All Forum Posts by: Dan Mahoney

@London Robinson, congratulations on beginning to build a nest egg!  If you have only $10,000 liquid, slow down.  Put it in a savings account as the beginning of an emergency fund.  I know this is boring, but the standard advice to keep 3-6 months living expenses liquid is born out of a lot of pain from people that overextended themselves in real estate and other illiquid assets.  If you already have an emergency fund and the $10,000 is your "risk on" money, then I'd just say be very careful buying real estate in areas you've never visited.

There is another controversial maneuver investors use after the tax sale, which is to buy or obtain another unrelated lien on a property (e.g., a judgment lien for an unpaid Macy's account) and use that interest in the property to redeem the tax deed for 120% of the amount paid.  This gives the owner of the unrelated lien a "superlien" in the total amount paid to redeem the tax deed which sits ahead of the mortgage and any other previous liens.  To use an extreme hypothetical example, the Macy's judgment could have been for $250.00 and that interest in the property could have been used to redeem a $250,000 tax deed and cram down any other interested parties, including the owner.  This kind of maneuver is likely to land you in litigation but as far as I can tell is permitted under the law in Georgia, which is extremely punitive to property owners who don't pay their taxes.  Again, I am not a lawyer, so this is just a lay person's observation.

@Nick Fitzpatrick Ok, the liens and deeds work differently, which I think you understand, but Vesta and their peers play both sides.  So, in your 123 Peachtree example, Mr. Ferdinand (the Tax Commissioner) sells the lien to Vesta, who tries to collect from the owner or mortgage holder (with fees and interest accruing as prescribed by law).  The P&L of lien investing is reasonably constrained; it's more of a debt-like instrument than an equity-like instrument.  HOWEVER, when the owner doesn't pay and Vesta orders the Sheriff to sell the property at the tax sale, it is very likely that Vesta will also be the winning bidder for the tax deed at the auction.  So in this case, Vesta gets back the money they paid for the lien plus interest and fees (from one pocket to the other) and now owns a redeemable interest in the property.  If the owner or mortgage holder redeems the tax deed at 120%, Vesta gets a double dip - they made double-digit interest and fees on the lien, plus a 20% premium on the entire amount they paid for the deed.  If they don't get redeemed, they can take the property, which presumably they've researched and determined that it is worth more than the total amount they paid in.  Nice work if you can get it.  Keep in mind the cost of doing business is that Vesta has to take a broad array of liens from Mr. Ferdinand (to help him keep up a near-perfect collection %) so Vesta will likely take a loss on some of the liens, which will partially offset the strong profit they earn on others.  As you noted in your post, collecting lien payoffs and deed redemptions is a lot easier than actually owning and managing property.

Is it $1,150 for each side or $1,150 total?

Sarah, your two ideas are not mutually exclusive. For example you can fund a self-directed Roth IRA and invest in real estate. The IRA is an account type or "wrapper" and real estate is an asset class like stocks, bonds, or commodities.

I think your instinct is right. Open a Roth IRA and fund it each year. That's the time sensitive piece. If you change your mind on how to invest it down the road, that's usually pretty easy. If you are starting from $0, I would probably open a Roth IRA with an online brokerage like MerrillEdge or Vanguard and build up some capital before you try to get into real estate investing.

I can hear the boos already from the no money down guys.  In my experience your saving habits are way more important than your investment choices but I know other people feel that investing is more about hustle than capital.  Agree to disagree.

Congratulations on your success so far!

@Sam Bagwell Sam I just put up a long post on how to buy tax deeds in Fulton County, including the role of Vesta in the process.  It sounds like you have some concerns about some of the legal issues involved, which obviously I'm not qualified to comment on.  Could you maybe share your thoughts on why Vesta and other tax lien investors muddy the waters?

https://www.biggerpockets.com/forums/20/topics/395837-how-to-buy-a-tax-deed-at-the-fulton-county-tax-sale-atlanta-ga

@Vic Vega  Well, yeah, if you have it.  As usual its easiest to borrow money when you don't need it.

This probably means the owner had a loan with Wells Fargo and didn't pay it.  Wells Fargo sued the owner and got a judgment.

A home can't be sold to you with a lien that SURVIVES closing unless you agree to acquire the property subject to the lien.  But that doesn't mean if there is currently a lien on it that you can't buy it.  Normally you would agree to buy the property with marketable title and at closing, the attorney or escrow agent would pay off all the liens before disbursing the remaining funds to the seller.  In fact, in most real estate closings, there is a big lien that needs to be paid off - the mortgage on the property!  As a practical matter, if the liens total up to more than the property is worth, it will be tough to do a deal because one or more of the lien holders will have to take a haircut (e.g., a short sale).

@Vic Vega If you mortgage the subject property for the upfront purchase (e.g., hard money loan), you cannot use the delayed financing exception and will need a seasoning period to do a conventional refi. If you use a line of credit NOT secured by the subject property (e.g., a HELOC on your primary residence), you MAY be able to use the delayed financing exception, but the lender will typically insist that you use the proceeds to repay the line of credit. The underwriters are very focused on the source of funds for the initial purchase.

@Victoria Lee I live in a city (Atlanta) where there are a lot of sharks and scam artists in the real estate business.  Maybe it is different in more rural areas.  I'm not trying to discourage you.  I sincerely wish you luck.

Landlord-tenant law and the eviction process varies from state to state and I know nothing about Florida in this regard.  Sorry.