when starting out.

10. Long-Term Perspective: Remember that real estate investing is a long-term venture. While immediate cash flow is important, also consider the potential for property appreciation and portfolio diversification.

Given your goals and current situation, starting with a single property in a familiar market like Texas might be a wise choice. This allows you to leverage your knowledge of the area while managing the risks associated with out-of-state investing. As you gain experience and confidence, you can then expand your portfolio and explore other markets and property types.

Your approach to investing in real estate through purchasing foreclosed homes at local auctions and utilizing the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy, especially with a focus on Section 8 housing, is a proactive and potentially lucrative path. Here's how you might apply this strategy with your $150K:

1. Auction Purchases: Buying properties at auction often allows you to purchase below market value, as you've experienced. With $150K, you have a solid base to bid on several properties, depending on the local market prices. However, it's crucial to factor in additional costs like auction fees, back taxes, and liens that might be associated with the property.

2. Research and Due Diligence: Before bidding, research each property thoroughly. This includes understanding the neighborhood, the property's condition, and any legal encumbrances. Sometimes, properties sold at auction can have hidden costs or issues, so due diligence is key.

3. Rehabilitation: After purchase, renovating the properties to make them livable and appealing to renters is the next step. This is where your budgeting skills will be critical. You'll need to efficiently manage renovation costs to ensure they don't exceed the potential value they add to the property.

4. Section 8 Considerations: Opting for Section 8 tenants can be a stable source of income, as a portion of the rent is guaranteed by the government. However, be prepared for the properties to meet certain health and safety standards, as Section 8 housing requires regular inspections.

5. Refinancing: Once the properties are renovated and rented, refinancing can help you extract equity to fund additional investments. The key here is to ensure that the property’s value has increased sufficiently to make refinancing viable and beneficial.

6. Repeat the Process: As you successfully cycle through the BRRRR strategy, you can potentially scale up your real estate portfolio, increasing both your monthly income and net worth.

7. Risk Management: Be aware of the risks involved, such as unexpected renovation costs, property management challenges, or changes in the housing market. Having a contingency plan is essential.

8. Professional Guidance: Especially when dealing with auctions and Section 8 housing, professional advice from a real estate attorney or a seasoned investor can be invaluable.

9. Leveraging Your Investment: Carefully manage your cash flow and leverage. While debt can be a powerful tool in real estate, over-leveraging can increase risks, especially in volatile markets.

This strategy, when executed well, can be an effective way to build wealth through real estate. It combines the potential for immediate equity gains through below-market purchases with the long-term benefits of property appreciation and rental income.