All Forum Posts by: Dan Mahoney

@Tae C. If I understand your question correctly, you borrowed the money to do the renovation.  If there is an existing mortgage on the property the DFE does not apply.

@Account Closed A lot of properties drop off the list in the four weeks between the initial publication in Daily Report and the sale date.  This is because someone has paid off the lien the Sheriff was levying.  It could be the owner, a bank holding a mortgage, or a third party who comes in and acquires the property ahead of the sale. 

If you want to find out what happened to the properties you were following, wait a couple months and then search the land records (either at Fulton County Courthouse or via gsccca.org).

@Andy Mirza I'm not a lawyer but here is my layman's understanding.

1.  All lien holders (including mortgages) at the time of the tax sale have the right to redeem the property for at least one year.  If they fail to do so, and the buyer of the tax deed forecloses the right of redemption, those liens (including mortgages) are eliminated.  Liens that arise after the tax sale may be valid.  If you buy a tax deed, best practice is to pay the property taxes for the calendar year of the sale date and thereafter (but not prior years). 

2.  I've been paying an attorney about $1,500 per property (fees and costs) for the foreclosure of right of redemption.  Each potential claimant has to be personally served by the Sheriff, so the cost will vary based on how many parties need to be served.  Some investors manage this process themselves but I use a lawyer.

3. My attorney charges $4,500 plus costs for Quiet Title.  It takes several months here in Fulton County.  I understand this is a little easier/less expensive in other Georgia counties.  I've spoken to Tax Title Services but have not tried their process.  I'm a buy-and-rent investor so I want to make sure I have clean title (and can get mortgages) for as long as I own it; TTS might make a lot of sense for a flip.

Approaching the owner before the tax sale is worth a try, but a lot of the time the reason it's going to tax sale in the first place is that the property is worth less than the combined liens (tax, mortgage, code enforcement, water & sewer, court judgments, etc.)  In these cases you need to  the tax sale process to clean up the title.

Put yourself in the owner's shoes - if the property had equity, they'd probably have tried to sell it before falling several years behind on their taxes.  Chances are they didn't just forget to pay the tax bill.  I guess it happens, but strategic default is much more common.

@Canesha Edwards This is a pervasive problem here in the South.  In many areas, the cost of even basic new construction is not affordable for the average resident. This causes the market value of existing homes to drop significantly below what it cost to build them and for land value to approach zero.  The result is often blight...it becomes uneconomical for owners to renovate, repair, or maintain existing housing stock, or even pay property taxes...so they don't.  A vicious cycle ensues.

A related issue is that the market for mortgages under $100,000 is very shallow.  Because of the fixed cost involved in originating, underwriting, and closing a mortgage (~$5,000 or so), few lenders are interested in issuing mortgages in the $50,000-$75,000 range - it's not profitable.  In areas where the typical home costs less than $100,000, would-be buyers are often relegated to non-mainstream financing like lease options and contract for deed.  Or they have to rent from landlords who could afford to buy with cash.

I see what you see here in Atlanta, and I admire what you are trying to do...but it may be hard to make the math work on new affordable development.  Of course this all depends on what you mean by "affordable."  

@Brian Garrett It's true that the delayed financing exception isn't terribly helpful for projects where the purchase price is substantially less than the rehab budget. But not all BRRR deals are like that.

For example:  Buy for $40,000, rehab cost $110,000.  Delayed financing will only get you $40,000.  If you want more you'll have to wait 6 months or use private money/hard money.

Counter example:  Buy for $110,000, rehab cost $40,000.  Now you have the potential to take out $110,000 right away (using delayed financing) and then refi again after 6 months if you want.

Still, I think the Delayed Financing Exception makes sense for your situation.  Here's how it would look (using round numbers for convenience).

1. Purchase in cash for $100k

2. Immediately apply for $105k conventional loan using Delayed Financing Exception

3. Property appraises for $140k 

4. You get $100k cash out at closing ($105k loan less $5k closing closing cost)

In this use case, you can buy a property in cash and get back your entire investment a few weeks later.  The key is for the property to appraise for 40% more than you paid.  This can happen by buying below market value, by improving the property, or a combination. 

@Brian Garrett Yes, conventional financing is based on current appraised value, not hypothetical future ARV. This is true for both purchase and refinance. If you want to borrow against ARV, you're back to looking at private money or hard money, not conventional financing.

(There are government backed renovation loan programs like 203k but that's unlikely to be feasible in a wholesale or other competitive bidding situation).

@Brian Garrett This is a good use case for Fannie Mae's Delayed Financing Exception.  You close in cash and then immediately refinance with a conventional loan.  The bank will lend you the lesser of your purchase price (plus loan closing costs) or 75% of appraised value.  Here is a link to Fannie Mae guidelines.

@Ericka G. I'm a little late to the thread but I wanted to add that there is a difference between an adviser and a broker.  A registered investment adviser (RIA) is a fiduciary that is required by law to put clients' interests first.  A broker (registered representative, Series 6 or Series 7 license) is contractually obligated to put their company's interests first.  Edward Jones is a brokerage - their representatives' job is to sell you investment products.

I think you are looking for help evaluating investment opportunities in the context of the rest of your financial life.  This means you need to find someone who understands real estate, taxes, business entity structure, debt, insurance, estate planning, asset allocation, etc., to help you make decisions.  Ideally, this person wouldn't have conflicts of interest like being compensated based on how much money you invest with him or her.

Here are some criteria to consider in choosing a financial services provider...are they:

1) Independent (not affiliated with a Wall Street brokerage or insurance company)

2) Skilled (strong educational and technical background, not just a salesperson)

3) Experienced in real estate (personally invests in real estate)

4) Fiduciary (registered investment adviser)

5) Fee only (no commissions or kickbacks accepted)

6) No required investments/deposits (you pay for advice, not products)

@Cristina S.  Buckhead has declined?  That's news to me...and I live there. 

That aside, I actually think you are looking at this sensibly and trying to balance risk and reward.  You have a lower risk tolerance than most forum participants, so you should expect to see lower returns than they see.  In today's low rate environment, any you can't get double-digit returns without taking on a lot of risk.  Anybody who says differently is selling something.  

At the same time, there is a bias on this forum to focus disproportionately on first-year cash flow, which is not always the best predictor of the long-term return on a rental property investment.  My general advice is to explicitly forecast all future cash flows from the property through and including its eventual sale.  Calculate the internal rate of return from these cash flows (including purchase and sale) and compare this to other investment opportunities.

Good luck!