Real Estate Deal Analysis & Advice

Should You Buy Properties With Back Taxes or Liens?

Expertise: Real Estate Investing Basics, Personal Development, Landlording & Rental Properties, Real Estate News & Commentary, Business Management, Flipping Houses, Real Estate Deal Analysis & Advice, Personal Finance, Real Estate Marketing
247 Articles Written
Exterior facade on abandoned foreclosed home

I’m going to start this article by saying there is nothing wrong with any piece of real estate as long as the price is right.

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Now, you’ve probably heard me say this many times, but I’m going to reiterate it for you guys because I want to reinforce the message: Real estate is a long-term play. It’s going to take 5, 10, or 15 years to get you to where you really need to be. I believe that success in business is about delayed gratification. It’s about planting the seed now and reaping the harvest later.

You also need to find the right people. So forget about the stats, forget about the demographics, and start with the people first. Build trust and relationships with the right people who are truly going to have your best interest at heart.

Now that we've got the people factor out of the way, I have something else that I need you to do before I get into the nitty-gritty of this article. I need you to pick a few zip codes and truly become a local expert on whatever is happening in that area. I need you to understand what distressed properties are selling for, what renovated properties are selling for, who the top-performing agents in those areas are (and network with them), who the real estate investors are who are buying, selling, and flipping, and who the buy and hold landlords are. You also need to know the numbers in those particular demographics. Live it, breathe it, love it, eat it, make your whole life revolve around it.

So we spoke about the people, and we spoke about becoming a local expert and understanding the numbers in that particular area.

Should You Buy a Property That Has Back Taxes?

I don’t see why you shouldn’t buy a property with back taxes.

Let’s reference what we just spoke about. We spoke about knowing the numbers in that particular area, so if an opportunity presents itself where the property has $5,000, $10,000, or $15,000 in back taxes and you know what distressed properties go for in that area that do not have any back taxes, the calculations are quite simple. All you have to do is discount the amount of back taxes against the purchase price of that potential property.

Yes, it will probably come down to zero, but that’s what you can pay, right? You’re not going to overpay for the property. Because if you overpay for the property, you’re going to lose money. I want you to remember this rule: You make money when you buy not when you sell. Never forget that. You have to make sure that you negotiate well and you buy cheap.

As you're doing your due diligence on these deals or underwriting them through your pro forma (or whatever you use), if it equals out to zero, then zero it is. You would not believe how many times I've gone to a landlord or someone looking at selling a distressed asset and said, "I cannot pay anything for your house." Actually, a few times I've told them that if they want to get the property off their hands, they need to give me money to take it.

You’re probably thinking, is that even possible? I’ll tell you now: Yes, it is.

Related: Property Lien Search: How to Find Out About a Lien on a House

Over my career as a real estate investor, I’ve had a few landlords who did not want to deal with their issues anymore and did not have the experience, knowledge, or right team to fix that property or the capital. They wanted out. I have gotten paid to take properties off people’s hands because they were a complete nightmare. If I could do the deal again, I wouldn’t even accept them because those deals did not end up going in my favor.

What did I learn? If considering buying a property that has liens, have a relationship with a trusted title company. Relationships absolutely come into play here. Give them the address, give them a couple hundred bucks, and ask if they can pull the records on this property so you can see how much the liens are. If you can discount the amount owed on those liens or on the back taxes against the purchase price and you can come to an agreement with that seller, you do the deal.

Now, you can also get creative such that you inherit that lien and negotiate with the lender, but personally, I don't like doing that. You can also ask the city to go on a payment plan with the taxes, but I'm not a fan of that either. I would rather you try to get that discount from the purchase price so either you or the seller can pay off those back taxes or lien once the property closes.

The moral of the story is: yes, you should buy properties that have back taxes and you should buy properties that have liens—as long as the numbers make sense and you’re going to make money.

Alright, that’s about it.

Comment below! I’d love to hear from you.

Engelo Rumora, a.k.a."the Real Estate Dingo," quit school at the age of 14 and played professional soccer at the age of 18. From there, he began to invest in real estate. He now owns real estate al...
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    Isaac Agbolosoo Rental Property Investor from Grosse ile, MI
    Replied over 2 years ago
    There is nothing wrong with buying a property that has back taxes as long as the math makes sense.
    Angel Gutierrez Investor from Dallas, TX
    Replied over 2 years ago
    Whenever I’m looking at my next deal, I always hope and pray there are liens and judgments on title! That’s means the seller has two chances of getting their sale through traditional methods(title or attorney closing ) .. slim and none. I always do my own preliminary title searches simply because I’m in a hurry to acquire and I don’t like surprises which do happen with title searches done by title companies /abstractors. You’ll get to closing and they spring to “oh by the way” we didn’t see this “x” the first time around. So then it becomes a big waste of time for everyone and nobody makes any money. Liens and judgments on title don’t mean squat depending on your objective with the subject property. Backtaxes can ALWAYS be negotiated down by either negotiating with the tax collector(only the boss with authority to do so and not the clerk at the front desk) or by filing suit and asking the judge for a reduction . I have yet to find a judge that wasn’t willing to grant my request. It takes time and most people won’t go this far. Engelo is right about liens/judgements/backtaxes bringing the property purchase price to zero or less. I’ve been paid by property owners several times to take it off their hands, but that usually happens when they are about to walk away from it and assuming they are a “responsible” type of individual . Most folks just walk away and abandon the property. In order to succeed in this business (meaning not having to quit and go back to work for someone else), you MUST follow my personal list of simple rules for real estate . You MUST have clear answers and direction first and by all means… DO NOT DEVIATE! They go like this: 1- What am I going to do with this property? 2- How is this being financed? 3- What is the timeline? By following and adhering to those basic rules you will avoid disaster 99% of the time. Deviate and you’re screwed. If I acquire a pretty property in a great neighborhood with lots of liens and judgements that I can get for free and rent or AIRBNB it out… what’s my risk? Zero. In order to enforce liens and judgments, that involves paying a lawyer and jumping through hoops and hurdles to acquire title to the property and then attempt to dispose of it(more money) to recover the initial balance of the judgement or lien. Usually not worth the hassle. Most judgments and liens are not or barely enforceable anyway… so who cares? If you know what you’re doing … it won’t matter. If you’re trying to do a quick flip for quick cash… forget it. If you want to clear title , you’ll need a lawyer(usually) and it will take time. Meanwhile … enjoy the cash flow. There are oceans of properties out there that don’t qualify for traditional closings and if you have one in front of you and don’t know what to do with it? Let me know …. I’ll probably take it! Real estate is a financial vehicle and valuable tool for financial independence … use it wisely and don’t get too weird about it. Hope this helps ya’ll out there and if it doesn’t ..? Oh well… Angel G.
    Isaac Agbolosoo Rental Property Investor from Grosse ile, MI
    Replied over 2 years ago
    @ Angel. Any tips/tools used for preliminary title searches? Do you buy from auction or tax foreclosures?
    Angel Gutierrez Investor from Dallas, TX
    Replied over 2 years ago
    Sure! Go to the county recorders office and find an Abstractor or title rep(whatever they call them in your area. Abstractors usually get paid about $8 per search for the title company. Some more some less. Ask him to show you how to do the searches and spend the next couple of hours with him or her and have them show you every little detail. Don’t forget to pay them $25 $30 , that’s plenty of money. Keep that person’s phone number handy because if you don’t have time in the future to do your own search is you can always call them to do it for you and you’ll get the information back in like a half an hour. From there on you can do your own preliminary searches and many of the searches can be done off your phone these days. When I first started I had to go to the county recorders office and tough it out by using their junkie equipment. Other than that it’s not rocket science. Make sure you write everything down for future reference I now you’ll be able to do your own title searches. I don’t buy at auctions anymore because of the competition and I don’t buy text for closures because of the same reasons. In Texas if you buy tax foreclosures and you think you’re going to quick flip the property by traditional methods you got another thing coming. Even after the right of redemption is over, the title company is not going to give you a new title policy for at least 24 months after the tax sale of the property. Most folks don’t know that and run into it after they made the purchase. If you don’t believe me, go ask any title company or attorney that does the closings. If I’m wrong then I’m wrong! Hope this helps?
    Isaac Agbolosoo Rental Property Investor from Grosse ile, MI
    Replied over 2 years ago
    Angel that help 🙂
    Brenda Flatter Title Insurance/Tax Deed Specialist from Elkhart, Indiana
    Replied over 2 years ago
    For tax sale properties, there’s also a way to make money during the redemption period! Some states offered a tiered program where you get 8% the first 6 months and 5% the second 6 months (as an example). If the property gets redeemed, then you get your money back plus interest! Check the state statute for the rates that are offered. Depending on where you are, I can help close these types of sales in a matter of days vs. months with quiet title.