Involved In Real Estate · Kansas City, MO · Member since 2013 · 90 posts · 9 votes
Hey everyone,
Here in KC MO its just about tax sale time. Our county database is almost out and we will have about a month to research properties and contact owners.
I was wanting to know about any experiences people have had with tax sales, things to look out for or be aware of.
Christopher,
The number one thing to know is the rules. Each state and even each county may have different rules. You need to know these rules and how they effect how you should bid. Tax sale can have hidden costs and risks. I partnered with an attorney to buy a $20K lien on a 250K~ assessed building. Three years later we may squeak out a profit.
Next you need to know the true "as is" value of the property. Since the property is security for your lien, it has to be worth a fair amount more that the lien.
Originally posted by Christopher Coleman:
Hey Tom,
Why is that do you think? People bidding up properties in a bidding panic?
No not a bidding panic but simply unaware of the risks and hidden costs. I see bids that make no economic sense in MD all the time. It is clear from the bidding many do not understand
1) the effective interest rate based on their bid
2) That assessments are way off and may be off by as much as 300%
3) The cost to foreclose and take title to the property
4) That any property they take will likely be in poor condition and worth substantially less that homes in good condition.
Bidding the interest rate down to 4-6% may be fine for some but not an experienced real estate investor. Like Tom Goans said, you can do better.
All of that being said I specialize in Tax liens and do very well. I spend a lot of time prior to the sale inspecting and doing research. You can search my posts here and check out my website in my signature as I write a lot about tax liens.
Christopher,
The number one thing to know is the rules. Each state and even each county may have different rules. You need to know these rules and how they effect how you should bid. Tax sale can have hidden costs and risks. I partnered with an attorney to buy a $20K lien on a 250K~ assessed building. Three years later we may squeak out a profit.
Next you need to know the true "as is" value of the property. Since the property is security for your lien, it has to be worth a fair amount more that the lien.
Originally posted by Christopher Coleman:
Hey Tom,
Why is that do you think? People bidding up properties in a bidding panic?
No not a bidding panic but simply unaware of the risks and hidden costs. I see bids that make no economic sense in MD all the time. It is clear from the bidding many do not understand
1) the effective interest rate based on their bid
2) That assessments are way off and may be off by as much as 300%
3) The cost to foreclose and take title to the property
4) That any property they take will likely be in poor condition and worth substantially less that homes in good condition.
Bidding the interest rate down to 4-6% may be fine for some but not an experienced real estate investor. Like Tom Goans said, you can do better.
All of that being said I specialize in Tax liens and do very well. I spend a lot of time prior to the sale inspecting and doing research. You can search my posts here and check out my website in my signature as I write a lot about tax liens.
If I may poke my nose in this, your may be able to find very general information on buying tax liens. But as Ned Carey stated, every state has unique laws that you must read and thoroughly understand every word. A big oversight is the redemption period.
In Colorado, the first year of the sale of a tax lien (called tax certificate in Colorado) is only the first year. If the taxes remain unpaid, the certificates are sold the following 2 years. If you are not a winning bidder, you could lose your original investment. Then is the process of obtaining a treasurer's deed that delays the process another 9 months to a year. Once you get the deed, the original owner can still redem the property for up to 7 years. This influences your ability to make money with the property unless you spend the money and commit to more time with a Quiet Title Suit. This requires the hiring of an attorney and more of your money.
This is just one scenario.
What if the property owner pays the taxes? Is the extremely low rate of return and the huge amount of time you spend worth it? Don’t forget you or an agent you hire needs to attend the auction to buy the tax lien. And then immediately pay the county.
Yes, there are many who are successful at buying tax liens. I know one investor who got a hotel out of the process.
Just like all real estate segments, knowledge is power.
Ned and Tom, I totally agree with you. Fist off its extremely important to understand how the state and county laws work. Also really investigating the properties by parcel number and legal description, seeing as the county will not guarantee accuracy of information provided. The thought of purchasing the wrong property that way is sickening.
I've found some very different procedure just between Missouri "where I live" and Kansas "just a few miles west''. Kansas is a judicious state where items sold at the tax sale are ruled on my a county judge and a sheriffs deed is provided, with no redemption period for previous owners. Missouri also has a judicial ruling but previous owners have a redemption period if they can pay in time.
What was very concerning is that neither state will give any clean marketable title. Like I think Tom mentioned you have to go through the quiet title suit, that could cost thousands.
Do either of you have any experience contacting owners prior to the tax sale and getting owners to sell for pay off + a small fee?
That way the city could be paid prior to tax sale and judicial ruling, and marketable title would be provided. I would love any input or experience you might have on that strategy.
Hey Chris, can I get the website to go to for the tax sales? I am not ready at all for that. but it would be nice to look around.
Hey Jessica,
Here are some links to the Jackson County web pages for rules and procedures as well as the property database "when they finally get it up" hahaha I believe they are over a week late at this point, so once its up I'll be a very busy boy.
[url]http://www.jacksongov.org/filestorage/3310/3324/4255/Buying_Tax_Foreclosure_Property_0709__II.pdf
Tax sales are buyer beware, they are hazardous as in toxic waste sites, and the rules vary from state to state. Redemption periods if any vary, and at some sales all the mortgages and liens transfer to the buyer at the auction. There are no seller's disclosures, no home inspections, and most of the time you can't see the inside of the property. Some owners ditch properties that they can't sell at tax sale, dumping them on an unsuspecting buyer, who has no recourse.
It can be good, but it is work and it is like looking for a needle in the haystack.