Welcome to the Tax Sale Podcast, where tax sale investing is made easy.
I’m Casey Denman, a tax sale veteran, the author of the tax sale playbook, founder of the tax sale academy, the leading tax sale expert and trainer and your host right here on the tax sale podcast.
Thanks for joining me on today’s podcast. This podcast is provided completely free to help teach you about tax sale investing and is made possible through The Tax Sale Academy. If you’re looking to learn about tax defaulted real estate, in a comprehensive, step by step basis then head to TaxSaleAacdemy.com and click on join. Again, taxsaleacademy.com and click join.
In today’s episode I want to discuss five extremely serious issues for tax sale investors. A lot of new investors get the shiny object syndrome, or tunnel vision and only see what they want to see, right? They see the money making opportunity, the deals, the checks their cashing . . . all of the exciting stuff. But they usually fail to see two major things: the amount of actual effort involved and the potential risks.
Tax sale investing, in my opinion, is one of the most incredible businesses in the world. It is full of opportunity and every new investor has the potential to really change their lives. But I’d be doing a disservice if I failed to discuss some of the potential risks you’ll face. In today’s episode, we’re going to be talking about the risks involved with the actual properties available for purchase. So, you go to the auction and have purchased a few properties. That’s where these five major risks come into play:
The first one is contaminated properties. I once saw a guy at an auction who won a property and was struggling to contain his excitement. He was doing everything possible not to just scream and jump up and down. He had just purchased a prime piece of real estate for $4,500. It was a corner lot on the entrance into a developing city. It was easily worth $100,000. Except there was one issue. What he failed to realize is that there was an old pump station at that site decades ago. While the actual station had been torn down, that pump station had some underground storage tanks still buried there. Based on previous assessments, those tanks had leaked. The soil was completely contaminated and according to an article in the local newspapers a few years prior, to develop that site would take around $1.2m for the required mitigation that happened below the surface. That’s $1.2m and you could literally drive by and not have any idea anything was actually done since all you were doing is taking care of the contaminated soils below the surface. And here’s one of the kickers . . . in some areas, when you buy that property it becomes entirely your responsibility. That means if you DON’T spend that $1.2m to clean it up, YOU can be financially, and get this, criminally responsible. Don’t put yourself into a corner you can’t fight out of.
The next one involves utilities. I understand it doesn’t sound that scary from the start, right? But I’m talking about electric, sewer and primarily water. These could be bill separately or you might even be billed through your association or community dues depending on how your area is setup. In some areas you might not have HOA dues at all. But you could still have water bills. And I should actually clarify here. I’m talking about homes AND vacant properties. You will be sent a monthly water bill for vacant land. That’s right, for land where you have no building or use of the water. It’ll come with a base bill of say $50 per month, which, of course, is just a revenue stream for the association or county. Therein lies the problem. You are essentially being provided a service. You’re being provided water, or access to water. Now, what if you fail to pay? Essentially, you’ve stolen utilities. You know that you didn’t actually steal anything, but from their perspective they provided you with water and whether you used it or not, you were supposed to pay. Now what? It depends on the area, but it could go all the way up to a lien against the property, a lien against you, a lawsuit…. and I’ve even heard stories of being reported to the credit bureaus. So now, you’ve got serious issues. Especially if you purchased 50 or those crazy cheap lots…that no one else wanted because of those silly water bills.
Let’s talk about membership fees now. I’m referring to both joining fees and ongoing HOA fees. I remember a while back watching a vacant building site get sold at a tax sale auction that was in an extremely exclusive country club. We’re talking no homes cheaper than a million bucks and served as the vacation homes of a number of television personalities, athletes and many others. The value of this property was unreal and it ended up at a tax sale. The problem was that the deed restrictions for this property required you become a member of the country club that this property was in. The idea of course is to maintain it’s exclusivity. If you want to buy there, become a member, that simple. Did I mention that the membership fee was $250,000. A quarter of a million dollars. Or how about the ongoing monthly dues of $8,000 per month? The issue here is that the club doesn’t want you to own property there if you can’t afford it. And a club with those kind of requirements has the financial budget to take you to court and litigate until they either force you to join and you deed your property to them. So if you would’ve purchase the property, you would’ve received a large bill a few weeks later that you probably weren’t expecting.
If you’ve read Tax Sale Playbook, you’ve heard a story about the next one. We’re talking about demolition. You research a tax sale list, find pictures of a house online through something like Zillow, see that the Zillow estimate of value is $50,000 and you jump all over that property and snag it for $20,000 sight unseen. Unfortunately, since the time the pictures that you saw were taken the property has fallen into sever disrepair. The county has condemned it and it’s been put on their demolition list. But since the county knows it’s in tax foreclosure, they wait until the in quote, rich investor buys it at the auction. The next week they know it down and send you the bill for $10,000. This happens a lot more than you think. The moment you get that bill you should probably consider two options: (1) sending them a check or (2) using those funds to put an attorney on retainer. While many areas won’t come after you, some will and some do. The demolition happened on your watch, while you owned the property and guess what? It’s your responsibility . . . at least according to the city attorney.
The last one I want to discuss are local city requirements. I’ve told this story a few times as well, but there isn’t much more gut wrenching than receiving a notice to appear at a court hearing in the mail. Many cities take their blight ordinances and laws extremely serious. It can be pretty serious stuff like a building falling down that has the ability to hurt someone. Or it can be rather petty stuff like your grass is 10” tall and the ordinance only allows it to be 6” tall. Or you didn’t shovel snow off your sidewalk within 24 hours like the law requires . . . what?? If you’re from Florida like I am, you probably didn’t’ even realize laws like that existed. Hence, the court summons I mentioned a few minutes ago. The fact is that each city is different, and it’s very easy to get yourself in trouble if you’re not very well versed in what’s going on in those areas. As was I.
That’s it for five of the major issues that I really want you to watch out for when it comes to your tax sale business.
As you can see there’s certainly more to it than just flipping properties and making money. That’s the exciting part. The important part though, is that you get past all of the traps and potential issues like what we’ve discussed here. I don’t discuss these to scare you. I discuss these to educate you. Once you know what you’re looking for, it becomes a rather easy process.
If we can help teach you more of what to look for, and how to efficiently research your tax sale properties and grow your business, whether you’re starting from scratch or if you’re a veteran looking for new ideas, we provide a comprehensive step by step training that’s actionable and easy to implement through The Tax Sale Academy., just head to taxsaleacdemy.com and click on join to become a member and get started.. Again, there’s a link in the show notes, but it’s taxsaleacademy.com and click on join.
That’s it for today, if you enjoyed this podcast episode please take just a few moments out of your day to leave us a positive feedback rating on whatever platform your currently listening on. We read every single comment, notice every single 5 star review and are so thankful for each one of them.
Have a wonderful day. Take care, bye bye.