All Forum Posts by: Melanie P.

Practically what you will earn from participating in tax sale auctions is an interest rate of return. You will not wind up with any properties and if you do selling them will be tough because the property's title from a tax sale deed will not qualify for title insurance for many years.

 Sorry I misunderstood your terminology the first time I read it. 

You owe taxes on your GAINS (depreciation recapture + long-term capital gains) on the amount of the installment sale that you receive in the year of sale that is above your basis. Let's say you have a basis (amount after depreciation) of $10,000. You sell a property for $100,000 and receive $10,000 at the time of sale plus installments for 10 years for the remainder with interest. In year one you do not have any gains to be taxed, you merely received back your basis. In every other year you will file Form 6252 and pay long-term capital gains and depreciation recapture tax, in their respective ratios, on the installment income (less interest which is taxed separately) in each year until paid in full. 

I'd think you'd want your subway franchise covering their own taxes and premises expenses so you don't pay self employment tax on the profit that subway makes by way of it avoiding paying its property taxes, rent and facility maintenance. The passive income you receive as net rent is not subject to self employment taxes. Base rate and percentage of sales is how I'd write Subway's lease in your situation. 

 Sorry I misunderstood your terminology the first time I read it. You will calculate the correct amount of depreciation recapture by removing the cost of the land from how you calculated above and taking 10 years. If you do an installment sale you will pay in the first year and subsequent years the pro rata depreciation recaptured through installment sale income reported on Form 6252. It's impossible to calculate without knowing all the terms of the deal you're trying to make. 

Better options are to leave it to someone or to do a 1031 exchange, which you can do just for the recapture. You don't have to put the capital gain or the undepreciated principal into other real estate.

A. Rate increase. You answered your own question. 100% occupancy. Rates for everything have increased. Even if you lose a couple, just re-rent them. Hopefully you already have conditions spelled out to where you can start charging their payment method a rate increase after a specified notice period. Nobody is moving their stuff over $10 a month. 

Trading what you've got going for a "Teak plantation" in Belize sounds insane to me, but there are a lot of people in this world a lot richer than me so perhaps I lack your vision. It's more than growing raw materials. You'd have Belizean employees, salespeople to market your teak, all the costs and regulations of shipping agricultural product internationally. Doesn't sound like a fun thing to exchange your storage income for. 

Speak to the case manager for the assistance program to find out if funding is currently available and how long after receiving the requested paperwork will they provide funding. Also read any papers carefully to make sure you're not giving up any rights if you choose to participate. 

If the program has current funding and the turnaround time isn't very long for payment there's little downside to helping the tenant obtain assistance. 

Are you carrying adequate insurance? What exactly do you see these LLCs doing for you?

1) The 9% is per annum. You would calculate it to the date of redemption and may not be able to collect it at all until certain notices have been provided. But any amount you would receive, considering your proposed investment, would be negligible. MOST tax liens are redeemed by the owner, mortgage company, or other third party.

2) The tax lien is in a superior position to everything else. There are additional steps you must take during the enforcement process whereby you notify the condo association and just like a mortgage company with interest in a property it can also redeem your lien. 

3) Technically you need three piles of money. You need your collateral, purchase funds and then the legal and administrative costs you will incur converting a "Certificate of Purchase" into a "Tax Sale Deed." You can borrow the money you will need for the legal costs as your collateral since you will have it back shortly after the auction. You may also post a surety bond which premium will depend on your personal credit and financial resources, but would run somewhere around $100 per $10,000. In all you will spend $10,000 or more in legal and administrative fees in the rare instances you make it all the way from winning at auction to a Tax Sale Deed.

4) It is very rare to make it all the way to a tax deed. Most properties are redeemed. Most auctions are won by institutional investors seeking the 9% interest. Those investors are good sources for tax liens that are much further long in the process, but you must be working with a great deal more capital. I do not see this being worth your time as any returns will be negligible over what you're earning in a savings account. Your chances of winning the few auctions you'll be able to participate in are low and even if you do it will probably be redeemed.

5) Tax attorneys are not the correct attorney for this sort of venture. There are law firms that specialize in properly making all of the required notices, filing the foreclosure in court, serving this properly, following all the technical rules required to have a valid tax deed issued. They are paper mills and frequently operate multi-state practices from one location. 

Bottom Line is the rumors of going down to the tax auction and obtaining someone's valuable real estate for pennies are mostly false. I've purchased tax lien properties but never started at the auction. If you look at the auction results from last year and the year before you will see the major winners of multiple sales. Look them up in court records and see if they're getting close to foreclosing any property you're interested in. Most of them don't want real estate and are happy for an offer to acquire their lien at the end of the process. This can be a savings on real estate, savings worth your time, but it's not a fire sale.

I would ask them what they are prepared to pay for exclusivity, I would think you'd get some kind of upfront payment and the operator would get ongoing compensation from the contract. However, I'm not sure that any such arrangement would be legal or enforceable. How would you keep out Starlink? Or a tenant's cellular hotspot?

Tax bills should be looked at as carrying cost. They are most comparable to the interest on your loan because they will be prorated to both your purchase and sale dates.