Renting & Redemption
If you gain lawful possession of a tax sale property, you can use it yourself or rent it to someone else. If the taxpayer redeems, that's the end of your possession rights and your tenant must leave. The redeeming owner MIGHT want to keep your tenant. But, to be safe, we recommend having a lease clause that allows cancellation on 30 days notice if there is a redemption. Otherwise, your tenant will be able to sue when it is kicked out by the owner.
BIRMINGHAM LAND BANK
The Birmingham Land Bank sells tax sale properties owned by the state for 5 or more years. Buyers receive clean, insurable title with no redemption rights. The cost is currently $3,500 per property, but I've heard it is going up to $5,000. They will begin accepting purchase applications again on January 1, 2019. Click HERE for their website, which includes FAQ, forms, and an interactive map of properties available for purchase.
New Lien Auction Process
Some counties will change how they do their auctions in 2019. They include Baldwin, Calhoun, Cullman and Shelby counties. They will not auction tax certificates with overbids. They will auction tax liens only, with people bidding DOWN the redemption interest rate they will accept. Winning bidder is lowest interest rate. No possession rights, but can foreclose in only three years and get clean title. Listen to podcast, HERE
Researching property is REALLY easy with the ParcelFair GIS product. Subscription service has maps that identify all tax delinquent properties plus those now on state inventory, or purchased by investors who have not yet burned off all redemption rights. www.ParcelFair.com This will save you HOURS and HOURS of time. Check it out. Use promo code DENISE for $10 off your first month!
Best Price Offer
If property has been on the state inventory for more than 5 years, you can make a purchase offer called a "Best Price Offer." There is no formula for an amount. I usually offer 2 years of taxes and no interest. To improve chance of acceptance, include some detailed info about the property, photos, and your plans. This tells them you are a REAL investor, and not a wholesaler hoping for the best but possibly also wasting their time.
Abandoned vs. Vacant. Tax sale investors can take DIY possession of abandoned property, not property that is merely vacant. Abandoned means somebody has communicated somehow that they have no intention of ever coming back or doing anything with the property. Vacant means nobody is there now, and possibly nobody has been there for quite some time. You cannot take DIY possession of vacant property, only abandoned property.
Termite Control as Repairs
Termite control measures might qualify as preservation improvements. There is a foreclosure redemption case that says the redeeming borrower must pay for them. I think the same reasoning applies to a tax sale redemption. Durr Drug Co. v. Acree, 241 Ala. 391, 2 So.2d 903 (1941). The statute says "preservation improvements shall mean improvements made to preserve the property by properly keeping it in repair for its proper and reasonable use, having due regard for the kind and character of the property at the time of sale." I certainly think termite control qualifies.
Investor Possession Required
January 2018 Court of Civil Appeals decision ruled that investor must gain and hold exclusive possession of property within 3 years of the tax deed, or forfeit all rights to the property, taxes, and interest. The are only two absolutely safe ways to do this. (1) rent a structure out to a tenant or use it yourself as home or business (2) file an ejectment lawsuit, which is the right legal thing to do, even if the property is vacant. See Rioprop Holdings LLC v. Compass Bank
Investor Tax Overpayment
When you buy from the State, make sure you get an itemization of the amounts you are paying. Often, the price quote is for past taxes and interest, plus taxes that will be due on the upcoming October 1. Sometimes, the county records don't reflect you've already paid that year's taxes, and they send you a bill. If you don't know it was included in the ADOR quote, you'll pay the same year's taxes twice.
Two questions about HOA dues. (1) Does the investor have to pay them? I think so, but only after the tax deed date. Before that, the investor is not the owner. No statutes or appellate authority, but the reasoning makes sense.
(2) Is investor reimbursed for HOA dues upon redemption? I think so. I think the 1931 Alabama Supreme Court decision in Morris v. Card supports it. The cite is 223 Ala. 254, 135 So. 340 (1931). The reasoning was that the investor had to clear liens, otherwise he would lose the property. It would be unfair if the redeeming party did not have to reimburse the investor for those. HOA dues are also liens, so I think the same reasoning applies.
Improvements with $0 Value
Surginer v. Roberts, 231 So.3d 1117 (Ala. Civ. App. 2017) upheld a trial court's finding that the investor's claimed $81,000+ of preservation improvements in fact had no value at all. This was based on the court-appointed appraiser testifying that all work was done in a shoddy manner, with no permits, and was in fact dangerous and causing additional damage. The lesson: Pull permits, and hire licensed subcontractors.
Multiple Tax Auctions
If a former tax sale buyer fails to pay the taxes, that means the property did not meet its objectives. It does not mean its a bad property. The investor is willing to walk away from it rather than keep paying the taxes. YOU should not wait for the auction. Contact the investor and offer to buy out their position. They were willing to get $0. They would probably sell to you for 50 cents on the dollar or less.
No Rights w/o Certificate
Investors have no rights at all until they receive their certificates. That will occur several months post-auction in Mobile and Jefferson counties, possibly others. Do not jump the gun and try to take possession before then, becuase you can be sued or even jailed for trespass.
Guarantors are liable for the current lease term. If your guaranty agreement specificallys says so, they are also liable for all renewals, extensions, and holding over. Even with such a clause, though, a guarantor can give you written notice they will no longer be responsible. If you receive such a notice, the guarantor will remain liable for the remainder of the current term and any holding over, but will not be liable for extensions or renewals. Be sure to advise them of continuing liability for the current term, so there is a better chance they will make sure the tenant pays on time.
Partial Rent Payments
Landlords can accept partial payments after default, but they should always have a separate agreement signed AFTER the default. It will say the landlord is accepting a partial payment and, in return, the tenant will pay the balance by a certain date. Until then, then 7 day notice of default will be "paused." If the tenant does not pay, then the clock will start up again, and will not have to start all over. For the statute, see Alabama Code Section 35-9A-424
Urine odors, even soaked into concrete, can be eliminated with an enzyme based cleaner. You must soak the affected area, and might have to retreat. The enzymes and helpful bacteria break down the stuff that causes the odor, until it is just other stuff that does not have a smell. That's as easy as I can explain it to non-chemists:) They really do work! You can buy almost anywhere. Online reviews seem to favor Rocco & Roxie, which you can buy online HERE
Disabilities Tenants and "Over-Sharing"
Yes, you must rent to tenant with emotional support animal, or PTSD, or whose heritage cuisine generates strong odors. BUT, tenants are not allowed to "overshare" with neighbors, inspecting managers, or repair people. Put rules in place to control oversharing (dog barking, fecal and urine deposits, allergens, strong odors, frightening the neighbors) and you will see most of your problems disappear. If not, you can default and evict, the same as everyone else.
7 Day Default Notice
Many judges now require the 7 day default notice specifically tell tenants it is 7 BUSINESS days, not just 7 days. Without the right language, judges are tossing eviction lawsuits out, and making landlords start over. Is it legal? Who knows. Do you want to spend $10K+ to appeal, or do you want to say "7 business days" in your notices?
Managing Disability Animals
Tenants with disabilities must be allowed animals that help with those disabilities. On the other hand, landlords can require appropriate care of the premises, humane treatment of the animal including shots, that the animal be kept under the tenant's control at all times, and there be no "over-sharing." That means no excessive barking, required hepa filters for allergens, use of pooper scoopers, and repair of urine burns on lawns.
Tenant Past Due Water Bills
Water authorities cannot make landlord pay former tenant's past due water bill before turning on water for new tenant. Ala Code Section 35-9-15 says, "The provider of goods or services may not require a landlord of real property owner to pay the delinquent bill of a tenant for goods or services..." Also, Section 35-9-14 says, "Notwithstanding any other provision of law, any bill for sewer service received in the name of a tenant or tenants, shall be the sole responsibility of the tenant or tenants and shall not constitute a lien on the property where the sewer service was received."
Fair Housing Exemptions
- Fair Housing Exemptions: Landlords who own a building with four or fewer units in their own name (not a company) and live in one of them as their principal residence are exempt but only for that property.
- Individuals who own three or fewer single family rental homes at a time are exempt,but ONLY if they rent the houses without assistance from a licensed real estate agent. The exemption is limited to individuals. It is not available for properties titled in LLCs, corporations, trusts, etc.
- Nobody is exempt from laibility for discrimination based on race, because that is from the 1866 law, which had no exemptions.
Tenants Protected After F/C
Residential tenants usually have the right to remain in premises even after foreclose. The Protecting Tenants at Foreclosure Act was revived on June 24, 2018. Section 304 of the brand new "Economic Growth, Regulatory Relief, and Consumer Protection Act” says: "(a) Repeal Of Sunset Provision.—Section 704 of the Protecting Tenants at Foreclosure Act of 2009 (12 U.S.C. 5201 note; 12 U.S.C. 5220 note; 42 U.S.C. 1437f note) is repealed." That means the statute that gave the Act a sunset is repealed, which means the Act is now in effect again.
Landlord Tenant Act says you can presume premises are abandoned if the power has been disconnected for seven consecutive days. How do you find out? Include in your lease package a one page letter, signed by tenant, that authorizes you to speak to power company and find out account status. This will help with discovering the 10 days of disconnection. It will also let you monitor timely payment of power bills, and perhaps get an early warning of a tenant entering financial difficulties.
If you have only one person on the lease, and that person dies, who can you let in the premises to clean them out, so you can re-rent? Technically, only the court appointed administrator of the tenant's estate. Give the keys to the wrong person, and you could get sued. But, people rarely open probate. Protect yourself in advance with a lease clause in which your tenant agrees you can give a key to specific named people if the tenant dies, is hospitalized, or incarcerated.
When is default date?
Rent is due on the 1st. There is a late fee after the 5th. When is tenant in default? On the 2nd or on the 6th? In your lease, spefically say when the tenant will be in default. If the 2nd, it just means your notice of default and opportunity to cure letters can go out immediately. They can still cure without a late fee if they do it by the 5th, or with a late fee if they do it afterwards. Or, say default happens on the 6th. Say SOMETHING, because most tenants THINK they are not in default until they fail to pay the NEXT month's rent! That impacts their financial planning, and the might find themselves badly surprised and not able to cure when they get your default letter. It sounds simple, but avoid problems by avoiding surprises.
Urine and Fecal Odors
I've discovered a wonderful product that eliminates pet urine odor, even in concrete. It's called "Urine Gone!" and comes in 24-ounce spray bottles. I bought mine at Bed Bath & Beyond, for $9.99. It is an enzyme-action product that breaks down the urine into components that do not have an odor. You have to completely soak the area so the product penetrates into all areas where the urine has penetrated. There are similar products by other companies, just make sure they are enzyme based.
"Vaping" is done with an electronic cigarette, cigar, hookah, pen or pipe. They are collectively known as Electronic Nicotine Delivery Systems, or ENDS. Are they allowed in no-smoking properties? Nobody knows for sure how a court would rule. Don't take chances. If you don't want to allow it, make sure your lease or your Rules, Regulations & Fee Schedule specifically prohibit "Vaping and/or ENDS" as well as smoking.
I've binge watched flipping shows today and watched hours and hours of people struggling with drywall installation. People, there is a tool that will hold the sheets of drywall for you, either up against a wall or the ceiling. It's called a panel lift. You can buy one for a couple hundred dollars, or rent one from Home Depot or other rental outlets for significantly less. If you are determined to hang your own drywall, at least make it easier on yourself!
Out of State Buyers
BHM and HVL are prime rental property areas for investors all over US, easily found on BiggerPockets.com They want to know your numbers are solid. Disclose details of your market research regarding rental rates and vacancy rates. They also want to know you have experienced property management lined up for them, so be sure to do your research in that area, also. If the investor is paying for rehab, they want firm quotes for all work, line items for permitting, insurance, waste disposal, etc., and evidence contractors are licensed and insured.
Tetanus occurs from deep puncture wounds but also minor scrapes. One out of every five infected people will die. Doctors recommend a tetanus booster every ten years. Most vaccinations are a TDaP, which protects against tetanus, diptheria and pertussis (whooping cough.) The other two might seem unnecessary, but there's been a recent outbreak of pertussis in parts of the US, including Jefferson and Shelby counties in Alabama.
Laugh all you want, but staging sells houses. The first time or two, hire professional stagers who know the tastes in your area. Especially for smaller spaces, you want light colors and see-through elements, such as seating with legs, glass table tops, etc. Think about designating some pieces to remain behind for the new owner. Know the prices to quote for other pieces purchasers might want to buy.
Design & Costing Software
Good software is critical for design and cost estimating. We recommend Virtual Architect Professional Home Design, for $99.99. Click HERE to see the stunning array of features that will make you money, save you money, and save your time.
Adding a Bedroom
Adding a bedroom can add $25,000+ to value. You need at least 70 square feet, horizontal wall of at least 7 feet, safety exit window or door, and a closet. Find some space in a 2BR/1 BA that can be a bedroom by converting a DR or small den, or carve up a large BR. Add a closet, and you have a 3BR/1BA. At that size, a BR is more valuable than another bathroom.
Find Buyers First
The best flipping strategy is one where you line up your pool of investors FIRST, then you find out what they want to buy, then you go out and buy/rehab/flip. Buying, rehabbing, and then hoping for a buyer is crazy. No matter how much money they seem to make on the tv flipping shows by selling to consumers, it rarely works out for newbies.
Avoid hidden expenses and hidden problems. Don't forget to pull permits. Obtain builder's risk insurance. Have portalets on site if required by local codes. If power has been disconnected, getting temporary power can be very expensive. Dump fees can add up quickly, so save cabinets and other items and donate to local Habitat or other groups. Make sure subcontractors are licensed, otherwise you'll have to pay their fees for your job before you'll be able to get your certificate of occupancy.
flippers. Start with your ARV (After Repair Value), multiply by 0.7 (70%), and then subtract your repair estimate. That's the MOST you should pay to buy a property. Even after financing costs, holding costs, and surprise repairs, you should still make a profit.
Landscaping can add up to 10% to the value of your flip. Don't overlook the lawn. Seeding is cheaper but sod is faster. Think ahead if you want to seed. Remove overgrown trees and shrubs first, then think about new plantings. It's easy to over-buy otherwise. Curb appeal means curb. If money is tight, spend it on the front lawn. People can forgive a boring back yard.
Many new flippers try to save money by doing demolition work themselves. It's a lot harder to demo out a house than you might think, and it takes a lot longer if you are not experienced and strong. Since time is money, you might be better off hiring someone to do your demolition.
Kitchen & Bath Renovation
Everybody knows that a kitchen update is critical to successful flips, but bathrooms are equally important. At least one bathroom must have a tub, to bathe small children, but the rest can have showers. You don't need the most expensive finishes, but you do need new colors and some type of WOW! factor, such as a beautifully framed mirror.
Millennials as Buyers
Studies say millenials want a laundry room, pantry, storage, smart home technology, outdoor lighting and outdoor living spaces. Most popular style is something called Modern Traditional or New Traditional. Look at some ideas and explanations HERE
Check out the equipment rentals at Home Depot. You'll be surprised at what you can rent, and how cheaply. In particular, I always marvel at new flippers struggling with drywall, especially ceiling installations. You can rent a device that will hold drywall panels for you, for around $20 a day!!!!