Transcript:
Welcome to the Tax Sale Podcast, where tax sale investing is made easy. My name is Casey Denman, I’m a tax sale veteran, the leading tax sale expert, author of The Tax Sale Playbook, founder of The Tax Sale Academy and I’m your host right here on The Tax Sale Podcast.
Thank you so much for joining me on today’s podcast episode. This is a completely free podcast and is brought to you through and because of The Tax Sale Academy. If you’re looking to learn more about investing in tax defaulted real estate, just head to TaxSaleAcademy.com. Again that’s TaxSaleAcademy.com.
It is two thousand and twenty one! Welcome to our first episode of the new year. Today I wanted to go over five common tax sale myths. Unfortunately, there are a lot of people who will see something about this business and take it as gospel. The problem is that what they see if often taken out of context or is being used as some sort of marketing tool opposed to factual data about the business. This very often leads to confusion when someone enters this business, as evidenced by many of the questions I’ll receive.
Hopefully today we’re able to set the record straight, as well as provide some insight into this business that you might have not otherwise known about. Alright, lets discuss them.
The first one:
Pay the taxes, get the property . . . right? I just dealt with this one last week for a friend of mine. He has a house that sits on two lots. He built his fence about 5 feet into his neighbors lot. This neighbor lives out of state and the lot is mostly scrub brush. He told me that he had been mowing this property and will pay the taxes so he can claim the property as his own.
Essentially this is where a trespasser or squatter who comes onto someone else’s land and occupies the property in an effort to gain ownership. The legal term is known as adverse possession. Every state is different in how they view adverse possession claims. But since some states require the taxes to be paid as part of the adverse possession requirements, many people view this situation as a tax sale related question. It is not. Adverse possession is an extremely old law most commonly used to determine when there are disputes over the boundaries of land. It is also much more difficult than simply paying taxes, mowing a lot and becoming the owner. Instead, in most situations, you’ll be filing an actual lawsuit against the owner of that property to state your claim. Then you must meet certain very specific criteria such as this process occurring for many yea, hope the judge agrees with you and that the actual owner of the property doesn’t dispute your claim, otherwise you’ll get tied up into very costly litigation. That’s the basics behind it, but again, this is not a tax sale question. If you want to pay the taxes and hope to become an owner, please feel free to reach out to me so I can send you one of my tax bills. Kidding aside, contact an attorney in your state for the details.
Alright, the second myth is that when you invest in tax sale properties, most notably, tax liens then your investment is guaranteed by the government. This is, again untrue. This is one that many late night infomercial guys enjoy saying. The truth behind this statement is that the PROCESS is guaranteed by the government – that is true. They do have to follow the state statutes. These state statutes require that certain processes are followed in a specific order. For example, when you buy a lien you have the right, based on the state statutes to earn your money back or gain ownership of the property – the specifics vary of course, but the point is that the process is guaranteed, not your investment – the government could care less about your money. They only care that the laws are followed. Your money is secured by the lien or the property that YOU did research on. If your research was lousy, then the security behind your investment will be lousy too. If your research was accurate, then the security behind your investment will be much stronger. And of course, the fact is that I would never trust the government to secure my investment regardless.
Next one: Buy a tax lien and get a property. Sounds pretty cool, right? And it’s a fantastic marketing pitch, except it doesn’t always tell the whole story. The actual process varies from one state to the next, but when you invest in a tax lien you will usually be paying the back due taxes. So, let’s say that’s $500. You give the county $500, then you own the lien. The owner has a set time period to pay known as a redemption period – during this time if the owner pays off the taxes and redeems the lien you get your 500 bucks back plus interest usually. When the owner doesn’t pay off the lien, you get the property. That’s it in a nutshell. Here’s what many people focus on: I pay the taxes, I get the property. Sure, it COULD work like that. But that’s pretty rare. Statistically they say that over 95% of all tax liens are redeemed. The remaining 5% of the liens could become the property of the tax lien investor – and of those 5%, you can usually assume that those properties won’t be quite a desirable as the other 95%. Long story short, while you could buy a lien and get the property, it’s a little bit more difficult than that. If you invest in tax liens, you should do so primarily for the interest that you’ll earn with those liens. Then if you do acquire a property that goes through the redemption period unredeemed, then that’s all the better!
Next myth: All Tax Sale properties are cheap. So, I’ll admit it that depending on what video you’ve seen of mine this my be your perspective. I have videos about 1 cent properties, $20 homes and I’ve mentioned countless times about how I’ve purchase many, many properties for less than $100, more for less than $500 and hundreds for less than $1000. Cheap tax sale properties do exist. Absolutely. But the primary reason that I can get properties so cheap is become of the volume of properties I see auctioned off. I’ve been to many, many auctions and have seen likely billions of dollars worth of real estate sold. By and large, properties sold trhoguh the tax sale system are cheaper than the open market. But it’s not you that determines that or me, or the county, it’s the marketplace. The competition dictates it. In some situations I have seen properties sold at HIGHER than fair market value before – an auction setting is good at pushing prices up when you have two emotionally attached buyers going after the same property. It happens. The problem with believing this myth is that new investors are shell shocked when they can’t purchase a property that nets them $10 grand or $100 grand at their first auction. They immediately put label the business as unviable or a waste of time. Instead, be patient. Go to numerous auctions, look at all property types in all areas. Don’t get tunnel vision, keep your options open and you will certainly come across incredible deals if you stick with it.
The next one is that tax sale investing is easy. So, hear me out. In theory, it sure is. You’re buying a property at one price and selling it at another. Or in the case of a lien, you’re parking your money to get a nice return. That’s it. The problem is that many people never look deeper into this business. They learn about it in a reader’s digest manner and forego learning about all of the details – like how to research so you know what you’re truly buying. Like the title issues that come with that property that make unconventional selling impossible without additional effort. Or like how some liens can actually cause you to lose money if you bid incorrectly. And unfortunately, it become rather obvious to me that someone has assumed this business is easier than it is by the way I’m asked to help with their problems. And it’s not that you’ll have a problem every single time – you can certainly learn by doing if you know the basis, but that learning experience takes a substantial amount of time, effort and most importantly money. That way me almost two decades ago. I did well my first few deals. Made a lot of money, then I dealt with all sort of insane situations that almost saw me bankrupt and thrown in jail for literally investing in real estate. And I don’t say this to scare you, but it’s the truth. I don’t sugar coat anything. This is a VERY VERY hard business for those that assume it’s easy. Now, with that said it’s easy to learn and progress the correct way in this business – yes, it takes time to learn the process and the details, but that time spent learning by educating yourself will be much cheaper than learning by screwing up. With that said, it is an easy business . . . once you learn what you’re doing.
So, there you have it. Five of the most common tax sale myths that I hear about on a very frequent basis. As you can probably tell, there is SOME truth in all of these. But as an investor, it’s up to you to unpack the entire truth and learn what you’re doing. Think of tax sale investing like an onion – there are many, many layers of this business. The outside layer is the most common layer that everyone focuses on and that causes confusion and issues. Work to peel back the layers by increasing your knowledge on a deeper and deeper level and you’ll see the success that you desire in this business in no time.
Thanks so much for joining me today. If this episode or any of our episodes have helped you, I’d like to ask a huge favor: I’d be extremely grateful if you’ll take just a few seconds out of your day to leave positive feedback for us on whatever podcasting platform you’re listening to us on right now. It truly means a lot to us when we see those positive rviews.
As always, if we can be of any help you can find us at TaxSaleAcademy.com.
Take care and we’ll see you next time on the tax sale podcast. See ya!