We just found out what happens when..

Home artificial.

Tax sales

As most people know we have been in the real estate industry for several years.

And we don’t know about you, buy we have been just curious as to what happens to the extra money if a house is bought at tax sale or at an REO action. You might be surprised.

Then every now and again I hear about a “secret new opportunity” in the business of tax sale overages (aka – “excess proceeds”, “overbids”, “tax sale surpluses”, etc).

This being said we decided to get through the Hoopla, and get to the bottom of the hype. and bring you the Good News the bad news, and the Ugly news, about this.

For those of you completely unfamiliar with this concept – Let us give you a quick overview of what’s going on here…

The Real Story Behind Tax Sale Overages & Excess Proceeds (Good, Bad & Ugly)

 

Quick Overview

Judge HousesWhen a property owner stops paying their property taxes, the local municipality, that is a fancy word for the local government (i.e. – the county) has to l wait for a period of time before they seize the property in foreclosure,  and sell it at their annual tax sale auction. With is Normally every 6 or 12 months. Every county in the U.S. uses a similar model to recoup their lost tax revenue by selling properties (either tax deeds or tax liens) at an annual, or semi-annual tax sale.

Let’s help shed some light on this…

Let’s illustrate this with an example:

I like to keep things simple, of for this, suppose you own a property worth $100,000.

One day – you decide (for whatever reason, you lost job, hate life, ant-Government, that time of the month, dog peed on your leg, what ever the reason) to stop paying your property taxes.

The county tries to collect by sending letters, notices, etc. and eventually, a couple of years go by and the county treasurer comes in and seizes your property for non-payment of property taxes.

At the time of foreclosure, this is just for example,  you owed somewhere in the neighborhood of $18,000 of taxes and late fees to the county, which maybe a grand total of $20,000. A few months later – the county brings this property to their annual, or semi-annual tax sale – where they sell your property (along with dozens of other delinquent properties) to the highest bidder – all in an effort to recoup their lost tax revenue on each parcel of real estate. After all no one wants to loose money.

Since you owed $18,000, not counting late fees,  on your property at the time of foreclosure, the county decides to start the bidding process at $18,000 (because this is what they need in order to recoup most the money that you owed them).

But here is an interesting tad bit of info…    your property is easily worth $100,000 (as you know, and most of the investors bidding on your property are fully aware of this). In many cases, properties liked yours will receive bids FAR beyond the amount of back taxes actually owed. It wouldn’t be uncommon for a property like yours to actually sell at auction for say – $40,000 (you stop and think about this, this is still a great deal for the buyer – at 40% of market value, and FAR more than the $18,000 you originally owed).This brings us to the question as to so, what happens to that money?…..

Okay so get this – the county only needed $18,000 out of this property, Right? The difference between the $18,000 they needed and the $40,000 they got is known as “excess proceeds” (i.e. – or at “tax sales overage”, “overbid”, “surplus”, etc). Many states throughout the U.S. have statutes that prohibit the county from keeping the excess payment for these properties. AKA it is against the law for them to do so!

Because of this, this is where the “secret business opportunity”  that we hear about from time to time exists in collecting excess proceeds, sometimes referred to bounty hunting, in a tax sense. The county has rules in place where these excess proceeds can be claimed by their rightful owner – usually for a designated period of time (which varies from state to state).

And who exactly is the “rightful owner” of this money?? In most cases, it’s the last owner of record at the time of foreclosure (aka – YOU). Which means you may have money coming to you for not paying your taxes… wait what?

Yea, that is right! If you lost your property to tax foreclosure because you owed $18,000 of taxes – and if that property subsequently sold at the tax sale auction for $40,000 – you could feasibly go and collect this $22,000 difference after going through a few simple steps to claim the money (e.g. – proving you were the prior owner, completing some paperwork, waiting for the funds to be delivered, general bureaucratic BS).  Pretty interesting ah?

So you might ask about this strategy, and how and whos should use this.

Who Should Be Using This Strategy?

mystery-personOk, so now, for the average person who paid full market value for their property, this strategy really doesn’t make much sense, I mean after all if you have a serious amount of cash invested into a property, there is just simply  way too much on the line to just “let it go” on the off-chance that you’ll be able to milk some extra cash out of it. Think about paid 100,000 for it  but got the $22k?

However, this approach DOES make sense for an investor who has almost nothing to lose.

For example, with the investing strategy the we use at BMW Properties, we are able to buy properties free and clear for pennies on the dollar. To the surprise of some investors, these deals are all over the place and assuming you know where to look, which btw we can help with that,  it’s frankly not difficult to find them.

When you’re able to buy a property for a ridiculously cheap price AND you know it’s worth substantially more than you paid for it…   it may very well make sense for you to “roll the dice” and try to collect the excess proceeds that are generated through the tax foreclosure and auction process. How ever, we normally try and return the extra money to the owners, IF they can be found. Because Normally we keep the houses and rent them out, sell them, what have you.

The supposed real beauty behind this strategy is that you don’t have to do anything to sell your property. Rather than spending your money, energy and efforts to create a great real estate listing and promote the heck out of itthe county will do all the work for you. If you’re the “rightful owner” of any excess sale proceeds generated from their selling efforts (which will happen on their dime, not yours), you just need to be smart enough to claim those excess proceeds after the fact (and most people have no idea that this opportunity exists).

The Facts About Tax Sale Overages

So ALL this  sounding pretty interesting, and cool right?

Here is the problem with everything I’ve said so fa…     We have been describing the most ideal situation. While it can most defiantly  pan out very similar, and close to the way I’ve described it above…. However there are a few downsides to the excess proceeds approach that you really should  be aware of:

1. Generally most properties will never generate excess proceeds.

While it depends greatly on the characteristics of the property, such as location, condition, etc.  it is entirely possible, and in some cases highly likely,  that there will be no excess proceeds generated at the tax sale auction. This often times happens when a property isn’t very “desirable”, because of damage, location, etc.  sometimes even the county doesn’t generate much public interest in their auctions, which can be good for investors if the know of them. Either which way,  if you’re buying a property with the sole propose of letting it go to tax foreclosure so you can collect your excess proceeds… This about this  what if that money never comes through? Or you do not get what you invested in it back? Would it be worth the time and money you will have wasted once you reach this conclusion?

2. Almost in all cases, it takes a long time to collect tax sale overages.

If you’re expecting the county to “do all the work” for you, then guess what – you are on their schedule. Anyone that has dealt with the government knows they do not move fast in most cases. In fact,  in many cases, their schedule will literally take months, if not years to pan out. So I ask this question…    is it worth your time to sit around for that long, all so you can maybe get paid one day?

3. Several states don’t even allow the collection of excess proceeds.

I am not saying this is legal or even right. but one person, actually that I knew,  had learned this lesson the hard way. The first time they pursued this strategy was in their home state – I was told that they didn’t have the option of claiming the surplus funds that were generated from the sale of their property (because their state was one that didn’t allow it). In states like these (and there are several of them, come to find out), when they generate a tax sale overage at an auction – the state becomes the “rightful owner” automatically. They just keep it! I am not saying that is right…. but it does indeed happen.

 

Does Indiana allow for the collection of excess proceeds?

Alright, if you’re thinking about using this strategy in your business, you might want to think  about where you’re doing business and whether their laws and statues will even allow you to do it. I did some digging on Indiana, means that they are my home state, they do pay back, or at least suppose t  the laws can be found at Here at Indiana Legislative laws

 

Disclaimer: I am not attorney, and these are the latest laws that I found to date, please consult an attorney for more accurate information.

When and Why is this a Legitimate Strategy?

Let us start of by saying it is impossible for us to make a cover all statement that this type of business IS or IS NOT a valid opportunity. The fact of the matter is – there are thousands of auctions all around the country every month, of every year. At many of these auction, there maybe hundreds (or even thousands) of investors will show up, or maybe one or two,  get into a bidding war over many of the properties and drive prices WAY higher than they should be (note: this is part of why I’ve never been a huge fan of REO sale auctions in general).

Wrapping it up

Pursuing Excess Proceeds as a business offers some pros and cons. All are important to weigh in your decision on whether or not to add this strategy to your real estate investing repertoire. You may hear this as “bounty hunting”

Pros:

  • This strategy requires minimal effort on the selling side (and if selling is something you absolutely hate – this may influence your decision).
  • There can be some HUGE upside potential if & when the stars align in your favor (and sometimes they seriously need to align in your favor in order to achieve the best possible outcome).

Cons:

  • This is a unique approach to real estate investing in that it create a major lack of control in the selling process. Which is one thing that we do not like. I mean auctions twice a year? For starters.
  • There is the very real possibility that you will earn nothing in the end, if you do not do your home work on a property, which could mean you will lose not only your money (which hopefully won’t be very much), but you could also lose your time as well, which, in many cases, can be worth a lot more.
  • Waiting to collect on tax sale overages requires a lot of sitting, waiting & hoping for results that usually have a 50/50 chance, I would say on average, of panning out in your favor. If you are the kind of person who needs control and immediate results, this approach will most likely drive you insane, and possibly to drinking lol.
  • Something you need to be aware of collecting excess proceeds is not something you can do in all 50 states, so if you’ve already got a property that you want to “roll the dice” on with this strategy, well, you better find out if it is in an area that they pay back. .

Want To Learn More?

I’ll be honest – I haven’t spent a lot of time dabbling in this area of investing, called “bounty hunting”  because it just is not our niche, plus.  we cannot handle the mind-numbingly slow pace, that it appears to go at,  and the complete lack of control over the process – I think it drive me drinking lol. With that being said, I still know there is still a lot of potential money to be made in this arena of “bounty hunting” , it’s just not the primary niche that I’ve chosen to pursue myself. However I do use tax sales, and I am one of the bidders at a tax sell, it just not for the purpose of collecting the surplus or the bounty money. We do it as one of our ways of getting homes for penny on the dollar.  If you are wondering how tax liens work, we have a blog on the pos and cons of investing in Tax-Lein Properties. and what they are and how they work.

Come visit us on face book or at our web page For more information about what we do, and how we maybe able to help you invest in a house to live in, or to flip.

Logo4

Advertisements

Advatages and Disadvatages of Real Estate Investment

Money-HouseI have some Good News and bad news, about real estate investing.

First let us start off with the term “real estate investment” can be…  ambiguous, guess you can say,  unless someone defines what kind or real estate they are talking about. For this blog we are going for investment purposes, there are at least a dozen ways, most likely it is safer to say more than a dozen ways, for an average investor to bring real estate assets into a portfolio, and well lets face as we all know, everyone that is successful has a real estate portfolio.

Now believe this or not there exist real estate-backed ETFs (exchange-traded funds) and similar instruments that are virtually identical to buying shares of a common stock or a mutual fund, or hedge fund if you will. And in fact a lot of mortgages and things, are traded on the stock market, HUD does this, but that is in a different blog. This kind of real estate exposure is typically not what investment texts and experts mean when they are talking about real estate investing. For most purposes that they speak of it is putting money into the actual REAL ESTATE, which involves the actual purchase of land, structures or both. 

When someone buys a piece of commercial or residential real estate, there are notable advantages and disadvantages that should be examined before a commitment is made, in layman terms a lot of home work,, and research to be done. Now let get down to the Good news, and Bad news, the Following are some of the advantages and disadvantages of real estate investment, in a general sense. So lets get down to it! what do you say?

One Advantage  – Sweat equity

One of the best things about owning real estate is that the value of the asset is at least it can be partially controllable by the owner. In other words, an owner can repair a roof, put on a fresh coat of paint or otherwise beautify a house or building. Even if the owner hires contractors, whatever is done to improve a property has the potential to increase the asset’s value proportionally. Unlike stocks, bonds and precious metals, for example, an owner of real estate has some power over the improvement of the investment itself. These advantages applies to very few asset classes with the exception of real estate, classic cars, and a few types of collectables and antiques.

A Second Advantage  – Diversification

Everyone knows that many successful investors diversify their portfolios by purchasing stocks and bonds, etc. in different markets or by acquiring precious metals as a hedge against inflation, proof is this is when the great depression hit. What did people do? How ever it seems that fewer consider real estate as a way of diversification, partly because they think cost of entry is higher, which can be true, but also because the average investor tends to not know very much about the RE market, how ever the successful ones do invest in real estate. There is a certain amount of “real estate phobia”, for lack of better terms, in part due the real estate bubble that busted, and other things,  and that certainly has an impact on the willingness of many to purchase real estate.

But, even a single, small real estate asset can be an ideal way to truly diversify a portfolio that is otherwise filled with stocks, bonds and a smattering of gold and silver, diamonds, black diamonds, etc.. that being said that leads us to our…

Third Advantage  – Not tied to securities markets

Compared to the securities, real estate is generally untied to what the major world markets do. Unlike stocks, bonds and precious metals that go their own way and have their own cycles.  Real estate assets, are for the most part, isolated from the ups and downs of Wall Street fortunes, and crashes. In this respect, real estate as an investment is similar to gold and silver in that it can be on an upswing when the stock market is headed south. For example, in inflationary times, real estate investments tend to do quite well, even when other asset classes are performing poorly. And like Gold there is only so much of it. This leads into out disadvantages…

One Disadvantage – RE can be a Challenge to Acquire

this can be for several reasons like cost and/or availability. Some times it can be difficult to buy several real estate assets, or properties, that have diversity amongst themselves. Which is in part because the average cost of just a single piece of real estate can be much higher than the cost of a group of stocks or even a few ounces of gold, also  RE assets can be a challenge for the average investor to buy, especially when more than one is required for a balanced portfolio. Then it gets into managing if you are keeping them to rent out, and various other factors. Which brings us to our 2nd disadvantage.

 

Second Disadvantage  – Management and Maintenance Costs

Whether an investor hires a management company to take care of day-to-day administration of property or they chose to do this them selves, there can be a significant cost to maintaining a property and dealing with tenants, especially if it is just one unit, or the owner lives far away or what have you. . This type of expense, in both time and money, is rather unique to real estate and needs to be considered beforehand. An investor would have to figure a Profit and Loss  or CAP rate for the investment(s).  THat brings us to the next Disadvantage.

 

Third Disadvantage  – Measurement of results

Because every real estate asset, or deal  is, to some extent, unique, it can be nearly impossible to measure performance on a regular basis. Let us say for example,  a small office complex in a major city returns 8 percent on investment for a given year, is that higher or lower than it should be?

There is no real yes or no answer because that particular office building in that exact location can’t be compared to one just like it across town, or even to a different one nearby, in lay man terms, you have to compare apples to apples oranges to oranges. Measuring the performance of RE assets can be somewhat of a guessing game, especially for large commercial properties that are one-of-a-kind structures, rule housing, etc..

As with any other asset acquisition, one should do considerable home work before committing money to a real estate asset. We at BMW Properties can defiantly help with all this, we do the heavy lifting, so all you have to do is a go to the mailbox and get checks.

While just one RE asset can be a huge plus for a standard portfolio, it should be stressed that real estate is unique in many ways and demands more due diligence than most other kinds of investments. By doing research, and consulting with experts, someone can be more certain that a particular real estate purchase is a wise move.

As a side note for those who have spoken with us at BMW Properties you have may have herd us say, when you ask us to help with your situations, it depends this would be in part why we say this.

This slideshow requires JavaScript.

Private mortgage insurance, or PMI: an Outline of how it works, and why its there

Ok so, you may Wonder what it is… and do you have to pay it?

Mortatge Agreement

If your Down Payment on a home is less than 20 percent, you will have to pay for mortgage insurance. In some cases you may still have to pay, or pay it in full.  Ok so …

 

 

What is PMI?

Other wise known as Private Mortgage Insurance, serves as just that Insurance, it will  reimburses the lender if you default on your home loan. You, the borrower, pay the premiums, Normally tacked onto your monthly Mortgage payment . Often it is referred to  as private mortgage insurance, or PMI, on your monthly bill. The Federal Housing Administration, also known as FHA,  is a government agency, also sells mortgage insurance

 

Now you may ask what are the fees? and what do the run?

Fees

Well, Private mortgage insurance, or PMI fees can, and do vary, this is all depending on the size of the down payment, your credit score, etc. But on Average, from our knowingness of the rates, again we are not loan officers or a conventional style bank, nor an attorney, so do your own home work, here is what we came up with it runs  from approximately 0.3 percent to about 1 and a half percent of the original loan amount per year. and in Some years, PMI premiums are tax-deductible and some in other years they’re not, depending upon how the U.S. Government feels that year.

How mortgage insurance is calculated.

 

Again we are NOT a bank, FHA, HUD, Attorney, a lender or any of that, this is just from what we know from our experiences, pleases do your homework..

This is for example purpose only..

Let us say John Smith comes and buys a house for $200,000

he puts 10 percent down, that leaves $180,000 that the bank lends on the house, and let us say he has about a middle 700 credit score, between 730 and 750 for example.

let us say the insurance rate is .44%, and loan is $180,000,  The rough Annual Premium would be approx.. $792, so the monthly would be about $66 give or take some, again this all varies on credit score, down payment, Insurer, etc.  Those figures were calculated using this Source: Bankrate.com, Radian mortgage insurance calculator.

and again this is just for demonstration reasons.

There again Most PMI policies require the borrower to pay monthly, how ever Borrowers may also have the option of paying for mortgage insurance with a large upfront payment, like previously stated.

 

PMI can be canceled

For it to be canceled, your lender must automatically cancel PMI when your outstanding loan balance drops to 78 percent of the home’s original value. This may take several years.

However, you maybe able to speed up the cancellation of mortgage insurance by keeping track of your payments. Once the loan balance reaches 80 percent of the home’s original value, you may ask the lender to discontinue the mortgage insurance premiums. want more info on that follow the link.

here is another way to put it: You can request cancellation of mortgage insurance when the loan-to-value ratio drops to 80 percent. The lender is required to cancel private mortgage insurance when the loan-to-value ratio drops to 78 percent.

Loan to value is simply, how much is you loan for? and what is the property worth, for example Jerry owes the bank $78,000 on his house still, but it Appraises for $100,000, in that stat the Loan To Value is 78 percent.

 

We are talking  about PMI, not FHA

As any one that knows that is in the industry, Recent FHA-insured loans require payment of mortgage insurance premiums for the life of the loan, no way around that, you could pay it up front, but you are still paying it. The mortgage insurance premiums can’t be canceled. Instead, you have to refinance the loan. You want more information about FHA loans, feel free to contact us at our Website We can definitely put you in touch with the right people to get your question answered.

We also Specialize in helping people find and own their own home here at BMW PROPERTIS

Please like, and follow us on FB too!

 

Logo4

 

Pros & Cons of Investing in Tax-Lien Properties

Investing oppertunityAs we have talked about be fore in our previous blogs, when a homeowner fails to pay local or county taxes, the taxing authority can place a tax lien on the property. In many states, once a lien is placed on the property, the taxing authority issues tax-lien certificate investment documents, which a third party can buy at auction, some of theses auctions are held on line, or at the local court house. In this way, taxing authorities have the opportunity to get the money it needs to fulfill its current budget commitments. Although investing in tax liens allows investors to reap significant returns, there are associated risks. The are what we have came across in our works, we are not attorneys and laws do change from region to region.

 

Return on Investment

Purchasing a tax-lien certificate gives the investor the rights to the tax-related debt associated with a property, plus interest. Often times the rate of return is higher than what you may find in a bank, on a CD for example, which is why it is appealing to many investors. The taxing authority assigns a fixed rate of interest to each certificate. The holder of the certificate collects interest on the tax debt until it is paid in full. In order to satisfy the tax debt, the taxpayer has to pay the outstanding debt plus interest. Often the bank, if they have a mortgage will step in and pay it, to protect their investment of the mortgage.

 

Property Ownership

The taxing authority gives the taxpayer a certain amount of time to pay the tax-lien certificate. If the debt is not satisfied, the investor receives the deed on the property, often times free and clear. As a result, the investor can become the owner of a property at a fraction of the market value of the home, aka the price of their investment. How ever there are  few things to look out for.

 

Homeowner Bankruptcy

what can be a big risk of tax-lien investment is homeowner bankruptcy. This is why you should do your home work, although rare, it does happen. If you purchase a tax-lien certificate on a property where the homeowner has declared bankruptcy, your investment may be at risk. Once a homeowner is in bankruptcy, the IRS or other creditors may have other claims on the property, rendering your tax lien worthless. How ever there are things you can do to protect your self from this.

 

Property Value

It maybe a wise idea for investors  to be prudent and inspect the property before investing in a tax lien. Some investors purchase certificates without getting the property inspected, which can be risky, because the property could be worth far less than the investor thought, or even be worthless. A homeowner behind on taxes may not have properly maintained his property, and the home may require expensive repairs before it can be sold. Also, the property could be uninhabitable due to significant damage to the structure. So your initial investment in the tax lien may turn into more money than expected.

 

Title Issues

Although most the time you get the tile free and clear, there can be issues that arise at times. To avoid the risk of title problems on the property, it is important to have a title search performed against the property. There may be outstanding liens on the property that you have to satisfy before obtaining a clear title to the property. though rare, still a good idea to have a title search done.  You can hire a local title company or a real estate attorney to assist you with the title search.

 

If you are interested in finding out more information, about us, or what has been discussed, Feel free to contact us via phone 765 419-WEST (9378) or use the form below or visit BMW Properties web site by clicking here.

 

Differences Between Tax Liens & Tax Deeds

mONEY

 

Here in this discussion, we will talk about some of the different between a lien and a deed, and the pros and cons to investing in them. Theses are just from our views. each local and state laws may vary.

 

Investin realestate

 

Real estate with delinquent property taxes presents an investment opportunity. Although city and county taxing collectors use penalties and interest to motivate real estate owners to make timely tax payments, more aggressive collection action is taken when the delinquency is not cured. Such as online Auctions, or auctions at your local court house. In roughly half of the states, taxing authorities collect delinquent taxes by conducting tax lien sales and the other half by tax deed sales. And in some situations, maybe both. Purchasing either a tax lien or tax deed is a form of real estate investing that requires some sophistication and a good understanding of the difference between the two. I am sure you have herd tax liens, or sales are the way to invest, let us here at BMW Properties shade some light on this subject matter, and hopefully give you a better  understanding of how every thing works.  We will start with States that use tax liens.

Tax Lien States

These are states  that allow tax lien sales authorize the local taxing authorities, such as the tax accessor of the county, to place a lien on real estate when property taxes are not paid. A tax lien is similar to a mortgage because it’s a public record of a debt and generally prevents the owner from selling or refinancing the property unless the debt is paid, and often times will super seed the mortgage on the property. If the tax lien remains unpaid long enough, the local taxing authority sells the tax lien to collect the taxes. When you purchase a tax lien, you are essentially paying the property taxes and placing your own lien on the real estate, often as the first place lien holder. The owner must pay the back taxes to you — plus interest — instead of the tax collector to clear the lien. Because the interest rate for tax liens is among the highest allowed by law, this makes the tax lien purchase a desirable investment. Now get this, if a bank foreclosures on the property, they still are required to pay you plus interest, before they can sell it, or take ownership.. Which is why many times the banks will catch them up. At that point normally the bank catche up the taxes, and adds it to the mortgage payment of the house.  If not after a year or so, depending on the local laws, you will own the property free and clear.

Tax Deed States

In a state where tax deed sales are used to collect delinquent property taxes they do not allow its local taxing authorities, such as the tax accessor to conduct tax lien sales — even though a lien is placed on the real estate when the taxes are not paid. In a tax deed state, hey this is the government what can I say about making sense, at that point the only option for the local taxing authorities to collect the delinquent taxes is to sell the entire property, that means the local government OWNS the property, rather than just the lien. When you purchase a tax deed, you are buying real estate. Although various factors affect the value of such an investment, the primary reason to purchase a tax deed is to acquire ownership of the property for less than its market value.

 

Buyer Due Diligence Is Needed

A significant difference between tax liens and tax deeds is the amount of due diligence you need to conduct before purchase. Because you become the property owner after purchasing a tax deed, you should make a thorough investigation of the property’s title to determine whether a mortgage is recorded against the property, as well as the existence of any other liens for taxes or other debts. You also need a thorough analysis of the property’s market value to determine whether there is sufficient equity in the property to cover all the debts and give you a return on your investment. You may also need to go in and negotiate with the lien holders to lower or eliminate the liens.  None of this information is necessary to evaluate a tax lien purchase. Unless, of course, a property with a tax lien against it has been abandoned, the property owner eventually will need to clear the lien due to a sale, refinance or use of the property as collateral, again after a certain time has passed and there is no action taken by the owner the house could become yours.  Often this is compared to investing in a CD.

 

Other Considerations You May Want To Look At…

Purchasing a tax lien does not obligate you to pay any future property taxes that become delinquent or pay for other property liabilities. Furthermore, if it appears that your lien is unlikely to be paid, you can walk away from your investment, or take ownership of the house. You do not have this option after purchasing a tax deed. As the property owner, you are responsible for future tax payments and any other liabilities related to your ownership, as any normal property owner would. Also,  unlike an investment in a tax lien, an investment in a tax deed requires that your adequately maintain the property until you are able to sell it, and again just like a normal property owner would. You also often times may risk much more capital investing in a tax deed than in a tax lien.

 

I will do a follow up here shortly of the pros and con of tax investing, this is just an general over view..

 

To BUY a foreclosure or NOT to buy a foreclosure may be the question!?

Tags

, , , , , , , , , , ,

foreclosed-house.gi.top

 Get Prepared to Buy a Foreclosure

If you’re a buyer considering a foreclosure purchase, Weather to live in or to fix and sell, be sure you’ve evaluated the advantages and disadvantages of this type of transaction first. Things like how much will it cost to repair if it needs it? How long will it take?  If you are thinking of moving into it do you have a place to stay while it is being renovated? Can you afford monthly costs on it, and the place your staying while it is being renovated? Etc.  Buying a foreclosure requires careful budgeting, the right real estate team, and the mental resolve to see the purchase through.

Let’s go through some of the Pros of Buying a Foreclosure

The primary reason to consider purchasing a foreclosure is the potential for a great deal.  What defines that deal? The foreclosing lender typically doesn’t want to hold on to the home and may be willing to offer the property at a discount to get it off their books, after all too many foreclosures on their book, could become a problem for them.  HOW EVER this is only HALF of the deal, obviously if it costs more to fix up than it is worth, is it worth it?  It maybe if you are planning on living in it;  Maybe even if you are renting it out.  So let us break this down some, and look at some scenarios..

 

Home upgrades

Those willing to take the risk to buy a foreclosed house can most certainly use a home’s foreclosure status to their advantage, for example, buying a larger property or in a more desirable neighborhood than otherwise may or may not be possible. You can certainly find foreclosures in every price range – from starter houses to luxury mansions – and occasionally the property is in great condition, ready for you to move in and make it your home, and everything in between, even down to the ones that have a bad mold issue, up to the move in ready ones.. .

 

Financial gains

Let’s face it in the best case scenario buying a foreclosure is also financially advantageous since the price you paid is normally below market rate, and can give you built in equity. If the value of the home appreciates and you decide to sell, your investment could return even larger gains. Provided what you invested in it to make it habitable does not exceed what it will apprise for after the dust settles.

Make it yours

Means you saved on the house, and if you have some extra cash, you can add that custom kitchen or bath(s) you always wanted, or add that man cave you been dreaming about, and truly make it your home if you choose to live in it.

 

Cons of Buying a Foreclosure

The disadvantages of buying a distressed property, or foreclosed property can be many, and for some people outweigh the opportunity for financial gain, and instead of being a gain, it becomes a pain. The potential pitfalls will vary somewhat depending on your desired property’s current stage of foreclosure.

 

Overdue home repairs & sub-standard property conditions

Homes in any stage of foreclosure may require significant repairs just to make them inhabitable. Pre-foreclosures are typically assumed to be a better bet in terms of home condition, However not always the case, but don’t forget that a homeowner is in pre-foreclosure because the owners could not keep up with their monthly mortgage payments. This might mean that they also did not have the funds to perform regular maintenance on the home or repair serious issues that arose during their occupancy. They may also be mad at the bank and take it out on the house, like taking fixtures, putting holes in the walls, etc.

Homes that reach the real estate owned (REO) phase of foreclosure are often in the worst structural condition. Foreclosure is a lengthy process, it can take up to a year or more in some areas, so a REO property has likely been sitting empty for months or sometimes years with little maintenance or care.

The result is things like mold buildup, broken pipes, or stolen pipes, and vermin or bug infestations, possible squatters. Evicted homeowners might have sold valuable appliances or done deliberate damage to the home. Uninhabited houses can also fall prey to thieves and vandals. Which some times leads to stolen furnace, AC, broken widows, fires in the house, etc.

While in some stages you’ll have the opportunity to inspect a foreclosure property prior to finalizing the purchase, these homes are typically sold as-is; that means no repairs can be requested as a contingency of the sale. In addition, homes in the auction or REO stage of foreclosure will not include a seller disclosure, which would have alerted you to additional problems that a typical inspection might not uncover, such as lead paint, mold in the walls, bad or missing electrical, etc.

 

Inherited burdens

When buying a home in foreclosure you might become responsible for any debt connected to the home. You could be looking at significant sums owed for unpaid tax obligations, construction loans, Mechanic leans, sewer leans, or home equity lines of credit. Take the time to understand the financial burdens you’re assuming above and beyond your mortgage obligation.  Most of theses should be cleared off by the time you get to the closing table, but always run it through a title company to make sure you have no hidden surprises.

Current inhabitants can also become problematic if they refuse to vacate the property. Legal eviction takes time and money, and As stated before disgruntled previous owners or tenants could take out their frustration on your new home, and leave you with a lot to clean up and fix.

 

Red tape & no guarantees

The process of buying a foreclosure property can be a long and frustrating one, depending on the mortgage company, and the complications you run across.. Expect extra paperwork and slow response times, especially in dealing with HUD foreclosures. In the case of REO properties, it is not unusual to wait several weeks after making an offer to receive a reply either way, then you have the counter offers, and etc., some times it is not that long.. If you’re buying a short sale you’ll be waiting on all parties with an interest in the home – including the current owners, the primary lender, attorneys to contact their clients, and any lienholders – to approve your bid. Occasionally it takes months to receive this approval.

While lenders do want to offload the property, many are also trying to get top dollar, after all no one wants to loos money in the banking business, just bad for business. Understand that your contract may be canceled for any reason and at any point up to closing. If a better offer is presented it’s possible to lose the home. If that offer is not written up correctly.

 

Conventional mortgage complications

Financing a foreclosure purchase can be complex and might require the use of non-standard loan products, such as Hard money lenders. Some lenders do not offer mortgages for distressed properties, so you’ll want to start by identifying those that do. CASH is always king in this case though.

A conventional mortgage will be limited by the appraised value of the property; this can be problematic for foreclosed homes as the state of disrepair can lead to extremely low valuations. Conventional loans also typically have requirements regarding the condition of the property and might not approve your loan without certain repair contingencies, creating a catch-22 since foreclosures are commonly required to be sold as-is.

In the case of hard money lenders, most will loan up to 70% of the current conditions, or some may even loan up to 70% of the After Repair Value. How ever they are expensive, and Normally a balloon payment is due, after so many months.

Any delay in the acceptance of your offer can also impact financing. Most lenders have time limits on rate approvals. Waiting for a response could result in less favorable mortgage terms if your approval expires and rates increase. The best way in my opinion is cash, and we at BMW Properties help people cherry pic the houses they are looking for, and often can get financing in place to help you.

 

Steep competition

Foreclosure properties attract a lot of interest because of the incredible value they can provide. In addition to other homebuyers seeking a primary residence, you will be competing with investors who often make all-cash offers. Often time they require 10% down at the time of the bid, and monies due with in the month.

Homes in the auction stage of foreclosure are particularly attractive to seasoned investors because they often present the best opportunity to acquire property at a significant discount. Those who are unaccustomed with investigating foreclosed homes or unsure of local property values might find it difficult to compete or worse, end up overpaying for an undesirable home, after all some investors will bid it up.

Should I Buy a Foreclosure?

Wondering if you are prepared to purchase a distressed property? Let us help you out some. If you can answer “yes” to each of these questions, buying a foreclosure could be a good choice for you.

 

 

Are my finances in order?

While buying a home in foreclosure can result in a favorable purchase price, the additional costs are often significant and should not be ignored when budgeting for your home purchase. Upfront fees to research foreclosure properties, construction and repair expenses, and the cost of any inherited liens add up quickly. Plus the cost of just holding the property, such as electric bill, water bill, insurance, and mortgage payments, etc.. Be sure you are financially prepared for expenses that are not rolled into your mortgage and think about leaving a cushion for any surprises that come up along the way. General rule for that in the cost of repair add 3 to $5K for hidden things in the wall, per say.

 

Do I have a team of professionals who can help me?

Working with foreclosure experts will help your distressed property buying process go much more smoothly. Consider Visiting our web site we have connections in the foreclosure market to help you locate potential properties, and can help you asset the property, also we have access to an attorney familiar with the foreclosure laws, in the Indiana area, we can also help you find an attorney in your area to review all paperwork, we also have reputable contractors, and we can also help to oversee any necessary home Repairs.  We can help you avoid a lot of headaches, and relieve a lot of stress in the process of buying a foreclosed or distressed property, aftet all we will tailer make a plan for you.

 

Is my purchase timeline flexible?

Buying a distressed property is not like other home purchases. There will be starts and stops along the way, and the sale can fall through at any time, if all your ducks are not in a row. Homeowners in pre-foreclosure could come up with the money to put their loan back in good standing, although rare, but it could happen; a lender might be dissatisfied with the offers at auction and take full ownership of the home, potentially waiting months before offering it for sale as a REO property, this is pretty common.

When considering a foreclosure purchase, homebuyers should be prepared to act quickly, but not be in any particular hurry to complete the sale. If you have timeline contingencies for your purchase, for example the sale of your current home, a distressed property will be difficult if not impossible to buy. Again can you afford your current house payments, and keep it maintained, and take on a foreclosure?

 

Will I have somewhere to live if I can’t move in right away?

Depending on the condition of the property, significant work might need to be completed before you can move in to your new home, after all you have to have a place to eat, sleep, take a shower, keep warm, etc. . Even if the house is inhabitable, complete renovation of a kitchen or bathroom can make your residence unpleasant, especially if it has one bath. Think through where you will live while any necessary repairs are performed, if you plan to move into it.

In addition, sometimes a distressed property comes with previous owners or tenants who refuse to vacate the home. Legal proceedings to evict can be a lengthy process. Be prepared to wait it out somewhere else. This is the reason why a lot of investors choose vacant properties.

 

Am I up for the rollercoaster ride?

Buying a home at any stage in the foreclosure process is not simple. Be honest about whether or not you are prepared for the time and effort it will take to complete the purchase and get the house ready for move-in.  There is always some unforeseen thing that pops up. Even us here at BMW Properties  cannot see through walls, and catch everything, that is why it is good to have an extra 3 to $5K set aside.  Although we do virtually eliminate all the surprises in buying a Foreclosure house..

Ever thought about flipping houses?

Tags

What You Should Know Before Dipping Into Home Flipping

Don’t expect to make a quick and easy buck buying, overhauling and then reselling houses.

Home flippers face a number of challenges. One of the most common is locating contractors who do high-quality work at a decent price.

 

Flipped House

The TV shows make it look so easy, and effortless. All you buy an “ugly house”, fix it up in a week or two, make it look “pretty”, and then sell it for a whopping $100,000 profit.

As anyone who has ever tried it knows, house flipping is a lot harder than it looks. Let’s face it takes more money sometimes than what you anticipated, sometimes there is a hang up in title work, or what have you

“The math never lies,” says Brandon Turner, senior editor and community manager for BiggerPockets, a website for real estate investors, and a veteran flipper near Olympia, Wash.

And often, when you do the math correctly, the math simply doesn’t add up to a sizable payday of $100K, when you factor in the time, effort, labor, holding costs, and money in general to execute a flip. That doesn’t keep people from trying, NORE should it.

Investors flipped 156,862 single-family homes in 2013, according to RealtyTrac, which defined a flipped home as one bought and sold twice within six months. I found that the number of flips was up about 16 percent from 2012 and 114 percent from 2011. we found out that the average gross profit across the board for a completed flip – or more accurately, the difference between the first sales price and the second sales price ­– was $58,081. How much effort was put in bringing the houses up, is unclear..

Interesting thing only 21 percent of those flips were foreclosure properties, according to RealtyTrac, which was down from 32 percent in 2011. Granted this has proved much more popular in some cities than opposed to others. For Example, home flipping was up 141 percent in Virginia Beach, Va., 92 percent in Jacksonville, Fla., 88 percent in Baltimore and 79 percent in Atlanta, GA. then you look and it fell 43 percent in Philadelphia, 32 percent in Phoenix, and only 17 percent in Tampa, Fla., and Houston, and 15 percent in Denver. In 2013, there was a bigger increase in the flipping of properties that sold for $400,000 or more than in lower-priced properties. More money to gain, let us face it…

I found this interesting  “Investors have not lost interest in purchasing and flipping homes. In fact, now that we are seeing home price appreciation, they are more interested than ever,” Sheldon Detrick, CEO of Prudential Detrick/Alliance Realty, which covers Oklahoma City and Tulsa, Okla., said in a RealtyTrac news release. “The challenge for many would-be flippers in our markets is a shortage of available inventory to flip.”

 

But that has always been a challenge in good times and in bad,  Coarse there again one thing that investors have always faced, well there have been 4 that stay common

Flippers face four key challenges:

  • Finding a good house at a low enough price to make the deal work
  • Finding reliable contractors to do quality work at a reasonable price
  • Finding money to finance the deal
  • Selling the home at a price that will cover expenses and provide enough profit to compensate for the time invested, and money bowered, or invested

Not to toot our own home, but that is were we at BNW Properties Excel at we set out to be come the experts at solving this problem, so investor can in vest, and reap the rewards, and we do all the lifting..  You can visit us at http://www.westbuyshouses.com, any way back on track..

If location, location, location is the mantra for ALL real estate, “do the math, do the math, do the math” should be the mantra for would-be flippers.
And we mean ALL the math.  Repair estimates, cost to hold, closing cost, exit stragiesm etc.

Let us give an example, if you calculate a potential flip this way: Buy a house for $100,000, spend $20,000 on improvements, sell it for $150,000 and earn $30,000 profit, you clearly haven’t done all the math that’s needed.

What about the cost of borrowed money and the cost of selling the house? What if you have to hold it for a few months?  What if the contractor discovers, once he starts the work, that half the plumbing lines are rotted? What about the cost of insurance, utilities and property taxes while you own the house? Then if you bowered money, those payments.

You must dig below the surface-level figures to paint a complete and accurate picture of the flipping opportunity. Only then can you determine whether it’s a sound financial move for you.

Experienced flippers recommend buying properties in which the ARV, or after repair value, is no more than 70 percent of the estimated sales price. Estimating the sales price accurately is in itself a challenge, requiring significant research into how much similar properties netted. BiggerPockets.com has online calculators, as well as bulletin boards and articles providing advice. Zillow, Trulia, Redfin, Realtor.com and local public records are all good places to start tracking home sale prices. And those numbers do not always work in all areas..  Honestly you have to be a little crazy to be in this business, which is not a bad thing..

 

Competition for well-priced houses listed in the multiple listing service has pushed investors to other methods of finding deals, including direct mail marketing and the “I buy houses – cash” signs that you see in some cities. AND many other options, which we have used for decades now…

 

In recent years, many investors who might have once flipped houses have adopted a buy-and-hold strategy, turning many homes in their possession into rental properties while they wait for their value to rise. But that approach creates its own set of headaches.

Even experienced flippers sometimes make mistakes. Turner tells the story of a duplex he bought for $40,000, spent nine months renovating from top to bottom and then put on the market for $170,000. Despite adding hardwood floors, granite countertops and new windows plus overhauling the floor plan to convert the duplex into a single-family home, Turner finally sold the home a year later for $125,000, making not a cent on the deal. Do the math….

This failed flipping attempt taught him several important lessons, but the most important was to study the kinds of houses people are buying in the surrounding neighborhood.

“The ideal flip is also the ideal purchase,” Turner says. “You find what people are buying and look to create that.”  And actually I agree, Buy them right and you never have a problem..

If you notice that three-bedroom, two-bathroom homes are popular, for example, that’s what you want to buy and sell. Turner looks for homes that don’t meet the ideal criteria but could with a small amount of work. If he’s shooting for the three-bedroom, two-bathroom home that everyone is snatching up in the area, a house with two bedrooms, two bathrooms and a bonus room would be a good property to target for a flip. A three-bedroom, one-bathroom home to which another bath could easily be added would also work quite well. That gives you an option to add a bedroom, or an extra bath, that would turn it into a 3 bed 2 bath for example.

Turner points out that flipping houses is not for someone who has no money. While it is possible to borrow money to buy and fix up homes, doing so isn’t easy or cheap. Many conventional lenders won’t lend on homes in poor condition or to investors who can’t show reliable income and assets. In other words they want to know you know what is going on, and how to handle it.

“Hard money” lenders finance flips, but the rates are high – perhaps 10 percent to 12 percent, plus three to four points in cash up front, Turner says.

He advises seeking loans from people who have money invested in lower-paying instruments, such as certificates of deposit, and offering them higher rates with a private mortgage or another kind of equity partnership. “Live a life of networking,” he advises.

This has been something that we always do..

Nationwide, individual investors bought 21 percent of the homes sold nationwide in February, and 73 percent of them paid entirely in cash, according to the National Association of Realtors.

The other major challenge faced by nearly all flippers is finding good and affordable contractors. Too many would-be flippers try to get by with marginal contractors who do marginal work, which often creates more expense. In other words you get wht you pay for, or in this case less than what you pay for.

“Those are the ones most flippers gravitate toward, and those are the reason most flippers fail,” Turner says.

Logo4

Lease Option Vs. Land Contract

Land contracts and lease options don’t require mortgages.

If you’ve been told you can’t qualify for a mortgage, there are still avenues available to home ownership. One way to purchase a home is through a land contract or contract for deed. A second method that eventually will get you a home is through a lease option or rent-to-own contract. Neither a lease option nor a land contract requires you to take out a mortgage.

 

Lease Option

A lease-option or rent-to-own contract for a home is both a standard lease and an option to purchase the home. Both are separate things. Under a lease option on a home, you first execute a lease with the seller/landlord. Like any property lease, a lease option creates a landlord/tenant (or lessor/lessee) relationship, and depending on how they are written up the tenant nay or nay not be responsible for all repairs to the house. Generally, sellers in lease-option contracts have to put part or all of the rent you pay them toward the home’s final purchase price. Some sellers do and some do not, Again depend on what was negotiated before everyone signs.

Land Contract

In a typical land contract, you and the seller would execute a purchase contract, with the seller financing your purchase. Although you won’t gain actual title to your home under a land contract, you’ll gain an equitable title and interest in the property. Once you’ve paid the seller in a land contract off, he’ll convey the actual title to you, if done properly, and no leans are on the property. Under a land contract, you have the right to improve and even rent your home, in most cases, again depend on what was written up and agreed upon at the time of the signing. For more information about this see Our previous article on WordPress, bmwproperties.blog.wordpress.com

 

Advantages

Both lease options and land contracts can be effective methods for purchasing a home if you have poor or no credit. Buyers in land contracts also generally receive the same tax benefits any owner would get. Again depending upon how the contract is written and what is agreed upon at time of signing.  The benefit to a lease option is that you have an option to purchase the property, at normally what ever agreed price is established between buyer and seller. You have the first right or option to purchase the property; However You’re not obligated legally to purchase the property in a lease option.

Disadvantages

A lease option creates only a landlord/tenant relationship and not an ownership situation for you. In most cases. Again depends on what was agreed upon at the time of the signing. Under a lease option, a landlord still controls the property. Also, if you don’t exercise the purchase option in a lease-option contract, the landlord is free to lease it to someone else at the end of your lease, or possibly sign another agreement with you. Lastly, tenants and buyers can’t use their property as collateral under either lease options or land contracts.

Choosing One

Those with no down payment but who want to own the homes they’re living in eventually can benefit from lease options, if the lease agreement is written up that way. Land contracts tend to benefit those with money for a down payment and who want some home-ownership benefits now, and can give you more freedom with the property, again deepening on how the contract is written. If you’re uncomfortable with a landlord exercising control over your home, a lease option might not be for you. If your property under a land contract loses value, you’re still stuck with it, unfortunately. Again for more pros and cons of land contracts, se our blog on WordPress, bmwpropertiesblog.wordpress.com

Or you may visit us on FB …   at our website  or visit us a call at 765 419-9370 or 765 419-WEST

Please note that we are NOT legal Counsel, if you seek legal advise please seek a legal real estate counsel near you.

 

Pros & Cons of a Land Contract

There are benefits and risks associated with buying through a land contract.

Buying real estate through a land contract is fairly straightforward. The buyer gives the seller a down payment, or other considerations, for the home or piece of land and the seller acts as the bank, financing the balance of the purchase price. The buyer and seller work together to negotiate an interest rate, payments, and length of the terms of the contract at the time of purchase. Generally, the seller carries the loan for a fixed number of years, or months, at which time a balloon payment is due. When the balloon payment is due, the buyer normally either pays off the remainder of balance, if any, refinances the property, and in some cases the contract can be renegotiated

 

Pro: Financing

A land contract allows a buyer who is not able to secure traditional financing to purchase real estate. The buyer has time to work on any credit issues he may have, including lowering his debt-to-income ratio, and to save for the down payment on a traditional loan. Plus if done properly can help to build the buyers credit, and give the buyer a track record, to prove to the bank that they can make the payments.

 

Pro: Win/Win For Seller

A land contract puts the seller in a win/win position. He collects rent on the property for a set number of years and then sells it for a fixed price. If the buyer fails to make payments, the seller can evict him, as he would any other tenant, if the contract is put together correctly. If the buyer is unwilling or unable to make the balloon payment, the property still belongs to the seller and he can do with it as he chooses.

 

Pro: Can be A Sales Tool In A Tough Market

When interest rates are high and credit is tight, there are fewer buyers on the market. A land contract can attract buyers who would not normally have been able to purchase property, and the buyer later maybe able to more easily get a home loan on the property.

Con: Buyer Depends On Seller

Unless the seller owns the property outright, he is still making payments to a lending institution. Which most lenders have a “Due on Sale” Clause, which means in general the lender, at their discursion, can call the whole mortgage due on the property If, for any reason, the seller does not make regular payments, the property can be foreclosed upon, leaving the buyer with a worthless contract and no home.

 

Con: Contract Mistakes

Land contract agreements must cover multitude of issues, such as what happens if the market appreciates or depreciates dramatically prior to the due date of the balloon payment. There are also concerns as to which party is responsible for maintenance of the home, who will carry the insurance on the house, and what happens in the event the buyer opts not to purchase the property. Perhaps even more complex than a standard home purchase, a land contract has special challenges, and careful consideration must go into creating the binding contract. For example, did you know if a contract is put together a certain way and recorded, the seller may have to go through legal proceedings that may take up to a year to evict the buyer in some states.

Con: The Buyer Could Feel Like The Owner

Land contracts exist in a gray area of home ownership. A buyer moves in, believing that the home is his and fully intending to purchase it. If he spends years making changes that suit him, only to fail to secure a loan when the balloon payment comes due, the seller is left with an altered home and little recourse. Like everything else about a land contract, the issue of alterations to the home must be agreed upon in advance so that the seller is not left with a home that he will have to make major repairs to in order to put back on the market. However if a buyer makes improvements on the property, and adds value the buyer maybe out with no coarse of action either.  Again Iron out the details BEFORE you sign is key.

For more a little more legal definition of a land contract in Indiana, follow this link