Tax sales education

[Jared Hottle]

Hi getting some interest in tax sales and have a few months until the tax sale in my area and want to learn as much as I can. What are the best resources out there to learn more? Do the owners typically redeem in the redemption time? I know it is based on location but how competitive are they typically?

[Bruce Lynn]

@Jared Hottle   Unfortunately I have found very little helpful information on tax sales.  There are some experts here on different states but have not seen anyone post on IA specifically.  There always seems to be someone around who is an expert.  One thing you might do is see if you can attend sales in different areas before your sale comes up.  I always talk to a lot of people at the sales i go to.....why did you buy that? what's your plan for the property?  You paid X and what do you think it's worth?  You buy here often?   Who's the expert around here, who buys at every sale?

You might also see if you can pull some old lists.   Go thru and see who bought them and see if you can find any patterns.   if there are attorneys for your county that handle the sales, ask them if there are any frequent buyers.  Ask the tax authority the same questions.  Sometimes they share, sometimes they don't or they just don't know.

I've found the national guys know just enough normally to get people in trouble.  They're good at selling training, but never seems to be specific to your sale.   Then it is expensive to pay for very very high level overview of tax liens and deeds.

Another resource might be your REIAs.  Even if they are not meeting, call up the organizer and ask them who the IA tax sale gurus are...and then see if you can get together with them.

What sale do you plan to attend?   How often do they have them in your area?

Good luck and best wishes.

[Carol Walls]

My husband and I have been investing in Iowa tax liens for 20 years. Iowa has started conducting their sales online for most counties. Not sure if the whole state is. Go to your county website, then go to the tax sale tab and it will give you all of the instructions. In 20 years we've had four of them go all the way to the deed. Meaning the people never paid their taxes. you hire an attorney at that point they do a tax foreclosure and then it's your property period we turned $4,000 into $45,000 but we've been doing it a while 

[Jared Hottle]

Thanks for the info Bruce and Carol. It appears that all the counties have sales the same day in June from my research. I wish someone was a little earlier so I could watch them. Carol, how many have you successfully won? Not great but getting 2% interest per month isn't the worst thing if the owner comes to redeem. 

[Miles C Roth]

I don't know anything about your region, so some of this might not apply, but...

Generally, the conversion rate is in inverse proportion to the health of the regional economy, and also to the value of the property.  If you want to have a better chance at getting some property, find a county where the local economy is in the toilet, lots of people are on drugs and the county government is disorganized.  Yup.

A good way to proceed is to go look at deeds at the county clerk's office. Look at all the tax deeds (treasurer's deeds) issued in a 5 year period, figure out the parcel ID# and look at the aerial pic in the County Assessor's GIS.  This will give you a good idea of what kind of property you might be getting and if you want to get involved.

Also if your state has laws concerning the sale of property with methamphetamine production history, you should cross-reference all your potential purchases with the State or local Health department Meth condemnation lists before you have to pay for some meth remediation. Also do your homework and look for Federal, state and local tax liens before you buy.

Good luck.

[Bruce Lynn]

@Jared Hottle   Just saw a post in my email from Tax Sale Resources specifically about IA and has an IA attorney contact.  Sent to you via DM as there was something that prevented me from posting it in the forum.  Hope it is helpful for you.

[Carol Walls]

Jared Hottle, Out of approx 330 liens that we've bought in the last 22 yrs, only 4 have gone all the way to deed. In other words, they never paid the tax, wwe hired an atty and did a tax forclosure. NOT VERY OFTEN. These guru speakers make it sound like 10% or more go to deed, but that is just not true

[Rene Owczarski]

@Jared Hottle I've been buying at the tax sale from Polk Co for the last four years, and I typically buy between 50-100 certs each year, depending on the inventory available. Unlike @Carol Walls, on our inventory that's closed out from 2016 and 2017, we had a conversation rate on those portfolio's of 29%(2016) and 20%(2017) (from tax cert unpaid to a tax sale deed) on the items we purchased those years. And we're expecting similar ratio's, as we work through the 2018 portfolio.

But 2020 has been a strange year in the tax cert game in Iowa, because of the Governor's executive orders that temporarily changed a lot of the rules around tax certs, so as a result all the tax sales across the state were cancelled this year. So you'll just have to wait until 2021 when everything starts back up again, and then the tax list will get published by the County Treasurer's around the end of April, and you can go from there.

[Rene Owczarski]

Keep in mind, this wasn't an overnight thing, to get such high conversation rates.

It was about 10 years of historical data analysis, before we figured out characteristics on how these assets perform over time, before we were able to dial in our model.

But after that, we just run our proprietary algorithm on the entire tax sale pool each year, and compare the profile of the new pool, to prior years pool profiles.

And from that, it results in two pools of tax certs that we invest in, which don't overlap.

One group of tax certs that we only buy for high interest yield, and the other is only for us to take ownership of the property.

And because we have this targeted approach to purchasing, is how we get the numbers we get.

[Jared Hottle]

Wow I am surprised! I thought they would be closer to what Carol said. I am excited to try it out but you are right could be an interesting year for tax cert. Was there a lot of competition for certs? what happens if 2 people bid on the same property?

[Rene Owczarski]

@Jared Hottle You should probably temper your expectations, because the rules of the tax sales (at least for Iowa), aren't made for the little guy only looking to buy one or two tax certs. So the way that it works for the live in-person auction, is that all the active bidder numbers are adding to the computer bidder selector at the start of the auction. Once the auction starts, a random number generator selects a bidder from the pool of available bidders, and they go down the list one by one, calling out the four digit tax certificate number and then the bidder number selected. And if your number was selected you raise up your bidder card number and say "sold" or "pass". It takes maybe 5-10 seconds for each item, so it's very fast paced.

And if you say "sold" you bought the tax cert, and if you said "pass" your bidder number is removed from the available pool of bidder until the break, when all the bidder numbers at the auction are added back in. Also the more you say "sold" the more times your bidder number is selected until you "pass", and then you get removed from the available pool of bidder until the break.

So this is not an open bidding kind of system, like your would see at a normal auction, where you are bidding up the price. Instead if you want a parcel that another bidder was selected for, you have to "bid-down" the ownership interest in the parcel. All bids start at 100% ownership if unchallenged, so if you want it you then raise your card and start the bid-down process. Most of the time, no one bids down to 99% ownership, so it's a tie at which point the computer will randomly select from the two of you, who wins the parcel, and the same "sold" and "pass" rules apply like above.

[Carol Walls]

That might explain why your numbers are so high on acquiring the deed Renee Owczarski. We don't buy liens in war zones or if the house is super bad falling apart. If they are occupied they're a good investment. If vacant and look abandoned and in a c-minus or d neighborhood I don't buy them. 

[Carol Walls]

I do not buy liens in war zones or if the house is burned out and I certainly don't want an empty lot. Those to me are worthless. Someone else can gravel for the pennies . Maybe they add up to a lot if you have a lot of investors but I drive 9 hours to get to Iowa and I don't have time for pennies. And I certainly don't have a team of contractors in Iowa. The minute I do get a property I sell it within hours for $0.50 on the dollar and I'm thrilled to get it. Perhaps if I lived closer I would do it a little differently . I tend to be ultra safe. 

[Carol Walls]

Jared Hottle the other thing to consider is that a lot of these counties in Iowa are beginning to sub out their sale to an online auction company. Because of having to drive 9 hours we started in Muscatine and then moved to Des Moines county. Both of these counties are right on the Mississippi. They have both since gone online. These online platforms bid down the interest to as low as 1%. These are legal nightmares if the homeowner doesn't pay. At this point if you go to get the deed you only own 1% of the interest in the property . I'm not sure if you can foreclose with only a 1% interest. Potential legal battles abound. The live and in person ones are the best. It is done like a lottery so everyone gets a fair shot 

[Jerry K.]

Interesting thread. I used to live just a couple of hours away from Iowa and my oldest son lives there now. I lived southwest of Chicago and would travel I-80 into Iowa often. I started in tax liens in IL in the late 1980's. I didn't like the auction system in IL at that time so I stopped investing in tax liens for a while. Then after a trip to Arizona, I started investing in AZ liens. Many counties are online auctions. I just wanted the interest rate, and their top rate is 16%. You bid down in 1% increments and the lowest rate wins. You put in your bid and can change it up until they close the batch of liens, but you don't know what the other people may have bid, and don't know what you won until the batch closes. They cancel your bid if you don't have enough money so there is no penalty for running out of money. You do have to give a total amount you will bid up front in the entire auction, and you have to have 10% deposited via ACH. You get that back if you don't win any liens.

For my type of investing, I prefer online auctions, but only because I can work them to my advantage. I completely understand why in-person auctions are much better for other investors. (Unless you bid in the counties surrounding Chicago - sheesh - I didn't have enough money to "pay" my way into being seen to get a lien on a half-way decent parcel. But we outsiders sure were seen if we bid on a piece of crap!)

I started bidding in AZ in 2010 and from the beginning kept the data on the sales. When it's online, the pre-market list and the results are available within minutes of the batch of liens closing. I add some extra data to my lists (type of parcel, bids made by each bidder on each parcel) and I have a decade worth of data I can use to make my bids on parcels the next year. I know what each type of property got for average interest rates. I also look at Florida sales too. Much different rules there. All states have different rules between liens and deed sales. If you're interested in how I do things, I have some BP blog posts here; BP blog - Lien Online Me

I had visited AZ every 18 months or so to get to know the areas for bidding. I finally made the permanent move to AZ this past August. (Way to go Illinois, you drove another native out of state)

I really enjoy reading about people investing in other areas, and Iowa with their percentage of ownership bid, was an interesting twist to this type of investing. Best of luck in your investing!

[Rene Owczarski]

@Jared Hottle If you're an out of state investor like @Carol Walls , then I would definitely go with her strategy of only buying pretty houses.

But since we're local to Des Moines, we can take on what looks like more risky investments to an out of state investor. Because we have better local information, on where the path of development is going, and what the City of Des Moines may be trying to achieve in a specific area.

Perfect example is the "Market District" area south of the Capitol complex. To an out state investor it's a C or D area right now, with nothing going on. But they might not know that the City of Des Moines just selected a master developer on this $750MM project. So everyone and their brother is buying out lots and burnt out houses in this area, to put together development packages.

So maybe it might be a good idea for you to partner with Carol, and you can be her local boots on the ground. This way you can start to get your feet wet, and Carol can get better information on houses she was passing on, while also helping her get better than fire sale prices for her current inventory.

[Jared Hottle]

This is some great information @Jerry K. I got your blog posts on my list to read! @Carol Walls @Rene Owczarski So my two friends are real estate attorneys and have helped other clients in the transaction parts of tax lien sales and want to get into doing for themselves and we want to essentially flip the tax liens we deed. I would manage the properties and rehabs and sell them when they are finished. I do not have a ton of interest in owning percentages under 100% so hopefully we can find out how the sales in the counties around us are structured and I am unsure if we will have the stomach to purchase in massive volume to get the most bang for our buck but I guess these are the kind of risks that make life worth living lol. 

[Joel Unick]

My cousins have been investing heavily in tax liens in several different Iowa counties for the past 10 years or so. This year they were planning on expanding into Polk County, and I was going to be the boots on the ground, but with Covid-19, the tax sale was canceled. Over the past decade, they have been averaging around a 4% conversion rate using a very broad screening method with the goal to purchase as many certificates as possible rather than a more stringent approach. So the conversion rate is nowhere near 20% like @Rene Owczarski has been getting, that is a very impressive mark! We should connect if I run into any of you guys next year at the sale!