The Case for Investing in Real Estate Tax Auctions the RIGHT Way with Steven Reyes

In episode #121 of the Better Than Success Podcast Host Nicole Purvy interviews, iRoofPA co-owner and real estate investor Steven Reyes.  After listening to episode #118 with Courtney Richardson, Steven felt compelled to write in a 3-page letter to our podcast arguing his case for effectively investing in real estate tax auctions.  We decided to bring him in and let our listeners hear what he had to say themselves.  Listen to see what we discussed. Below is a copy of Steven's letter. ______ 9/7/18 Hello BetterThanSuccess, Hope all is well. I was at the better then success meeting yesterday and was so blown away with the community and resources on display, I had to join today. I look forward to participating and learning from this dynamic community. I am an active investor, landlord, and owner of a local contracting company so as I’m sure you could imagine your community has quite a lot to offer, and I look forward to adding anything I can. Warning: This is long. Its only my two cents so feel free to take it for what it’s worth. Firstly, I have been feverishly listening thru the podcast material all day. I was very excited to listen when I heard that the most recent podcast was regarding tax auction. I immediately couldn’t wait because I am a podcast fanatic and I have bought properties off the tax auction, am in current litigation regarding a tax auction buy, and have learned quite a lot in a short period of time. I was captured by the content. I learned numerous things I didn’t know and was incredibly impressed with Ms. Courtney Richardson’s knowledge and perspective on the topic. I have devoured every resource on the internet regarding Philadelphia Tax Auction. YouTube, blogs, bigger pockets, REI groups, etc. And nothing had as much valuable information on the subject as that podcast. It was an excellent episode and I will be suggesting it to numerous people for listening. But I did want to share some important insights that I thought got left out that might add to the conversation. These are things I’ve learned buying at the auction, taking the sheriffs seminar, and reading everything I could find on the subject. Sorry If this comes off as unsolicited, I just felt moved to share it. A quick note that got skipped was the part about the percentage of interest that a redeemer must pay to redeem a tax auction property. I had erroneously thought it was 7% so I was glad to be corrected on the 10 % figure. But the important part that got skipped was that that percentage goes to you as the new deed holder. That’s relevant from an obvious point of money in your pocket, but also a note worthy fact when considering the over all risk of purchasing property at the tax auction. If they do redeem you do get your investment back, plus interest. Another thing to consider when assessing the tax auction as a tool for property acquisition is how under market the property prices are. When your data is properly curated, and you have thoughtfully and judiciously targeted properties that fit your criteria, you can find a multitude of half gut and quarter gut properties for below $20,000. Considering these properties can still fetch market rate rents, and their expenses are without mortgages eating into cash flow, the potential for acquiring cash flowing cheap sticker properties is high. Which leads to what I think you guys established well. Tax auctions are not for flippers! There not for wholesalers! The podcast did a really good job of explaining why! Title insurance, redemption, delays acquiring deed, all make quick transactions on property from tax auctions a bad idea. However, I would make one objection to something that was said in the podcast. It was agreed upon that the tax auction is for big investors. I think that’s half true. I think a more accurate description would be that it’s for prepared investors. Sometimes these are mutually exclusive sometimes not. But either way there must be a strategy before you ever walk in to the auction. One based on what your goals are, what transpires at the auction, and what needs to happen between you winning the bid and you collecting a rent check on that property. In my estimation the safest and most profitable way to get return on investment from auction properties is to get new tenants in the property ASAP. Do a bare bones rehab, work with a contractor that writes forms creating a paper trail describing the need for every repair, and get it rented with a quality tenant. Avoid all cosmetic work as much as you possibly can while still getting a competitive market rent. My reasoning for this being the goal is mutli-fold. 1) Begin recouping initial investment asap via rental income. 2) Take advantage of cashflow sans mortgage payment, PMI, and all associated loan generation expenditures. 3) Create a stronger claim of ownership by having a legally valid lease contract and a tenant who has every right to continue execution of that contract as long as the landlord has and continues to operate in good faith. 4) Any reasonable sale of the property will have to be after a year. For some title insurance companies its two years. So the most profitable sale will come from after a couple years of ownership, during which you could be collecting high cashflow rental income, refinance and Brrr, or sell as a cash flowing tenant occupied rental after the title period. Additionally, an investor must be prepared for rehab costs. Having good contractors (multiply) and reasonable expectations are the key. As you know you can’t see the inside. Therefore, as an investor I think its prudent to assume the inside is always an entire gut job. The exterior state can be seen on physical inspection and google earth (state of roof). Our unknown is always the inside! So, every property we calculate for a buy range, we must assume the cost of a full interior gut. If we find that’s not the case (and its often not the case) then it’s a pleasant cap ex surprise. Also, buyers must be ready to remove squatters. There is no amount of inspections that can reasonably be done from outside of the property to be sure the property is vacant. So, buyers must be ready to go through all the processes of a writ of possession. The process is too long to detail every bit here, but the important part is having an experienced lawyer who has done Writs of Possession proceedings. Additionally you must know how to start filling a complaint in the Court of Common Pleas ASAP, once you have the deed in hand. This process can take time, so you want to move as fast as possible. Buyers should be ready to make cash deals to get squatters out. There are some tricks I learned from other buyers on how to accomplish this, but it can be superior method of removing them then the court of common pleas writ of possession process.   One last preparation that I learned from YouTube is how to mine the data on the auction. At the sheriff site there is a download button that lets you download the entire auction into excel. From there you can weed out the list by zip codes you like, square footage you prefer, bedrooms, etc. From this list we try to weed it down into a manageable number of prospective properties. Then we begin the process of physical inspections. Keep the lists organized by zip code for easier moving. During site visits we take notes and eliminate unfit properties to make a final list of target properties. We then do more research on comps, rental income, expenses, cap ex, and formulate a price range for each property. This list guides us and keeps our bids under control and within budget at the auction. In conclusion If you can learn the system and prepare for what is unknown the tax auctions can be one of the best resources for finding deals, especially with the booming market right now. If you read this far thank you for your time and I look forward to all the content your company has to offer. Steven Reyes In episode #121 of the Better Than Success Podcast Host Nicole Purvy interviews, iRoofPA co-owner and real estate investor Steven Reyes.  After listening to episode #118 with Courtney Richardson, Steven felt compelled to write in a 3-page letter to our podcast arguing his case for effectively investing in real estate tax auctions.  We decided to bring him in and let our listeners hear what he had to say themselves.  Listen to see what we discussed. Below is a copy of Steven's letter. ______ 9/7/18 Hello BetterThanSuccess, Hope all is well. I was at the better then success meeting yesterday and was so blown away with the community and resources on display, I had to join today. I look forward to participating and learning from this dynamic community. I am an active investor, landlord, and owner of a local contracting company so as I’m sure you could imagine your community has quite a lot to offer, and I look forward to adding anything I can. Warning: This is long. Its only my two cents so feel free to take it for what it’s worth. Firstly, I have been feverishly listening thru the podcast material all day. I was very excited to listen when I heard that the most recent podcast was regarding tax auction. I immediately couldn’t wait because I am a podcast fanatic and I have bought properties off the tax auction, am in current litigation regarding a tax auction buy, and have learned quite a lot in a short period of time. I was captured by the content. I learned numerous things I didn’t know and was incredibly impressed with Ms. Courtney Richardson’s knowledge and perspective on the topic. I have devoured every resource on the internet regarding Philadelphia Tax Auction. YouTube, blogs, bigger pockets, REI groups, etc. And nothing had as much valuable information on the subject as that podcast. It was an excellent episode and I will be suggesting it to numerous people for listening. But I did want to share some important insights that I thought got left out that might add to the conversation. These are things I’ve learned buying at the auction, taking the sheriffs seminar, and reading everything I could find on the subject. Sorry If this comes off as unsolicited, I just felt moved to share it. A quick note that got skipped was the part about the percentage of interest that a redeemer must pay to redeem a tax auction property. I had erroneously thought it was 7% so I was glad to be corrected on the 10 % figure. But the important part that got skipped was that that percentage goes to you as the new deed holder. That’s relevant from an obvious point of money in your pocket, but also a note worthy fact when considering the over all risk of purchasing property at the tax auction. If they do redeem you do get your investment back, plus interest. Another thing to consider when assessing the tax auction as a tool for property acquisition is how under market the property prices are. When your data is properly curated, and you have thoughtfully and judiciously targeted properties that fit your criteria, you can find a multitude of half gut and quarter gut properties for below $20,000. Considering these properties can still fetch market rate rents, and their expenses are without mortgages eating into cash flow, the potential for acquiring cash flowing cheap sticker properties is high. Which leads to what I think you guys established well. Tax auctions are not for flippers! There not for wholesalers! The podcast did a really good job of explaining why! Title insurance, redemption, delays acquiring deed, all make quick transactions on property from tax auctions a bad idea. However, I would make one objection to something that was said in the podcast. It was agreed upon that the tax auction is for big investors. I think that’s half true. I think a more accurate description would be that it’s for prepared investors. Sometimes these are mutually exclusive sometimes not. But either way there must be a strategy before you ever walk in to the auction. One based on what your goals are, what transpires at the auction, and what needs to happen between you winning the bid and you collecting a rent check on that property. In my estimation the safest and most profitable way to get return on investment from auction properties is to get new tenants in the property ASAP. Do a bare bones rehab, work with a contractor that writes forms creating a paper trail describing the need for every repair, and get it rented with a quality tenant. Avoid all cosmetic work as much as you possibly can while still getting a competitive market rent. My reasoning for this being the goal is mutli-fold. 1) Begin recouping initial investment asap via rental income. 2) Take advantage of cashflow sans mortgage payment, PMI, and all associated loan generation expenditures. 3) Create a stronger claim of ownership by having a legally valid lease contract and a tenant who has every right to continue execution of that contract as long as the landlord has and continues to operate in good faith. 4) Any reasonable sale of the property will have to be after a year. For some title insurance companies its two years. So the most profitable sale will come from after a couple years of ownership, during which you could be collecting high cashflow rental income, refinance and Brrr, or sell as a cash flowing tenant occupied rental after the title period. Additionally, an investor must be prepared for rehab costs. Having good contractors (multiply) and reasonable expectations are the key. As you know you can’t see the inside. Therefore, as an investor I think its prudent to assume the inside is always an entire gut job. The exterior state can be seen on physical inspection and google earth (state of roof). Our unknown is always the inside! So, every property we calculate for a buy range, we must assume the cost of a full interior gut. If we find that’s not the case (and its often not the case) then it’s a pleasant cap ex surprise. Also, buyers must be ready to remove squatters. There is no amount of inspections that can reasonably be done from outside of the property to be sure the property is vacant. So, buyers must be ready to go through all the processes of a writ of possession. The process is too long to detail every bit here, but the important part is having an experienced lawyer who has done Writs of Possession proceedings. Additionally you must know how to start filling a complaint in the Court of Common Pleas ASAP, once you have the deed in hand. This process can take time, so you want to move as fast as possible. Buyers should be ready to make cash deals to get squatters out. There are some tricks I learned from other buyers on how to accomplish this, but it can be superior method of removing them then the court of common pleas writ of possession process.   One last preparation that I learned from YouTube is how to mine the data on the auction. At the sheriff site there is a download button that lets you download the entire auction into excel. From there you can weed out the list by zip codes you like, square footage you prefer, bedrooms, etc. From this list we try to weed it down into a manageable number of prospective properties. Then we begin the process of physical inspections. Keep the lists organized by zip code for easier moving. During site visits we take notes and eliminate unfit properties to make a final list of target properties. We then do more research on comps, rental income, expenses, cap ex, and formulate a price range for each property. This list guides us and keeps our bids under control and within budget at the auction. In conclusion If you can learn the system and prepare for what is unknown the tax auctions can be one of the best resources for finding deals, especially with the booming market right now. If you read this far thank you for your time and I look forward to all the content your company has to offer. Steven Reyes How to invest in the tax auctions the RIGHT way? Guest Steven Reyes shares his knowledge on the pros of investing in the tax auction and how you should navigate the auction. As an active investor in the tax auction field, Steven has acquired all of his recent properties from the auction. He currently has one rented successfully and one in litigation. Before going to the auction, Steve explains how he   6 months before actually investing. His first property was a total of $16,000 and he completed a bare bones fix and rented it out as soon as he could. Bare bones fix up is fixing up a house to the point where it can be rented and nothing extra. “You need to do this to protect yourself.. Anything you need to get your renters licence” he shares. Reyes then explain to anyone who wants to invest in the tax auction that the average single home family is usually in the low $20,000’s. Most of the time when you invest in the tax auction, there can be ‘squatters’. Squatters are people who are living in the house without legal title. Do squatters have rights? Absolutely! If you invest in the auction and the property you bid on has squatters, yes you have to go through a process to get them out. You cannot start working on a property if there are squatters. Therefore, you have to use a strategy to get them out of the property. There are many ways investors/owners can handle this scenario. In this episode, Steven uses one of his favorite strategies “cash for keys”. He shares on of his own tricks (in which there are many) of getting the squatters on a lease so you can march them to eviction. Moving on… Steven goes into depth about one of his properties that he has to do a LOT of work legally to fully acquire the property he invested in. His example is having a full family in the house he purchased from the auction. He explains the process but emphasizes on the fact that you have to start the legal process and get all paperwork for the property done ASAP due to right of redemption. Yes… someone can redeem their property in a set amount of time. Reyes then gives step by step instructions for success at the tax auctions. Step by step success at the tax auction: You have to ask yourself, as an investor, what is your goal of acquisition? What are you looking for? What is your price range? What area are you looking to invest at? Do you have contractors and the proper relationships to fix them home up? Steven expresses from experience to always assume it is a full gut because  you never know how these properties look inside. Do you have a GC? These are the question you NEED to have the answers to before going to a tax auction. 2) RESEARCH, RESEARCH RESEARCH -Whats dates are you going to the auction? -Download data from sheriff list and put in in excel sheet … subtract properties off of your list to bring your list to a reasonable size. -Although you are not supposed to look inside in the properties, do as much research as you can. “Some properties can look good from the front… you need to physically inspect. Take notes…” -Research your buy range: -Run your comps.. What is rental income? How much will it be worth in the future. 3) Create a final list with your buy range. “Don't go a penny over.” 4) Tips on auction: -Pay in money orders or cashiers checks. -Get checks in thousand dollar/500 dollars increments. -Sometimes they are packed, sometimes they are dead. -You need 10% of you the properties price.. You can/will get kicked out if you are not prepared after bidding. “Sometimes you need to walk out of there, You don't need to buy” Reyes explains. 5) Finish paying off the property asap… The deed starts as soon as you pay final balance. ‘You are nothing until you have that deed in your hand.’ 6) Lastly, after getting the deed you can roll up to the property and get into deal mode. “Renting is the best option for monetizing from the tax auction”… in his opinion. Contact Info: 833-IROOFPA 833-476-6372 iroofpa.com For more information on joining the BTS Real Estate League, Click Here.