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I received a Contract For Deed for a 3/2 house for $40,000; $400/month for 36 months with a balloon of $25,600.
It has an appraised value of $87,500. I was able to buy it at the discount because it was coming on for a tax auction for sale in June and the owner did not have the money nor the desire to mess with the house anymore, and it needs a few minor repairs.
I am wanting to cash out for as much $ as possible, but for several reasons, I do not want to do a HBS. What suggestions do you have, i.e., list it with a real estate agent, assign the contract, etc.?
Thanks!
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There are some interesting unknowns in your puzzle, such as:How much of a down payment, if any, you have already invested in this deal.
Whether the house is currently occupied.
What the amount of repairs needed might be to make the house rental ready (if that?s not the case now).
What is the typical DOM figure for that real estate area (Days On the Market) as an indicator of how strong your local market is.
What the amount of the tax deficiency is, and the amount of legal fees, which together usually determine what the minimum starting bid will be at that tax auction.
Whether in that state the seller (who doesn?t transfer title to you until the contract for deed is successfully completed, one way or another) or you as the buyer (who typically has the right to sell contract for deed rights) would be entitled under state law to any overage that might be generated at the June tax auction. In some states, the application process to receive such a tax overage is fairly simple, but in some, you have to file a lawsuit against the county (which costs a little more).
Whether in that state the seller (who is still on title) or you as the contract for deed buyer is entitled to any redemption rights (which are typically saleable), and how long and how complicated the redemption process is in that state.
What the likely high bid at that tax auction might be, given the present condition of the house, based on research of recent tax auctions that you?d need to scramble to dig up.
IF …. your research suggests that you might be able to make a buck by either extracting a sizeable tax overage from the county, and/or flipping the redemption rights (if state law in your area permits this), then either or both of those strategies would avoid the HBS route or assigning your contract, and would avoid the typical realtor listing merry-go-round. AND … if either or both of those strategies are possible and sufficiently profitable, it would be to your advantage to make up flyers to distribute to bidders at that June tax auction to promote the dickens out of that house (with as much helpful research as you can muster on it, since you have rights as a buyer to dig out info that typical auction bidders might not have access to).
You might even consider that, if flipping the redemption rights works in that state, you?d be willing to sell the redemption rights to the winning tax bidder for a reasonable discount, since s/he has the strongest incentive to want such rights not to be exercised. If the winning bidder is a rehabber, eg., nailing down the redemption rights means the rehab process can begin immediately, without fear that any rehab efforts might be lost to a redeemer, and with the certain benefit that the rehabber?s holding period costs could be significantly reduced as well by that earlier safe start on the rehab.
–Dee
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Thanks, Dee, for taking the time to answer my question.
Here’s the answer to your questions:
How much money did I pay for the Contract For Deed: $10
The house will be unoccupied as of Thursday, April 30th.
DOM for a lakeview property like this is 47 days.
Amount of tax deficiency is about $3,500.
Oklahoma is a tax deed state; there is no redemption period.
A Contract For Deed does not give me a right to the overage at a tax sale, even though I have filed the notice with the County Clerk to protect my interest. The only person who the right to the overage is the person who actually holds the deed.The problem with a contract for deed is that it makes it very very hard to sell the property unless the seller is 100% on board with you making a profit. They (the sellers) have to sign at closing to sell the house. And they could refuse to sign if they see you making a lot of money and they are not getting some of it ( like most of the profit)
If you did not reveal to the sellers up front that your plan was to flip the house, you will have a problem with this one.The buyer will most likely need to get a mortgage. Which further complicates things. Even if you got it converted to a Warranty Deed in your name or company name, it could present a problem because of the time frame.
I suggest that you talk to the sellers. Tell them your game plan, then offer to split profits over your Contract for Deed price.
The ideal solution on this deal would have been to get an option to do a highest bidder sale for the highest down payment. Offer the sellers 50% of the down payment over the amount needed to cure the defaulting taxes. You would take title to the property with note that wraps the underlying loan then sell at full price with a seller finance wrap to your buyer. Then you would get cash flow right awaay. You could put a 1-2 year balloon on the note to your buyer so you would get paid later. Even offer an incentive to cash you out early. At least this way, the previous seller would be completely out of the picture.
Listing it with a real estate agent will not work. They cannot take a listing from anyone but the person on title.
Because the seller still holds title to the property, you will need to get them ON BOARD with your game plan and that will mean splitting profits.
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Some very interesting lessons come out of discussions like this, such as how much easier deals can be if at least one exit plan (more is often better) is defined before entering into the deal.Another potential lesson might come from a discussion of HBS (highest bidder sale) reluctance. The OP (original poster) was clear about preferring not to use an HBS, but did not mention the reason(s) for such reluctance. If the OP is willing to describe the reason(s) for that preference, it might be possible for the experienced HBS experts here (which is not me) to identify some useful workarounds for whatever the obstacles might be.
I realize there can sometimes be an element of “baring one’s soul” in such discussion. Sometimes that is a worthwhile price to pay to learn a new solution, and to teach countless others on CFD at the same time.
–Dee
Maybe It’s Just Oklahoma –
My real estate agent/broker with a national real estate agency says they can list properties in which someone has a Contract For Deed, and my Title Company/Abstracting Company/Closing Agent says they can do a double close, in which case the individual I’m buying the property from will not know the price for which I’m reselling it because, as far as she’ll know, I will have elected to obtain a mortgage and pay her off in full. I don’t see a whole lot of difference between this transaction and doing a wholesale flip with a double close. What am I not understanding?
The double close means you are in the chain of title which I personally don’t like to do – must admit I had to do one a few months ago due to some timing issues but I wasn’t happy about it at all. A double close is not usually an issue, however an Option with or without a HBS is a much easier transaction. Plus, you are neither out of pocket any more money nor do you have the monthly payments and balloon.[code] [/code]
Since time is of the essence here, perhaps you could buy an option for the amount of taxes owed. That would give you breathing room to lease the property to fix up or find a rehabber to flip it to. You didn’t mention if the house was F & C or had any liens on it other than property tax. Be careful about wrapping an underlying mortgage to an owner occupant, there are many steps to that dance under Dodd-Frank.
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