Buying a $50,000 property for $5,000?

27 Replies

Buying a $50,000 property for $5,000... Too good to be true? I have obtained a list of properties and the amount of property taxes that are over due by the homeowners.

These homeowners have not yet lost their property to tax foreclosure but are soon to be, and will be sold at a tax lien auction or tax deed action. So ultimately, the homeowners will be left with with a ridiculous interest rate or empty handed all together.

I'm planning on contacting the homeowners on the delinquent tax list and explain to them; they are about to lose their home to auction within the next couple of months. I will then offer to pay off the property taxes, in exchange for "free and clear" ownership of their property through a warranty deed and I would also offer them a piece of equity after I wholesale the property.

You would think a lot of people in this situation would jump at the opportunity to sell they're home for as low as 10% of the market value right? Because it's much better than losing their home to auction for nothing at all correct?

I'm familiar with the fact that a lot of these homeowners are still hostile at the fact that I would have the audacity to even offer such a low price.

For the investors that are familiar with this strategy, could you share your most successful way of approaching these specific homeowners?

I think you may get less response in this forum- This isn't actually a tax/legal question but more of a strategy question. :)

@Natalie Kolodij    in practice what he will find is that many people pay their tax's last minute and don't lose the properties.  a list of 100 properties delinquent come D day boils down to 2 or 3 if your lucky .. 

and that his competition will offer equity.. not just deed it over.. now in the HOOD this can happen.. crumbling derelict buildings etc.. but not generally with anything worth owning.

but he needs to go through the exercise to see that this is a dream.. and not reality.. and there is uber competition .. this is hardly a new concept.

@Jay Hinrichs

Thank you for responding Mr. Hinrichs.

I understand completely I will need to offer equity as an incentive... The question was; if I were to locate the perfect candidate, how would I go about approaching them in the most polite, professional, but also firm and persuasive manner possible?

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@Giovanni Montesclaros
Never say never! But just like @Jay Hinrichs I'll be very surprised if you can make it work in areas where you have valuable land. And if you do, Id love to know how you do it (maybe it is just a huge number game)

On the flip side, i can see that working in rural areas where you have lands that no one wants to buy.
That would be liabilities shifting from one owner to another.

In areas where the land is valuable, unless the homeowner is totally clueless, simply don't care or doesn't see any value in their house and he is happy to get rid of his house, I'd think that he would still have the option of selling it for more than you would offer via an real estate agent or to one of the "I'll buy your house for cash".

At the end of the day, it is not like their house is in negative equity.

@Patrice Penda

Thanks for your more positive and less condescending reply Ms. Patrice!

I have a follow up question to your response.  You don't think the fact that they are going to lose their house in an auction is enough incentive to sell for so cheap?  With the other option walking away empty handed?  Personally I would rather have even just $500 thank nothing at all...  Or is it just not that simple?

Thanks again!

@Giovanni Montesclaros
Yes, eventually, if they don't do anything, they will eventually lose their house.
But before if happens, there is really a long way. 
That is the point that Jay was making.
Some people always leave it to last minute, others need that wake-up call they are on the verge of losing their house before taking action, others have had other pressing issues to deals with in their personal life(divorce, death, etc) before dealing with their tax affairs, others simply don't have the money to pay for the tax liability (but there'd still be  the option of selling the house, if it is worth something)

In my opinion, I am not convinced your proposition (at 10% of the house value) would be compelling enough for homeowners to hand you their keys.
Having said, there is a number at which your strategy would work for sure (like market value for example ;))

@Giovanni Montesclaros   I have spent a career chasing distressed assets.

obviously my comments were not what you wanted to hear.. you wanted to hear yes that's great of course just show up and tell someone to sign over your house because your going to lose it anyway.

My point is that is NOT reality or even remotely close to reality.

you want to learn here is reality.

1. people procrastinate and its very common for them to pay their tax's literally 2 to 3 days before they lose the property.

2. In many cases its BETTER for them to lose it.. they can then apply for overages because it will probably bid up past whats owed that's better outcome for them than just handing the property to you.

3. Properties that are bought in this manner and for sure it happens but the VAST majority or low value very distressed junkers.. hardly worth 50k and your buying them for 5k.

4. your not the only one with this idea.. there are legions of direct mail companies that sell how to .. for this exact model. your just one of many all doing the same thing.. 

5. for you to actually do this you need to put in a ton of time effort and leg work.. and then find that one in a thousand that will walk away.. it happens but its rare.. and more common is they get some money out of signing over the deed.

its a full time job to make any money at this.. 

hey @Giovanni Montesclaros  Solid idea and I suggest that if you can test case a good sized pool without spending an arm and a leg - why not?  Unsure how GA handles tax lien foreclosures, but in Ohio, where I handle several hundred a year, homeowners have all the way up to the confirmation of sale to pay back taxes.  Also, they get any funds above then taxes owed at auction.   If it’s a nice home, it will sell for more than the taxes owed and the homeowners will at least walk away with some funds.  

Let me know how it goes!  

Gio   look up tax overages.. you will see that when people lose property to taxs these don't just walk with nothing.

many time they make huge gain.. you want to study all ends of this to figure out whats what and what is reality

@Giovanni Montesclaros If someone is "about to lose their home to auction within the next couple of months" there is zero urgency. 

Sell retail, sell to investor, file BK, get private loan, partner up, many options.

In the tax lien sale scenario... even less urgency.

@Giovanni Montesclaros

I understand that you may not like what @Jay Hinrichs had to say, but he is telling it like it is. It is a very tough game to win. 

As far as your question on how to talk to these people, I recommend 2 well-known books that are not specific to real estate but equip you for all kinds of negotiations:
Influence by Robert Cialdini and Difficult conversations

Of course, there're dozens books on negotiations, these two are just my personal favorites

I will be the 50th person to agree with @Jay Hinrichs .  May work 1/100 but likely a big wast of time.  Most people aren't as desperate as it seems and the ones who may be, just don't care about the property.

I like your thinking though, keep at it.

@Giovanni Montesclaros As most have said here it is easier said then done. You can do it but it will not be easy. Just because someone should be motivated does not mean they are motivated. It is a numbers game. You have to contact enough people and eventually someone will take your offer. 

My suggestion is you don't go in with a standard offer like 10% of value. You need to talk to the owner and understand their situation and desires. Then you can negotiate a deal that makes sense for both of you. 

My approach is casual, "I see you have a house that is about to go into tax sale (or fill in other reason here).  Have you thought about selling?" then shut up and listen.

@Jay Hinrichs

@Paul Vincent

@John Woodrich

@Michael Plaks

@Tom Gimer

@Ned Carey

Thank you all for your timely replies!

I dearly appreciate the insight, motivation, reality checks, and advice from each an every one of you.  I'm new to this -as you can tell- but extremely motivated.  Personally, I'm not close with any one with as much knowledge or experience as you guys and I'm thankful that I can now build off of the information that was provided. My research won't research won't stop here! 

Thanks again for the replies and I hope y'all prosper in the field of investment you are pursuing!

@Giovanni Montesclaros

I've bought hundreds of Tax Sale properties both before, during and after the Tax Sale.  I've written numerous times here that Tax Sales are the most hazardous method of buying real estate.

No home inspections

Most times can't see inside

No Sellers Disclosure, so sellers let go of property that they can't sell otherwise, think toxic waste sites

No do over

No home warranty

No financing they require 100% cash at time of sale.

From the initial list 30 days before they sale, my experience is that 90% pay the taxes, sometimes the minimum to get their property off the Tax Sale list.

Some of the owners are deceased

Some of the properties have title defects preventing re-selling and financing until cured

Many of the sales transfer other mortgages, liens to the new owner.

I've seen tax sale properties with multi-million Federal Tax Liens NOT wiped out by the sale.

Some of the properties may be non-existent.

@Jay Hinrichs   @Ned Carey and @Steve Babiak are experts in this area of investment on Bigger Pockets

To add to @David Krulac ‘s point regarding federal tax liens.   The IRS and federal agencies have an ultimate redemption by statute that provides they “may” redeem their lien and throw it back on or execute on the lien after any tax or foreclosure sale.  Although, I’ve never seen the IRS or other agency actually slap it back on but it’s good to know of the dangers when you see a federal lien on the property.   All good information here.  What a good group.  

@Giovanni Montesclaros If you are looking at Georgia properties, you need to know that the body of law and practice surrounding delinquent property tax is complex and often unpredictable in our state.  I'm pretty deep in this rabbit hole and I am still learning and seeing new situations.  Spend some time researching on Bigger Pockets and elsewhere.

As @Jay Hinrichs pointed out, the property owner doesn't walk away with nothing in a tax auction, they are usually entitled to receive the auction price less the unpaid taxes.  Plus, in Georgia, the owner has the right to redeem the property from the tax deed buyer after the auction.  And, in most cases, even if they don't redeem, the original owner can retain possession of the property for at least a year after the tax sale until the tax deed buyer forecloses their redemption rights.  So the core of your "pitch" to the owner is inaccurate.

Potentially more importantly, some tax commissioners in Georgia don't levy on owner occupied homestead properties (whether official policy or common practice) and those that do often wait many years to give the owner a chance to pay.  So if you are dealing with homeowners, they may not be motivated at all if they know their home is never realistically going to auction.

In my experience, most properties that actually go to tax sale are investor-owned and are either raw land or abandoned/dilapidated buildings.

I don't want to discourage you.  There are great opportunities in delinquent taxes.  You just need to understand how the system works before you can identify and evaluate the opportunities.

Originally posted by @Paul Vincent :

To add to @David Krulac ‘s point regarding federal tax liens.   The IRS and federal agencies have an ultimate redemption by statute that provides they “may” redeem their lien and throw it back on or execute on the lien after any tax or foreclosure sale.  Although, I’ve never seen the IRS or other agency actually slap it back on but it’s good to know of the dangers when you see a federal lien on the property.   All good information here.  What a good group.  

 in this scenario federal tax lien would be the least of my worries.. I actually liked those.. kept all the beginners away since they did not really understand them..  I have only had the IRS step in one time.. and that was a home with MASSIVE equity and the person who lost actually had to call the IRS and tell them what was happening .. 

Tax sale is a great way to clear some clouded titles.  It is also a great way to dump a brown field on someone.

@Michael Biggs   The Tax Sales actually adds a cloud on the title because it is a third party deed and does not come from the owner of the property.  In many states some corrective title cleansing is necessary after a Tax Sale.  In some states you can not get tittle Insurance on a Tax Sale property.

@David Krulac   Each state has their own rules.  In states where you can get a title policy without a special exclusion after a redemption period then it does not add a cloud.

In states where a suit to quiet title is required then it should probably be considered a cloud.  BUT they are still used as part of a process to remove clouds in some cases.

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