The Possible Gold Mine Known As Tax Delinquent Properties

47 Replies

Hi everyone! Im 23 and just getting into real estate investing, and wanted to find the cheapest way to start accumulating wealth and I think I may have found it. 

The state of Alabama purchases the delinquent taxes from the county once they dont get sold in a tax sale so that the municipality can pay their employees. These properties or parcels of land just kind of get tossed to the side to be forgotten. These properties are usually not in the best condition because generally someone hasnt been living in it for years, but you are able to apply to purchase these houses and land from the state for painfully low prices! Some people offer as low as $100 and the state will accept it, giving them either the tax certificate or the tax deed (depending on the timeframe). Then after 3 years of possession, the title will quiet and then the title can be insured upon, or you can look to the previous owner and see if they will sign over a quick claim deed for a couple hundred bucks. Then you own the house! crazy right? 

So my idea is to search and find these somewhat worn houses and apply to buy for around $500-$1,000 and get the deeds and then turn around and sell it to one of those "We Buy Houses For Cash" businesses. I wanted to do this because banks wont lend to anyone wanting to buy a place doesnt have title insurance, but since these people pay with cash, the insurance wouldnt matter! I read that those people generally offer around 70-80% the marketable value, so I could potentially pay $900 for a house worth $60k and sell it to them for maybe *hopefully* $25,000. Then just repeat this process until I have enough money to put down on a commercial real estate property to start acquiring equity. 

Let me know what you guys think! All help is greatly appreciated and encouraged 

I know a guy that kills it in the tax game in Alabama. Let me know if you want his contact details. He has taught several people how to do it and it’s crazy every time I hear him talk about his model.

@nealcollins Would you mind sharing his information with me?

Hi Parker! I would be highly cautious with your proposed course of action for a variety of reasons:

1. Properties not purchased in tax sale are properties that other investors did not want, even though tax sales are likely sold under market rate. These often come in the form of unlivable homes or unwanted land. It is easy to find yourself in a position where the cost of clearing the property is greater than the land itself. 

2. In the case you did receive a home that was livable, you would need to maintain this home and pay property taxes on it for 3 years under your current configuration. Generally people pay a quiet title agency, which costs money.

3. In markets where the home prices are $60,000, it is difficult to restore a home from nothing and flip any profit. Say the ARV (After Repair Value) is $60,000. In an ideal situaiton, the house you are proposing to buy will likely cost over 30k in repairs (If you don't believe me, check out the house flipping threads). Using the most generous investor, you are going to receive 60% in a market like Alabama. So the maximum offer would be 6,000=(60,000*0.6)-30,000. Now, this is assuming that they would like to purchase a property with such extreme repair needs. After title clearing, purchase of property, excess fees, your profit quickly shrinks to several thousand dollars. This is, in many regards, the best case scenario.

There is certainly nothing wrong with entering distressed markets, but distressed markets are also highly vulnerable investments. For an early investor, this isn't the wrong place to be. But, flipping a quick buck in property is always a little harder than it seems.

This is common - and there are several groups in B'ham that do it so it, so it is a tried and proven technique - however it's not realistic to expect to find $60k houses that you can buy for $900 and then sell it for $25k without rehabbing it.  I'm sure it's happened - but i can't imagine it is common, your 25k buyer would have to be super inexperienced and incredibly naive.

I would be very careful about researching everything specific about the lots that is put out for sale before paying for them... not sure if every state is different, but when I was looking into a tax deed sale in Indiana I found quite a few where the property was separated into two separate lots (like for example the house itself was on one lot, and maybe the yard or garage is on another lot) and the tax deed was pointing to the lot with the yard!  good luck with it!

@Parker Sanburn Definitely a strategy that people do. You can definitely do it, I advise to find someone doing it well in your market, try to add value to their business and learn from them.

@neilcollins.. I’d love that information as well if you don’t mind

Originally posted by @Neal Collins :

I know a guy that kills it in the tax game in Alabama. Let me know if you want his contact details. He has taught several people how to do it and it’s crazy every time I hear him talk about his model.

 I would love to get his contact! Thanks for replying 

Originally posted by @Grant Rothenburger :

@Parker Sanburn Definitely a strategy that people do. You can definitely do it, I advise to find someone doing it well in your market, try to add value to their business and learn from them.

 I will work on finding someone who is doing it well and try and learn how their process works! thank you for your input I appreciate it 

Originally posted by @Leo Kwok :

I would be very careful about researching everything specific about the lots that is put out for sale before paying for them... not sure if every state is different, but when I was looking into a tax deed sale in Indiana I found quite a few where the property was separated into two separate lots (like for example the house itself was on one lot, and maybe the yard or garage is on another lot) and the tax deed was pointing to the lot with the yard!  good luck with it!

 Haha I've read about people doing that! Everytime I make an offer I double check the parcel map so I know what Im getting! Thank you for the heads up 

Originally posted by @Blair Poelman :

This is common - and there are several groups in B'ham that do it so it, so it is a tried and proven technique - however it's not realistic to expect to find $60k houses that you can buy for $900 and then sell it for $25k without rehabbing it.  I'm sure it's happened - but i can't imagine it is common, your 25k buyer would have to be super inexperienced and incredibly naive.

Great point! Those types of deals are like the diamond in the rough but I plan to do some rehabbing on a lot once I am able to build up some capital first. Thank you for your input!  

Originally posted by @Joey Hurlocker :

Hi Parker! I would be highly cautious with your proposed course of action for a variety of reasons:

1. Properties not purchased in tax sale are properties that other investors did not want, even though tax sales are likely sold under market rate. These often come in the form of unlivable homes or unwanted land. It is easy to find yourself in a position where the cost of clearing the property is greater than the land itself. 

2. In the case you did receive a home that was livable, you would need to maintain this home and pay property taxes on it for 3 years under your current configuration. Generally people pay a quiet title agency, which costs money.

3. In markets where the home prices are $60,000, it is difficult to restore a home from nothing and flip any profit. Say the ARV (After Repair Value) is $60,000. In an ideal situaiton, the house you are proposing to buy will likely cost over 30k in repairs (If you don't believe me, check out the house flipping threads). Using the most generous investor, you are going to receive 60% in a market like Alabama. So the maximum offer would be 6,000=(60,000*0.6)-30,000. Now, this is assuming that they would like to purchase a property with such extreme repair needs. After title clearing, purchase of property, excess fees, your profit quickly shrinks to several thousand dollars. This is, in many regards, the best case scenario.

There is certainly nothing wrong with entering distressed markets, but distressed markets are also highly vulnerable investments. For an early investor, this isn't the wrong place to be. But, flipping a quick buck in property is always a little harder than it seems.

 Those are all great points! Thank you for bringing those things to my attention. If the distressed market wouldn't be good for an early investor, what types of markets would be good for someone just getting started out? 

The owner had a redemption period in AL....don’t remember how many years it is. No one knowledgeable is going to buy it before this over. Believe me, title insurance matters to people who buy cash too!

Originally posted by @Wayne Brooks :

The owner had a redemption period in AL....don’t remember how many years it is. No one knowledgeable is going to buy it before this over. Believe me, title insurance matters to people who buy cash too!

 Great point! The way I was looking at it was that they would be able to get homes for a steal before they were off the market when title insurance was applicable. Plus I would acquire the quick claim deed and quieted it all before I would sell it so that no one could sweep the rug out from under whoever bought it from me! haha Thanks for your reply! 

I was able to acquire a few tax deed properties similar to what you described. However, I researched and searched through about 4-5000 different properties in the course of a year to acquire two that actually turned a profit with just pre-habing and whole-selling. I would agree with the cautionary reply's above. Make sure you do extensive due diligence. acquiring tax property owned by the county can be had for 50 cents on the dollar or less at times but the tax sale does not whip out all liens. i.e. IRS liens to name the obvious one. City municipalities,  or code violations may also need to be rectified so work those costs into the additional rehab or at least pre-hab. I love the barrier to entry with the tax defaulted properties! There is big opportunities for those looking in the right places. 

Originally posted by @Jason Marvin :

I was able to acquire a few tax deed properties similar to what you described. However, I researched and searched through about 4-5000 different properties in the course of a year to acquire two that actually turned a profit with just pre-habing and whole-selling. I would agree with the cautionary reply's above. Make sure you do extensive due diligence. acquiring tax property owned by the county can be had for 50 cents on the dollar or less at times but the tax sale does not whip out all liens. i.e. IRS liens to name the obvious one. City municipalities,  or code violations may also need to be rectified so work those costs into the additional rehab or at least pre-hab. I love the barrier to entry with the tax defaulted properties! There is big opportunities for those looking in the right places. 

Thank you for your insight! I think you're exactly right where there is opportunity in it but it definitely has to be done in the right way. Thanks again!  

You need to learn about title in your state first. Remember, you are not buying a house, you are buying a bundle of rights. The most important thing is to get the title cleared of defects.

There is no doubt a tax foreclosure can be a great deal. I suppose you could get financing, but the logistics involved make this difficult. Such as, competition from cash investors. Time limitations on offers. Inspection restrictions or limitations from the seller. Banks have a certain way of doing things and little flexibility sometimes. Best course, IMO, would be to buy one cash, then refinance it later if need be.

Last thing to consider is the physical condition of these properties. You are not the only person looking to buy these. I am not saying you wont find a gem, but you can be sure much has been picked through already (unless they sell them auction-style), which leaves the properties that are less desirable, and plenty of these aren't worth getting for free!!! What you need is due diligence.

We have thousands, literally, of tax foreclosed properties in Milwaukee. These have been on the books for years, and only so many are offered for sale at a given time. These have sat on the market for years, because Milwaukee in their "wisdom" have sent out inspectors to create repair lists. A scope of work is created, and you must have the money for the purchase and the estimated repairs in the bank when you buy. You must complete all the repairs in 90 days and then you must hold the property for a few years too. None of that is the end of the world, except in many cases, the scope of repairs goes well beyond what is necessary to make the homes livable and in even more cases, the cost of repairs + purchase exceeds the ARV. Milwaukee will need to understand market dynamics and shift their policies a bit before they get all these off the books. In the meantime, they get zero tax revenue and it costs them plenty to manage and maintain the property. LOL - big G at its finest.

Wondering if this latest Milwaukee flood will change any of that.....

@Parker Sanburn

You aren't the first one to think of this.  In our state after the redemption period the state takes title, appraises the property, auctions it with a minimum bid of the appraised value.  If it doesn't sell it sits for sale at appraised value and makes more runs at auction until sold.  Varies by county also.

The only houses I have found were instances were someone died without a mortgage or any liens.  Taxes stopped being paid and there must not have been a relative around.  Any lien holder would likely purchase before forfeiture so that limits the changes of most desirable properties hitting the market.  In my area it is mostly land or structures with zoning issues.  

Also a quiet title action takes time and costs money.  Not just a sit and wait game.  Title insurance will matter to whomever purchases that house with a loan.  You also have to be careful about lien priority in your state.  I am guessing your state also says they do not guarantee title nor that they are giving you marketable title so the $900 could be for nothing.  I purchased one recently for $40k, nothing is selling near your prices in our area but maybe you have a lot less demand for housing.

This isn't an investment approach someone should walk into blindly.  Should do some research and you may want to talk to an attorney about your state laws and potential issues you may run into.

Originally posted by @Wayne Brooks :

The owner had a redemption period in AL....don’t remember how many years it is. No one knowledgeable is going to buy it before this over. Believe me, title insurance matters to people who buy cash too!

mortgage foreclosure have a one year right of redemption in AL  not sure tax sale.. these are outlier deals.. can they happen sure .. just like the couple that bought the street in presidio heights in SF for 9k.. and blocked off 10 million dollar homes.. LOL

live long enough you see all sorts of these things.

Originally posted by @Parker Sanburn :
Originally posted by @Grant Rothenburger:

@Parker Sanburn Definitely a strategy that people do. You can definitely do it, I advise to find someone doing it well in your market, try to add value to their business and learn from them.

 I will work on finding someone who is doing it well and try and learn how their process works! thank you for your input I appreciate it 

 You're welcome.

Originally posted by @Merritt Steinbach :

You need to learn about title in your state first. Remember, you are not buying a house, you are buying a bundle of rights. The most important thing is to get the title cleared of defects.

There is no doubt a tax foreclosure can be a great deal. I suppose you could get financing, but the logistics involved make this difficult. Such as, competition from cash investors. Time limitations on offers. Inspection restrictions or limitations from the seller. Banks have a certain way of doing things and little flexibility sometimes. Best course, IMO, would be to buy one cash, then refinance it later if need be.

Last thing to consider is the physical condition of these properties. You are not the only person looking to buy these. I am not saying you wont find a gem, but you can be sure much has been picked through already (unless they sell them auction-style), which leaves the properties that are less desirable, and plenty of these aren't worth getting for free!!! What you need is due diligence.

We have thousands, literally, of tax foreclosed properties in Milwaukee. These have been on the books for years, and only so many are offered for sale at a given time. These have sat on the market for years, because Milwaukee in their "wisdom" have sent out inspectors to create repair lists. A scope of work is created, and you must have the money for the purchase and the estimated repairs in the bank when you buy. You must complete all the repairs in 90 days and then you must hold the property for a few years too. None of that is the end of the world, except in many cases, the scope of repairs goes well beyond what is necessary to make the homes livable and in even more cases, the cost of repairs + purchase exceeds the ARV. Milwaukee will need to understand market dynamics and shift their policies a bit before they get all these off the books. In the meantime, they get zero tax revenue and it costs them plenty to manage and maintain the property. LOL - big G at its finest.

 Thats a great point! I hope that they are able to see the problems they are experiencing and make some simple changes that can make them a lot more tax revenue in the long run. Given that these properties have already had a lot people sort through them, what do you think the best course of action would be for someone like me who is just getting started and low on funds? Thanks again! 

Originally posted by @John Woodrich :

@Parker Sanburn

You aren't the first one to think of this.  In our state after the redemption period the state takes title, appraises the property, auctions it with a minimum bid of the appraised value.  If it doesn't sell it sits for sale at appraised value and makes more runs at auction until sold.  Varies by county also.

The only houses I have found were instances were someone died without a mortgage or any liens.  Taxes stopped being paid and there must not have been a relative around.  Any lien holder would likely purchase before forfeiture so that limits the changes of most desirable properties hitting the market.  In my area it is mostly land or structures with zoning issues.  

Also a quiet title action takes time and costs money.  Not just a sit and wait game.  Title insurance will matter to whomever purchases that house with a loan.  You also have to be careful about lien priority in your state.  I am guessing your state also says they do not guarantee title nor that they are giving you marketable title so the $900 could be for nothing.  I purchased one recently for $40k, nothing is selling near your prices in our area but maybe you have a lot less demand for housing.

This isn't an investment approach someone should walk into blindly.  Should do some research and you may want to talk to an attorney about your state laws and potential issues you may run into.

 Thank you for your insight! Those probate-like deals were more what I was looking for so that I could get amazing deals from people who passed and take the tax burden off their distant relatives. I will do more research into what needs to be done in order for me to make this thing happen. Thanks again! 

Originally posted by @Parker Sanburn :

 Thank you for your insight! Those probate-like deals were more what I was looking for so that I could get amazing deals from people who passed and take the tax burden off their distant relatives. I will do more research into what needs to be done in order for me to make this thing happen. Thanks again! 

Probate is a different plan than going after tax forfeited properties.  

Figure for a tax forfeiture there has to be a period of delinquency.  In MN it varies based on the type of property, homestead, etc.  If nobody pays the taxes and it is forfeited the property doesn't go through probate.  The state will typically issue you a new deed upon purchase.

Finding the house of the little old lady who passed, who has distant relatives who don't want to deal with it is a goal we are all looking for but marketing for these are tough.  If you wanted to pursue purchases from estates you may be best networking with estate attorneys.  Or you could try to follow the obituaries!!!

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