I would like to bid on and try to buy this home, and then use it as a rental property. I know about the laws requiring me to wait one year before foreclosing on the owner, but I am unsure if the house was paid for, or the lender has just decided it won’t get its money back. (You would think after three years abandoned the bank would have foreclosed already.)
I am real nervous about the whole idea because I have never invested in real estate before.
Do you have any advice or pros and cons I should be thinking about? I am planning on purchasing the property and then doing some repairs to make the house habitable.
I have a set amount I put aside, to pay for the property and then for repairs so I’m set financially. I am just worried about things that I might not know legally that might come back and bite me.
Buying and renting this property seems like a win-win proposition, but is there any way someone can come take the property and I will lose my money?
A: Here’s what happens when you bid on property at a tax sale: you can purchase the tax delinquency, but you will probably have some competition. If the bank finds out that the property is being sold for back taxes, it might jump into the fray and pay the taxes that are owed.
In some parts of the country, when you buy a home for the real estate taxes that are owed, you don’t get title to the home. You get the right to start the process of owning the home but the current owner of the home has the right to redeem herself and come current with the taxes: that’s the one year period you were referring to. If you somehow made improvements to the home, you might not get that money back.
Depending on the process in your jurisdiction, the homeowner or the lender can simply repay the real estate taxes that are owed, with penalties, fines and other costs and the tax sale would be cancelled.
On the other hand, if the homeowner doesn’t pay and the lender decides not to pay either, you, as the tax buyer, have the right to wipe the slate clean and become the owner of the home. There are certain steps that you may have to take to make sure that the slate is clean when the final tax deed is issued to you and for that reason you’d better make sure you know the rules in your jurisdiction and know what you are doing.
Why don’t you hire a real estate attorney or an attorney that has experience in tax sales to walk you through the process for the first time?
I often recommend that wanna-be investors hire a team of people who can help them achieve their real estate investing goals. You’ll want to chat with a tax preparer (accountant or enrolled agent), a contractor (who can advise you on how much money you’ll have to spend to get the property into habitable condition), a mortgage lender (if you decide to finance part of the purchase), and a real estate attorney to draft up the paperwork and make sure you’re protected.
You’ll pay a little bit of money, but will have peace of mind that you will understand what your risks are.
But if you get the home, what I like best about your plan is that you live right next door. You’ll always be able to keep an eye on your investment.