Ontario Tax Sale Property Forum
Tax Sale Forum => Questions and Answers => Topic started by: MikeS on September 28, 2010, 06:26:24 PM
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Anyone have any input on getting a loan to purchase Tax Sale? I have read all of the cautions as far as the ultimate catch 22: bank not giving money until they get deed, but city not giving deed until they get money....However, would this issue not be solved by using a lawyer?
Any insights would be appreciated
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If you have to borrow to buy a tax sale..you cant afford this game
You have to buy cash and fix up, once you get it rented out , you can then go to the bank for a mortgage based on a 80% occupancy rate
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From what I understand no bank will offer a mortgage for a tax sale. Even if they did they probably would not get you the money within the 14 days required. Basically if you can't write a cheque for the full amount that day do not bother playing in this game!
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I find it hard to believe that without cash(full amount) I can't 'afford' a property, but I appreciate the brutal honesty
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this isnt a game for people without the cash.. no bank will give you a penny to play
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I find it hard to believe that without cash(full amount) I can't 'afford' a property, but I appreciate the brutal honesty
One problem here is that newbies may think that the advice they receive from people like PFM is self-serving, i.e., that it is negative to make for less competition. While some people here do this, they are "outed" by their feedback. PFM is almost always right (except, of course, when he disagrees with me ;D) and he is bang on here. So, play the game without money and see what happens. You might get really lucky like the fella did here:
http://www.taxsaleproperty.org/Articles/Getting-A-Mortgage-To-Buy-A-Tax-.html
but I don't know of any municipility that would go this far.
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I'm definitely not suggesting I'm right in this situation, but that was the story I was referring to in my original message
As for 'no bank will give you a penny'.....the guy in the story got the money no?
I would definitely not place any bids before speaking to the bank(a friend of mine is a bank manager), I just thought someone had experience in the process.
Again, I appreciate all the feedback ;D
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I'm definitely not suggesting I'm right in this situation, but that was the story I was referring to in my original message
As for 'no bank will give you a penny'.....the guy in the story got the money no?
I would definitely not place any bids before speaking to the bank(a friend of mine is a bank manager),
While no offence intended to Jeff he is in the business of promoting tax sales. (maybe when he responds I can finally find out what name he lurks under on this forum) I would be interested in the vinatage of that occurrence as my own personal experience is that
currently banks are not loaning to the land we commonly pick up even with a conventional real estate sale. (my biggest problem with sales right now is the financing side)
Even when we get into the upper levels of this business with buildings they want an environmental clearance study. As for understanding and sympathetic bank managers I thought they were an endangered or more likely extinct species.
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Mortgage on Tax sale property..You will need additional security , IE a house with equity which the bank will give you a line of credit against.
You cannot get a mortgage on vacant land
You cannot get a mortgage on a fixer upper
You cannot get a mortgage without insurance, no one will insure vacant land without insane premiums, No one will insure a vacant house without an inspection, You cant enter the property till you own it
So forget mortgages, You can get a line of credit or borrow from family or future ex-friends (best way to lose friends , borrow from them)
If you have a rrsp you can lend a corporation money to buy the land but not yourself .
Or you can do the smart thing and not borrow to play this game, however no one will stop you from blowing your brains out
(please put down some plastic first as we dont want to mess the carpet)
And Jeffs story..unless this guy had a pile of equity in another house, is simply a lovely parable to get a point across. a fish and bread sort of thing
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Yeah, my mortage guy basically was of the same opinion
Guess I'll have to walk before I run ;D
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Most bank does not even have a clue what is Tax sale. I talked to three most famous bank, they have no clue what is Tax sale. While I paid the winning in cash, someone actually tried to get a mortgage and even after 90 days he is still trying!! Good luck with the mortgage on Tax sale.
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I don't understand why the banks wouldn't give mortgages on houses. What is the difference if I buy a house at tax sale or from MLS? If I can pick up a house for 50% of it's value, doesn't the bank immediately gain by offering me a mortgage? If I default, they take the house and the other 50%. I guess maybe it's a red tape thing but it makes no sense to me. I might try and do it just to see.
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. What is the difference if I buy a house at tax sale or from MLS?
5 feet of water in the basement, raccoons the size of German shepherds, mushrooms growing on the walls and gapping cracks in the foundation ....other then that not much difference
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Lol... didn't think anyone was here this early. Point taken... there are risks involved, but perhaps if you can look in the windows and a German-Shepherd sized raccoon doesn't look back at you, you can take a chance.
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. What is the difference if I buy a house at tax sale or from MLS?
5 feet of water in the basement, raccoons the size of German shepherds, mushrooms growing on the walls and gapping cracks in the foundation ....other then that not much difference
It all depends how you try and sell to the loan officer: Using PFM's example and slightly embelishing the situation:
equipped with indoor swimming pool, potential of extra revenue, close to wildlife; natural air conditioning: etc. ;D
On a more serious note It being close to Halloween let me tell you the true story of what we found during a regular real estate purchase inspection a few years ago: (This story originally appeared in another blog of mine)
The Inspection - A True Real Estate Story for Halloween
It started off as a normal real estate investment opportunity. It was a commercial property in the country. It was along a main highway in eastern Ontario with a couple of acres of land. Additionally there was a rather old farm house that came with the property that dated from the time the property was originally settled.
We were informed of the opportunity by an alert real estate agent with whom we had occasional dealings. The agent had an exclusive listing on the property that had been originally sold to another investor. The other investor had done all of the normal purchase and sale work and had a signed conditional deal. The two conditions were financing; and subject to inspection.
Unfortunately for the agent the other investor had over extended himself and was unable to get financing. Thus the unlucky agent faced the prospect that the deal would fall through after his work. Like all good agents; however, he lived by the old philosophy; 'When the going gets tough, the tough get going," and he went out and found another buyer.
The terms were fair, there was a good tenant who was willing to sign a lease, and even the financials looked okay. (A 10 cap, after allowing for repairs, for the professionals). The property itself even had long term capital gains potential. It was located in a rural township, but right on the commercial outskirts of a growing town that was expanding toward the rural border. Several big box stores were coming in on that side of town and it was obvious that this was the side to be in. Income, capital gain potential and a good commercial tenant what more could an investor want.
The only facts we could not verify quickly were the residential tenants of the farm house. We were told that they traveled a lot, and usually slept during the day. Apparently they were usually around only after dark. A general comment was also made that they were a rather strange bunch. That should have given us a warning us of what was to come.
The previous purchaser had negotiated well. It was obvious that some maintenance had been deferred but that was to be expected. The owner who had retired was getting on in years and had moved several thousand miles away to warmer climates. I am sure that is why we were able to get the purchase price we did. The purchase price and 10 cap expected return was after the previous purchaser's expected allowance for repairs.
Being old fashioned conservative can work for you. We just get our pound of flesh in a different way. The advantage is that the real estate community knows you have the horsepower to move when it is necessary. When you put down a third of your own equity into the property, you can get your financing okay fast and by phone. This was one of those cases where a quick phone call resulted in a fast yes.
We had to move quickly but a premade deal doesn't come along very often. So we said yes, signed the paperwork and laid down our deposit and ended up with a conditional purchase.
For the seller we give a sweetener to seal the deal by removing the financing condition and give an increased large down payment.
I have a philosophy that money talks in real estate deals. Thus if I want a property, I often use a large deposit payment as a signal to the seller that we are serious.
In the overheated market of recent years its things like this that may make all the difference.
Now all that remained was the inspection. In buying country property I find sellers are funny when it comes to inspection. They sometimes seem to take offense to the fact that you want to carefully look at the property. I have had sellers walk away from a signed and agreed commercial deal because they refused to allow a proper inspection. They insisted that the property was sold "As is as is". I walked. If I want to bet on the gambling table I will go to Las Vegas.
To inspect country property you often have to use different resources. In a case like the one the property was on well water and septic so the above ground inspection is performed separately from the below ground. Little did we expect what we would face coming from below the ground in this case?
For the below ground I often want to do the inspection before I bid. I find the inspection cost is very modest compared to what you may find particularly if the septic system has to be lifted and replaced. It often is classified as contaminated waste and we all know what the cost of handling this is. This leads to the funny request of a seller, that I offer to pump out his septic system for free, even before an offer is on the table.
I know most purchasers would not be caught dead with a septic pump out truck operator. My advice is swallow your pride. My paternal grandmother came from a long line of highland Scots. They have a saying that applies," He who pays the piper, calls the tune".
In the case at hand we decided to do the building inspection first. I use a specialist who can inspect both commercial and residential property. Our problem was the farmhouse. We were unable to contact the tenants, so in accordance with local law and practice we posted a notice on the door, waited 24 hours, and arrived for the inspection.
We did the commercial building first. Normal concerns; some roof work was needed but after 20 years with a tar and pea gravel built up roof, we had expected it and priced it in. A couple of plate glass windows were fogged but again already budgeted for.
Finally after a coffee break we went to the farm house. We knocked on the rear door which opened onto the kitchen. We got no response, and using the key supplied by the owner we went into the kitchen. Let us say we were surprised with the paint scheme.
We next proceeded to the main bathroom. Stranger and stranger. I have been in a lot of bathrooms over the year but this is the first one I have seen painted "BLACK". Even the bathtub was tiled black. If I ever had to replace the tenants I knew where I would advertise for a new tenant. A goth would love the place.
At this point my inspector wanted to go to the basement. He had some concerns about the wiring and wanted to look at the electrical panel. He was right; knob and tube wiring which is a major concern as most insurers will not insure it. This was one factor we had not allowed for in our pricing as it is only possible to see during an inspection. Replacing the wiring in a house is expensive. I had a contingency fund for unexpected expenses but this would exhaust it.
While in the basement we decided to inspect the rest of the basement for leaks. The basement was old and musty. Everything was covered with cobwebs. While my inspector concentrated on the furnace, I looked over the rest of the basement. Over in a corner I saw it. Like all things you do not expect at first I did not believe my own eyes.
I called my inspector over. In thirty years in the inspection business he had never seen anything like it. "A coffin!!!!" It being daylight of course as was to be expected, it was closed.
In recounting the incident to my lawyer later, I asked him for a professional legal opinion. "Was the coffin a chattel or a fixture?" He replied that he considered it a fixture because it was unbolted to the floor, but that he understood that the rules may be different in Transylvania.
Normally we do the property management for our own buildings. In talking to the real estate agent who was enquiring how the inspection went, I asked if he knew of a building management company that worked after dark.
We never did buy that property. In a later inspection of the septic bed the nice row of cedars turned out to be growing right over the septic system. There were a couple of other issues that we decided were too expensive to fix for the price. The owner unfortunately would not budge.
Was the coffin occupied? Only two people know for sure; myself and the inspector. Was it part of the act of the two so called ?musicians' who were the supposed tenants? Or was there a more sinister secret.
Come to think of it though not long afterwards, my wife of 30 years started to complain, that she was having difficulty sleeping during the times when the moon was full.
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While directly obtaining a mortgage on a tax sale is basically impossible, there are ways around this. The first one I purchased (being young and more risk-adverse) I used a line of credit. Fortunately, I lucked out and was able to convince private investors to finance me for future purchases. Always purchase these types of properties under a corporation (it is not worth the personal risk). And once you purchase a piece of land in full payment, you can then use the bank to take out a mortgage on the purchased (in full) tax sale to bank-roll the next acquisition. I am probably not as wealthy as some other members on this board but everyone has to start somewhere...
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I was naive with my first and recent tax sale purchase. As a lawyer, I diligently read through all of the posts on this site and on other Ontario tax sale sites regarding paying for tax sale properties.
I explained to a major bank that I was intending on bidding on a property and that I would need to close the deal in 14 days or would forfeit my downpayment. The bank agreed that it would bank roll me for the transaction.
I won the bid of $227,000 and submitted my deposit of $45,000 which had been drawn from a personal line of credit.
The day after winning the bid, I returned to the bank to arrange for the financing of the remaining $182,000.
After explaining to the bank in detail that this was no ordinary real estate transaction, the bank could not wrap their heads around the transaction.
Seven days passed from the date of the sale before the municipality informed me what the total balance would be on the property taking into account the taxes that had accrued since the tax sale and the land transfer tax.
With only seven days to pay the full amount, the bank was scrambling to finance the deal. I reminded the Bank that I was required to finalize the deal within 14 days of the date of the sale even though the municipality had only given me 7 days notice of the final amount payable.
On the 13th day, the bank sent me and the municipality's lawyer an email stating that it required more time to finalize the financing and that it couldn't forward me the money in the allotted 14 days.
Although the municipality's lawyer was empathetic to my situation, the fact was that there were 40 other people waiting in line for me to default on payment so they could have a kick at the property.
With 24 hours to either pay $182,000 or lose $45,000, I maxed out every line of credit and credit card that I had and begged and pleaded with several family members to bank roll me for the remaining balance. On the 14th day at the 11th hour I paid the full balance to the municipality.
It then took a full month for the ministry to transfer the title into my name, all of which time I was paying huge interest on my maxed out credit cards.
Finally after title transferred, I went to the bank with clear title, MPAC's assessment on the property and the value of current houses on Realtor.ca and convinced the bank to give me a line of credit for the full purchase price of the property since the purchase price was equal to 65% of the assessed value.
This was a good lesson learned, but could have ended disastrously. The lesson that I learned, which other members have point out, is that if you can't pay cash for a property within 14 days of the sale, you can't afford to buy it.
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That is all well and good, but in the end was it all worth it? what is your equity in the home right now?
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$50,000 - $75,000
Three people have since offered to purchase the property from me.
I feel that it has been well worth the effort.
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That is all well and good, but in the end was it all worth it? what is your equity in the home right now?
I think the point was that the bank would not loan funds until after the property had been purchased. The fact that it turned out to be a great deall is not relevant to how the purchase was financed. This story serves to reinforce the theme of this thread - if a bank won't finance event a great buy on a tax sale, do you think that a bank would touch something that is more typical of a tax sale and that may require extensive rehabilitation?
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That is all well and good, but in the end was it all worth it? what is your equity in the home right now?
I think the point was that the bank would not loan funds until after the property had been purchased. The fact that it turned out to be a great deall is not relevant to how the purchase was financed. This story serves to reinforce the theme of this thread - if a bank won't finance event a great buy on a tax sale, do you think that a bank would touch something that is more typical of a tax sale and that may require extensive rehabilitation?
Right on Netpred
The old saying that it takes money to make money was never truer than in the case of tax sale properties. You can't bid more than you can get, and bank on the theoretical value of the property you are bidding on, since no one will give loan you money....except for this guy I know that also sells watches that are hung on the inside of his overcoat...psst, hey buddy, wanna buy a watch. 8)
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$50,000 - $75,000
Three people have since offered to purchase the property from me.
I feel that it has been well worth the effort.
Finally getting caught up after being out of touch for a few days in the far north.
My concern generally is risk / reward ratio. Assuming all your numbers are correct you are only making a 25 - 30% profit margin. For an "as is" purchase this does not sound to me to be an adequate margin of safety given the unknowns and risks usually associated with a tax sale. Of course that maybe okay if you have inside local knowledge.
I am also leary of placing too much of my capital in a single bet. I have run into "Murphy's Law" more then once. One of the key issues we tend to overlook is the amount of time and effort that maybe needed to make it work out.
It also sounds like you also have the fortune not to answer to a higher power called a "wife". Mine can be brutal in her observations behind closed doors and for better or worse she has veto power over everything I do. Of course after almost 35 years of marriage I consider this a small price to pay for the other benefits. The Beach Boys said it best in their song "California Girls" about the Northern Girls.