BiggerPockets

tax sale strategies - 2

Tuesday, March 16

The other main group of investors is mainly interested with getting a property at the least expense that they can.

This investor will go after most any "distressed" property in hopes that they will actually be able to get the property deed after redemption period is complete. They will not bid up the beginning bid much, as their intent is to fix up the property and sell it. They need to keep the purchase price down because they understand that it will take quite a chunck in repairs to get this property to sellable condition.

One way to accomplish this is in the due diligence period of usually 2 weeks to 1 month at most prior to sale. They will look at the tax assessors information about every property, locate them, and do a driveby to view the property. If they can determine by that driveby that the property has been abandoned they may choose to actually find a way inside to get a look at what fix up costs will be involved.

With this total cost knowledge in mind they will attend the sale with a maximum purchase price in mind for the property. They are looking to find a "gem in the rough" that they can polish up and make shine for the end buyer who will feel like they are getting a great deal because the property is usually priced below market value because of the cheap purchase price, even including repairs.

Their other option that they use to get the property at the least possible price is to locate one for which there is no liens on (except the taxes, of course), then locate the owner and offer to pay off those taxes for them prior to the sale and give them an additional little sum for the deed immediately. This avoids having to wait for the end of the redemption period and allows them to start the fixing up process right away. If they feel that many other investors will bid up the property too high for them to obtain a profit, they will use this process to eliminate the bidding and secure a sure cost. It is very effective, but if they miss any liens in their search then they must pay off those liens in order to get a clear title (oouch).

Tax sale strategies

Monday, March 15

There are many strategies used by tax lien or tax deed investors. Here are just a few of them.

INTEREST

By far most tax sale investors that I have come across are mainly looking for the amount of interest that they can receive. They’re a couple of ways to accomplish this depending upon the rules of the sale.

At a tax sale that is conducted as high bidder wins, the interest rate is usually set at a certain percentage by the state rules, so the object is to get the bed at the highest amount that the homeowner will be able to redeem his property. This gives you the most amounts of interest dollars in return. It also requires you, as investor, to be able do a quick evaluation of the current homeowners ability to pay back the loan amount (which is your bid) with interest. You must make this amount small enough so that the homeowner is able to redeem the property within the state allowed redemption period and large enough so that your having to wait for that interest is worth it to you. Since these tax sale lists are most often released to the public only two weeks to a month before the actual sale you will have limited time to accomplish your research.

At a tax sale that is conducted as lowest bidder wins, the loan amount is usually the tax amount owed and the attempt made by the investor is to gain the highest percentage amount that is acceptable to him and will still allow the homeowner to redeem their property within the redemption period allowed.

In the next article I will go into another type of investor who is mainly concerned with getting the PROPERTY.

Housing Bubble Final

Tuesday, January 12

We visited Homeowners and found that they only took advantage of what was offered to them in the form of new programs that made the house seem affordable for them.

We also visited Investors and found that they take advantage of finding homes that are cheap enough so that they could have them fixed up and price them at a price that allows the homeowner to purchase them with the programs available to them.

Then looking into the banks we find that the programs that are being used to finance the loans to the homeowners are regulated and could not have been made without the regulative permission of the government regulators.

So you may have guessed that I do put most of the blame on the government and those regulations.

BUT WAIT

Why were those regulations changed?

I suggest that as prices were rising there was a larger and larger group of would-be homeowners that found the American dream was slipping away from them because they did not make enough to qualify under the old regulations to be given a loan for the home wanted.

This began a cycle that only allowed a certain group to own the homes that they wanted and they often bought more than one home. Call the second one a vacation home, or investment home, or any other term you wish to use.
Now the housing market remained strong, but the Realtors did notice this group who could no longer purchase homes and how the secondary market was responding for them. The secondary market began to gain a larger percentage of the overall market by taking on more risk (and making more money) through creative financing practices.

This secondary market consisted basically of innovative investors willing to take on the additional risk and was joined by those perceptive homeowners who were able to purchase that vacation home(s).

This growing market was basically unregulated as they did not have to comply with the existing government regulations. So in stepped the government, with the urging of special interest groups, to find a way to regulate (and tax) this growing market. The new regulations satisfied several different special interest groups. It first relaxed regulations so that the banks could offer basically the same terms as the subprime market was doing and limited the number of times that an individual could do this without falling under the regulative authorities.

As the housing market exploded with the influx of more people who could afford the homes, this "artificial" increase in demand served to greatly increase the home prices and the government allowed even more creative financing. Up stepped more special interest groups for those who still could not afford homes. Since things seemed to be going so well in the housing market and there was no end in sight the regulations were again relaxed to allow those who could not afford a home to purchase one with assistance from many different sources.

This move basically merged the two markets together under the regulative authorities and began to shut down the subprime market, as many feared the massive regulations they knew nothing about. And set the stage for the bubble to burst.

So basically, in my opinion, the government regulations are the basic cause of the bubble, which had to burst at some point. But the cause of the change in the government regulations were SPECIAL INTEREST GROUPS who only had their interest in mind and disregarded what it would do to society as a whole, over time. While the intentions (hopefully) behind these groups were admirable the government application of them left a lot lacking.

But the special interest groups were not through with the government. They showed the government that through these new regulations allowing just about everyone to get credit that many were dragged into an existence where they HAD to live on credit cards to survive and within the easy credit rules they would NEVER be debt free and most often were only borrowing from Peter to pay Paul.

Thus came the new credit card regulations which while the bubble was beginning to burst raised the minimum payment to the credit cards so that one could get out of debt faster. But again this only took money away from peoples ability to spend what disposable income they had because it now had to go to those larger credit card payments. Those that were skimming by ok with their house payments now began to default, adding to the quick bursting of the bubble.

This also took money away from business and investors due to their higher payments, leaving less to invest in their business growth and causing the beginning of layoffs to those who would add steam to the snowball as they could not afford to make their house payments.

Thus began the downward spiral of the economy which may have remained in the recession area, as before, if the free market forces were allowed to slow down the snowball, but those special interest groups policies adopted by the government, which helped in the short term, only served to inject additional snow and ice into the snowball which then became the depression which we are in now.

We must insist that the special interest groups and government step aside for a little while and allow the free market to slow and stop the snowball that they created!

Housing Bubble - Part 2

Sunday, January 03

In continuing our discussion of the causes of the housing bubble we must now turn our attention to the 

WOULD-BE HOMEOWNERS.

This group is often considered at fault, by many, because of their irresponsibly accepting a loan on homes that they know they have no chance of repaying in full over time.

But, I imagine, that most of them were told by the media and other resources at their disposal, that they should attempt to get a loan through certain programs, as this is now possible.

Is it within the realm of possibility that these programs were originated by those other sources, and promulgated through the media for the homeowners benefit, or those of others?

I look back at the time when they were told that they could make it and remember how everyone was told that "you should reach out for the American dream of homeownership and we are going to make that possible for you". This type of statement, and others that were made, make it seem likely that those would be homeowners were led down a path, which we now understand that they could not possibly succeed in, for an unknown reason.

But we also see that not everyone had blinders on because there were far more would be homeowners who either did not believe the reports or chose not to accept the easy path offered.

ARE ALL THREE TO BLAME?

As we have seen in the previous three areas of discussion, you can blame any and or all of the previous three areas.

The investors saw an opportunity to gain more money by utilizing the relaxed standards for loans themselves to complete deals that they would not normally be able to do. Or by helping those would-be homeowners to the programs that would assist them in selling their deal quicker for more profit by way of more deals. Therefore we see blame here for sure, but how much?The banks also led these would-be homeowners into the programs with the relaxed standards with the promise of help if things go wrong.

Some local banks that saw that if things did indeed go wrong the amount needed to cover them, as promised, the program could not possibly keep everyone on a solid foundation shunned this. Therefore, there must be blame assigned here as well, but again how much?

The would-be homeowners were actually led down that path by the investors who sent them to banks who led them to those programs that were unsustainable by their very nature. In my opinion there is not much blame here, but since many (maybe most) did not take those loans, there is also some blame here.

If none of these three are the real source than who is the real culprit in these matters. I hope to dive into this area in part 3.

Housing Bubble - Part 1

Saturday, January 02

Housing Bubble Part 1 

BANKS

The banks have been often criticized for allowing the investors, and homeowners; to practically finance deals risk free to them as they get themselves into situations whereby they cannot recover is anything goes wrong (or south) for them.Again here is a problem, but did the banks do this as part of any plan on their behalf?

I would not think so as the only way they could make money on those loans (good or bad) is for them to be paid back long enough so that the few bad loans are covered by the profits of the many good loans. When we look deeper into the financing that was done, we find that there were changes allowed by the loan insurance underwriters that allowed the banks to give out many more questionable loans to many more people.

In the beginning of this, home values continued to rise, albeit more slowly, these same new looser lending rules were also applied to the commercial side of lending. Which led to what we are just beginning to see as the upcoming CRE crisis. But I digress on that and may have to cover it at a later time.

Again the reasonable thinking person would ask "If this is true, how could one do it with all the regulation on lending?” This is our second indication of where the real problem lies.


This first part of the answer is to get you thinking. In part 2 we will look at the other two questionable causes as seen by the summary statement at the beginning.  

Jim Wineinger Do what is right, it is the best policy.

Tax Lien or Tax Deed

Tuesday, December 15

I attempted to do this as an aticle for everyone to enjoy, but I guess my skills in grammer and english are still a little lacking, so here it is for everyone's critique as a blog post. Please feel free to read and respond with questions or critiques.

TAX SALE

It does not matter which one you choose as they all end up the same way, for the most part.

The first thing to do is attend one of the sales without buying anything. The reason behind this tactic is to personally see how things are done in that county at that type of sale. Be sure to take notes of any questions that you may have. These questions can then be answered by hanging around and speaking to one or more of the investors who actually did purchase one or more of the properties auctioned off, or by speaking to the officials afterward who conducted the sale. The latter might have to be done at a later date.

What really happens is that most of the time you are simply giving the homeowner a loan by paying the county taxes for them to the county. The county is actually selling you their "lien" on the property. It is up to you to know the foreclosure process that must be adhered to in order to actually possess the property. This usually entails a period of time in which the homeowner can repay the county what you gave it plus an amount of interest as required by law. This total amount of money will be sent to you (or given to you) when you complete a "release of lien". You now have your money back with interest (the amount is predetermined by state/county statutes).

If you are not paid back within the "redemption period" then you can foreclose, using the power of that lien to then claim the property as your own. Some states/counties will do this for you and in some you must not only go through a foreclosure process similar to what is happening to many of today's homeowners, but you also may have to evict those that are there (if anyone is).

You now own the property, and since all tax liabilities go along with the property (not the owners of the property at the time of occurrence) you now also have the responsibility to pay any and all property taxes owing for this parcel of land that have not been paid. If the reclaimation period is for more than 1 year, then you just may find out that this property that you purchased the lien on is included in the next years tax sale. Therefore, after purchasing the lien it would be in your best interest to pay up all the back taxes as soon as possible. Be sure to give a copy of that paid receipt to those officials that conduct the sale. In most areas they will add this amount to what the homeowner has to pay to reclaim the property. You may or may not be receiving any interest collected on this added amount.

Only after the redemption period is over, and you complete the foreclosure process, are all liens against the property cancelled (if there are any besides yours). This is where the real benefits come in. As you can imagine, the taxes on any property are a usually much less than almost any other way to purchase a parcel of land, except when the back taxes owed are for several years. With that said, it is up to you to actually find out everything about this property before you purchase it at one of these tax sales as it is almost always sold "as is". Which is to say that they can give you the information about the property that they have but will not guarantee in any way that that information is currently true.

If you purchase a parcel, then go look at it and see it needs to be "winterized", or windows fixed, or doors replaced, etc. and you do this to "protect" your investment there is absolutely NO guarantee that you will recoup any of that money spent for doing so. This means that you must be patient, very patient, so as not to spend any money that you may not be able to recover. As a matter of fact since you only have a lien against the property, you can be actually charged with "breaking and entering", or "illegal entry", or "trespassing" by the homeowner or a suspicious cop. This could be true even before you purchase the lien while you are doing your due diligence to see if you want to bid on the property.

The risks are very great and the rewards are decent (interest) to very, very good, for those who are patient enough, and lucky enough to actually obtain the property free and clear for such a small amount. You now have full rights to do anything (within zoning and code laws) that you want to with this property. So good luck and good investing.

Please be very careful, as this post cannot conceivably cover the entire pros and cons of doing such a deal. There are really too many different ways things can happen that it is not really possible to "walk someone through such a deal". I hope that I have covered most of the possibilities and/or probabilities for everyone.

Just make sure that state/county officials or their “authorized representative” conducts your tax sale. Not by someone who has purchased several tax liens and are selling their rights to them in a "tax lien sale". This is often a nightmare and why I suggest that you actually attend the tax sale at the city/county/state site. I do not participate in one that is online, even though some counties do conduct their sales online.