I’m looking for a house in Birmingham, AL to buy cheaply and fix up. I want to live in it as I fix it up and rent out the extra rooms. I’m single, young, and see this as my first of many single home properties that I will purchase to rent out.
The neighborhood that the house is a historical district near the heart of downtown Birmingham. Many houses here are run down and falling in upon themselves. The city has demolished some of these homes creating vacant lots. Sometimes these run down vacant homes have squatters living in them so I’m careful when I speak with the owners and look at these properties. Other homes are well cared for and rented out or have owners living in the houses. It’s a neighborhood on the rebound with a few black marks remaining in it. I see construction in progress on a few of the houses.
The home that I’m interested in has been partially renovated. Construction was stopped because the owner ran out of money. I estimate that the home is 30-40% complete. It’s been sitting empty though for about 2 years since construction stopped. Taxes are unpaid for that period of time so it’s up for this years tax sale and a $50,000 mortgage lien is on the property. In addition, an amendment of additional security was added to the mortgage for rents. It’s worth about $80,000-90,000 if completely renovated. The current owner is asking $25,000 as is. He says he knows he’s losing money on the property. He’s willing of offer me owner financing. I would rather do that to save on the closing costs of going through a bank.
I like the house but want to offer $15,000 at 4% interest for 15 years. I also hope that he simply hasn’t recorded that the $50,000 has been paid. I don’t see how I can buy the house if the $50,000 mortgage hasn’t been paid. I’m certainly not going to pay for his mistake.
Has anyone run into this situation or one similar that worked out successfully to purchase the house? I feel like I’m searching for a needle in a haystack trying to buy this property.
Ok first thing is if the property has a tax lien for two years and a $50k mortgage lien those will need to be paid (Taxes) and negotiated to pay (Mortgage lien). Someone will need to pay these to close escrow!
The seller is asking $25k with the intention some new buyer pays / negotiates the taxes and mortgage lien to close escrow! They don’t just go away!
Since the property was under construction and was last touched two years ago you may need to redo certain items to meet 2017 / 2018 building codes.
I don’t believe you can have any roommates until construction is 100% completed and a new “Certificate of Occupancy” is issues and the building permit
has a final inspection!
The city may not allow you to even stay there until construction is completed and a “COO” is issued! The city will require you to have a full building permit and to bring everything up to current code!
You can expect to spend $35 per square foot or more to renovate that property (1000 sq. ft. = $35,000 dollars) this does not include overhead, utilities, debt service, taxes, insurance or a prudent reserve!
You still need an escrow and to pay closing cost’s as you should be the new owner (Will need to be to get permits) and the seller becomes the lender holding a new 1st TD on the property for $15k @ 4%. You have to have title insurance and want a check for construction liens against the property.
You also want seller to prove every material item and subcontractor / laborer were paid in full with lien releases!
The 50K lien would show paid if it has already been settled! The local title company can do a property report for you and determine what the mortgage lien status is? Back taxes will need to be paid at close of escrow!
Hi Gold River. Thanks for responding to help me.
The seller has contacted me again saying that the $50,000 mortgage lien is paid. I still wonder why it hasn’t been recorded in the county probate office. I will get verification in writing from the bank that the mortgage came from before I sign anything.
The back taxes are about $2700 and I’m paying those. It will be a new deed with the seller as first mortgage lienholder. I’ll take that to the courthouse and use it to pay the taxes.
It’s an owner financed deal so there’s no closing or escrow costs. I may need a third party attorney to create the documents.
That’s a good idea about checking into the contractors. I’ll make sure they’ve been paid.
His response to my offer is to say he wants an amortization of 20 years and a balloon payment at the end of 5 years at 4% with $20,000 as the loan amount. The $2700 taxes would be in addition to that so $22700.
I’m going to say no to that and counter his offer with $20,000 minus the taxes at $2700 for a loan of $17300 at 3% interest with an amortization of 15 years and a balloon payment at the end of 6 years. I also want to split closing costs with him. It could be that since he’s a lawyer he may offer to write the contracts himself but I’m concerned about this since it’s possible for him to slip something into the language that benefits him that I wouldn’t know about.
Make sure YOU hire your own attorney to check every single part of this deal out. This guy’s an attorney so he already has the upper hand. Don’t assume anything he tells you is factual.
Make sure you get title insurance on the property and have YOUR attorney get that insurance for you. I’ve seen dirt bag lawyers charge people for title insurance and never actually send the check in. It happens.
One last point. This guy isn’t losing a DIME on this deal. By holding the mortgage, he gets all his interest upfront and he’s HOPING you default. He gets to do it all over again with someone else if you do. You may find out THAT is exactly why construction started and stopped on this one. He had a buyer, that buyer couldn’t make the payment, and the attorney took his deposit, his interest AND his house back.
I’m not saying this is what’s happening here. Just telling you to check it out with your own attorney. I’d even go as far as to ask any lawyer you potential hire if he/she knows the selling attorney.
I spoke with the attorney again and the mortgage lien is paid. It’s recorded at the courthouse now.
He showed me the title insurance he bought when he purchased the property and everything there is clear.
I decided to have an inspection done on the house. I know it needs work but to hear it from a professional means I can get down to the nuts and bolts of the issues. The inspector refused to do a report on the house. He didn’t charge me for looking it over. He did me a favor. He looked it over for 30 minutes and said it’s a waste of time.
The concrete foundation in the basement is cracked in many places. It’s crumbling. One of the concrete support pillars in the middle of the basement has fallen and is laying the floor.
The new roof that was recovered with new shingles was nailed directly to 1" x 3" boards that rest on the joints. No plywood decking was used. So the roof has to be redone.
He asked me if I had $200,000 because that’s what it would take to fix it. He said a complete HVAC job alone would be $20,000 on an 1800 sq ft home like this. He said historical districts typically have codes of their own stipulating what kind of materials can be used to renovate an old house in the area. That also makes the situation more expensive.
He said I would be better off tearing the house down and starting from scratch.
Despite hearing this from him, I still have interest in the house. I’ve invested time and energy for almost 2 months thinking about hopes and dreams of what it could be when it’s finished and I’m living there. I’m disappointed. I want this to work so bad. It sucks. I don’t want to hear this from him.
The inspector, and the neighbor next to this house think I’m crazy to try and renovate this house, but the optimistic dreamer in me says that it can work.
I admire your determination. I hope nothing bad happens. But I have to tell you, I drive by a vacant lot that used to have a house like this that I passed on buying a few years ago. Someone else put about $40K in it, it collapsed when he tried to move the support columns, and he paid another $10K to demolish and haul it away. The lot is worth maybe $1,500. Be careful. You’ll find that great deal, but this might not be it.
You know when you’ll realize this deal sucked???
When you’re BURIED IN IT UP TO YOUR EYE BALLS!!!
Then you’ll think about it this way…
If I had just passed on this DUMP I would have ALL THAT MONEY to invest in good properties. But instead I didn’t listen and now I’m locked into this money pit for YEARS. I’ve lost TIME. OPPORTUNITY, and MONEY all because I couldn’t simply WALK AWAY!!!
There are WAY easier deals to be had out there. I don’t care how long you’ve been looking. You’ve been doing it wrong if this is the only deal you’ve found.
I decided to skip this house. It’s a money pit. It’s location is incredible but the money needed is too much for what it is worth.
I’m looking for a house the wrong way. I should be looking for a house with a good foundation, frame, and roof. Then I can put money into the interior of the house and the yard.
Thank you for the replies.
Talk to every mailman you can find. These guys are INCREDIBLE sources for deals. Offer to pay them a $2000 finders fee on any house that they send you that you BUY!
They see every house, in every neighborhood, and usually know the owners. People pass away, people get NOTICES IN THE MAIL about back taxes, neighbors talk to mailmen.
Tell the mailmen EXACTLY what you want to buy. Give them your cards. BUT…Tell them to GET A PHONE NUMBER FOR YOU…“DO NOT just hand out my cards. If you do it that way, I’ll never know the lead came from you. I WANT to pay you that finders fee. Get me some phone numbers!”
It works…Believe me
I totally agree with fdjake, you should hire an experienced attorney to deal with this situation.
I like the mailman idea. I will talk to some that I see in the neighborhoods.
I read your post. It’s really a tricky situation.
I think you should take advice from an experienced attorney.
What a neat idea about the mailmen!
I also like the idea of talking to the local police to gather an idea of the neighborhood…they will know where the most calls for trouble come from.