Introduction to our Creative Financing for Real Estate Investors
Investing in real estate, whether through tax sales or conventional purchases, holds immense potential for profitability. However, navigating the financial intricacies of property acquisition can be challenging.
Enter Tax Sale Resources, a dynamic financing partner that revolutionizes how investors approach their real estate ventures.
In this comprehensive guide, we'll explore the Tax Sale Resources' financing solutions tailored for redeemable deeds in states like Texas, Georgia, and Tennessee, tax deeds in numerous other states, and conventional real estate investing and real estate owned (REO) situations.
Discover how Tax Sale Resources empowers investors to unlock their full potential and multiply their investments, all while avoiding common financing hurdles.
So, whether you're eyeing opportunities in redeemable deed states or seeking to optimize your returns with conventional real estate purchases, Tax Sale Resources offers a customizable financing program to suit your needs.
In the following article, we step through the various ways to successfully use our financing program.
If you would prefer you can check out our four-part YouTube series using the links below:
- Video 1 - Financing Redeemable Deeds
- Video 2 - Financing Tax Deeds
- Video 3 - Financing Conventional Real Estate and REO Purchases
- Video 4 - Where Does our Financing Model NOT Work
Let’s get started!
Creative Financing Strategies for Redeemable Deeds In Texas, Georgia, and Tennessee
Winning a property at auction in a redeemable deed state means waiting for the redemption period to expire before becoming the owner of the property.
For example, say you’ve won a property at auction in Tennessee for $50,000. Your total investment capital amount is $70,000, meaning you’ve dedicated 80% of your resources to this investment for the duration of the state’s redemption period (in this case, one year) plus the necessary time to perform a quiet title action.
Then, you have to sell the house to realize your profit. As a result, you’re tying up your money for over a year while auctions continue happening every month. The problem is you don’t have the capital to continue investing while this process runs its course, especially since your remaining money is crucial for attorney fees and possible repairs to the property.
Here's how that scenario is different with Financing from Tax Sale Resources.
Once the tax deed is recorded after the auction, we’ll hold the asset and return your $50,000 to you within two weeks. Tax Sale Resources then holds on to the asset during the redemption period.
Meanwhile, you have $50,000 back in your pocket, bringing you up to the same capacity as before to invest, all without needing an insurable title for the property.
Next month, you win another bid, this time for $55,000. Tax Sale Resources finances this purchase as well, providing $55,000 in return for the deed.
By repeating this process, you can end the year with five properties under management instead of just one. In addition, our program is available even if you purchased the property months ago. As a result, Tax Sale Resources empowers you to leverage your capital multiple times through the financing program.
How payment shakes out depends on what happens to the deed.
For instance, if the property redeems, Tax Sale Resources receives a nominal portion of the redemption penalty, leaving the lion’s share to the investor. Remember, the penalty (i.e., the interest you earn on your investment) varies by state.
For example, the redemption penalty in Texas is 25%. In Tennessee, it’s 10%, while Georgia’s is 20%. As a result, you can run your profitability projections with these numbers and get an accurate forecast for your business.
On the other hand, say your investment model usually means the redemption period will expire.
In these cases, the property sale will cover the loan plus interest, again allowing you, the investor, to take most of the profits. This way, instead of completing one deal per year, you can knock out several properties in the same period.
Creative Financing Strategies for Tax Deeds Investing Nationwide
If you’re investing in a typical tax deed state, there’s no redemption period for real estate investors (unlike the states mentioned in the first section).
As a result, you can initiate the title certification process once the auction is over. However, financing your endeavors can be challenging in these situations because of how banks lend to investors.
For example, say you purchase a tax deed in Michigan for $30,000, and the property is worth $100,000. Furthermore, you see an opportunity to renovate and sell the house for $150,000. All that notwithstanding, a traditional bank will likely loan about 75% of your purchase price. So, you’ll receive $22,500 at best, creating an unsustainable pattern for future investments. In addition, the bank will require an insurable title before lending.
Tax Sale Resources offers a more investor-friendly financing program. We don’t require an insurable title to finance your purchases in tax deed states.
In addition, we loan 100% of your purchase price back to you. Therefore, you’ll be able to continue investing in more properties with your original amount, with a maximum debt load of $500,000.
Plus, you’ll have the time you need to obtain the insurable title and refinance for better terms with a conventional lender.
Investors will get an enhanced package if they have an insurable title for the property. Specifically, Tax Sale Resources provides up to 65% of the value of the property regardless of your purchase price if you have the insurable title when applying for financing.
So, you purchased the property for $30,000 in the example above, which is worth $100,000. Our financing program enables you to come away with $65,000, empowering you to invest beyond your original capacity.
Remember, Tax Sale Resources bases its loans upon an accurate value approximation of the property as opposed to an estimate from Zillow or an investor’s projections for the value after repairs.
In addition, we perform our own title examination to ensure the risk levels remain low. As a result, our loans reward solid investment models that need a cash injection to go to the next level, making successful investors even more profitable through this financing partnership.
Creative Financing Strategies for Traditional Real Estate Investments
Tax Sale Resources also provides financing for conventional real estate purchases and non-tax-related property ownership.
Investors who buy properties through conventional real estate deals or have held them for a long time often have a similar goal to tax sale investors: selling the property.
For example, say you bought a property for $25,000 a year ago. The property value is $50,000. With your practiced investor’s eye, you know you can repair and sell it for $100,000. However, you lack the necessary funds to do the work.
Tax Sale Resources can provide the needed financing (provided our independent assessment confirms the current $50,000 property value) for you to move forward. Our financing typically provides 65% of the property value. So, with a current value of $50,000, you would receive financing up to $32,500 – several thousand dollars over your purchase price. In addition, these loans have terms of six to twelve months, giving you sufficient time to fix and sell the home.
Remember, repairs aren’t a necessary part of the scenario for financing to be helpful In the same scenario, selling the property for $50,000 might take several months. While you wait, you can get $32,500 of your equity back through the financing program, allowing you to further your investment operations while you wait for a buyer.
Likewise, traditional lenders often require investors to hold property for a specific period (such as six months) before providing financing. Tax Sale Resources can lend you the amount you expect to get from a bank during this interim period. This way, you won’t wait to access your money and can refinance for better terms once you fulfill the bank’s holding period stipulations.
Investors conducting real estate purchases can also experience obstacles when applying for traditional mortgages.
For example, a traditional lender may decide you’ve fully leveraged your credit after reviewing your financial profile. Similarly, you may have a challenged credit history, causing banks to avoid financing your next purchase. These factors can cause banks to refuse to work with you from the outset or your financing to fall through before you reach the closing table.
Fortunately, our asset-based program allows investors to bypass these traditional loan barriers. We don’t impose a minimum credit score for financing applications. Instead, we assess the property to verify its current market value and provide financing based on the property and your purchase price.
As with REO situations, real estate investors then have six to twelve months to sell the asset (or refinance) and repay the loan. This system rewards investors who implement a profitable strategy but need the financing to move forward with their next project.
One caveat with the program is if a discrepancy between your estimation of the property value and Tax Sale Resources’ assessment occurs. For example, let’s say you’re under contract to a certain property for $55,000. You believe the property is worth $100,000. However, Tax Sale Resources values the property at $75,000. In this situation, we will provide 60% of the assessed value from our end. As a result, Tax Sale Resources finances $45,000 for your purchase, leaving you to come up with the remaining $10,000 to seal the deal.
Where Does Our Creative Financing Model NOT Fit
Lastly, some situations aren't a good fit for the financing program. Knowing which situations aren't suitable upfront will help you save time and get the needed assistance from other sources.
Firstly, investors implementing the buy-and-hold strategy will need help beyond the capacity of Tax Sale Resources.
For example, a property you plan on holding for years (such as an Airbnb or rental property) will ultimately need financing from another source. While Tax Sale Resources can help you bridge the gap in the short term for this type of purchase, our twelve-month term conditions make for an interim solution at best.
As a result, refinancing is an essential part of the plan if you use Tax Sale Resources to support a buy-and-hold approach.
Secondly, selling a home on owner finance isn't compatible with Tax Sale Resources financing. Specifically, obtaining financing through our program puts us in the chain of title on the asset. Because Tax Sale Resources takes assignment of the property during the holding period, selling on owner financing introduces another interested party, creating an untenable complication.
Refinancing a personal residence is a third unfitting situation for Tax Sale Resources financing. Because we're in the business of enabling investors to grow their portfolios, leveraging your personal residence is outside our purview.
As a rule, Tax Sale Resources doesn't refinance a property the investor lives in or considers their residence.
Finally, financing situations can get sticky when investors assume the property is worth more than it is currently.
For example, an investor might come to Tax Sale Resources saying their property is worth $250,000. That figure might be accurate for the property in a future repaired state. However, Tax Sale Resources' assessment depends on the property's present condition. The property may be worth $250,000 if you performed the proper renovations, but $100,000 as is.
As a result, Tax Sale Resources bases the financing numbers on the $100,000 valuation. An investor needs to come around to the estimate due to current conditions to ensure an agreement for financing terms becomes achievable.
The Tax Sale Resources financing program can be used as a great alternative to conventional loans in the real estate market. It is just one more tool to help close more real estate transactions for the real estate investor looking to scale. If you have any questions regarding the creative financing methods reviewed in this article please reach out as we are always happy to help!