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.
Alright, so last we we discussed tax liens. If you haven’t listened to that episode I highly suggest you take the time to listen to it prior to listening to today’s episode. But just in case, I’ll recap what a tax lien is a briefly as possible. Tax liens exist in about half the states. In these states, when an owner fails to pay the taxes on time, an investor steps in and buys a tax lien against the property. The delinquent owner then has a period of time to redeem the lien, which means to pay off what they owe. When they do this, they’ll have to pay the delinquent taxes plus interest or fees that the tax lien investor will collect. If they fail to redeem the property, the tax lien can be foreclosed and the tax lien investor then becomes the owner of the property. That’s it in a nutshell.
Now, on last weeks’s episode we discussed how you can target the tax liens that will most likely end up going through the redemption period and not be redeemed, which would provide you with the result of being able to foreclose the lien and become the owner of the property, which is the desired result for many people.
Now, when this happens you go from more of a passive investor to an active investor. When you become the owner of that property, you don’t automatically make money. Sure your net worth might go up on paper, but there is quite a bit of work left to be done to transition that lien from a property you own, to a property you’ve sold and have made money off of. This means you’ll have to go through the selling process which is a large portion of the equation. If you don’t mind going through that process, then no problem. I don’t mind it myself and many others don’t mind either.
But there are many people who would rather make the initial investment, then collect their interest from that tax lien a year or two later. The interest that can get as high as 20 or 25%. They’d rather just park there money, check their mailbox one day and get it back plus interest. All the while knowing that the asset is backed by real estate, as the worst case scenario in their mind. So they’ll actually do the exact opposite of what we discussed last week. Instead of looking for the liens with the lowest redemption rates, they’ll look for the liens with the highest redemption rates. They don’t want the property. Too much effort to sell, too much work, whatever the reason, that have no desire in the property. Instead, they want the interest earned by putting their money to work for them.
So today I want to go over a few properties to look for that will have the highest rates of redemption. Now, obviously many of these could be redeemed the day or the month after the auction. So you’ll need to work the numbers and make sure that a property redeemed so soon will be worthwhile for you. But let’s discuss some property types that have high redemption rates.
The first one is the owner occupied properties. A property owned by the person who lives their full time is a property that will likely get redeemed. The last step before they lose their shelter, their house is the tax lien redemption period expiring. When someone comes to the realization that they are going to lose the only place they have to live, they will come up with the money.
If it’s a financial issue, this is the time when people ask for favors, go to pawn shops, do crazy stuff to pay off the taxes. But it’s not always a financial issue. It could be something as simple as an oversight. Or an issue where the taxes were supposed to be escrowed by their mortgage company who forgot to pay. Or maybe the check got lost in the mail. Or perhaps the owner procrastinated and went on a long trip. Or maybe their ill, or the owners are divorcing and neither spouse wants to pay right now. The reasons are endless. The best way to determine this is to look at the tax records and see if the mailing address of the tax bill is the same address as the house. You can also check for homestead exemption applied as well.
The next ones are occupied commercial properties. Obviously, there are exceptions to the rule, but it’s fairly rare to see an occupied commercial property get to the point of tax foreclosure. If it’s user occupied, they’ll find a way to pay the taxes. If it’s tenant occupied, the owner will find a way to pay the taxes from the lease monies. Now, commercial properties do pop up at tax sales from time to time. Especially in areas that are facing economic challenges. But if a property is occupied, the odds are that if the business there has enough cash flow to operate, they’ll be able to take care of the delinquent taxes one way or another.
The next type of property to look for are the large corporately owned properties. I’ve seen many, to remain nameless, fortune 500 companies have properties get to the point of having delinquent taxes. You would think that they would never get this fair, but oversights routinely happen. Many of these companies have entire teams to handles these kind of things and it still happens. Now, there is a big difference between buying a lien for a property owned by a fortune 500 company and lien for a property owned by Uncle Ron’s Big Back Hoe Services in Bakersville, LLC. Yes, company owned liens go unredeemed, but big company liens rarely go unredeemed. Find the owner, google the name and learn about them.
Another one are the high value properties. As nice as it would be to buy a lien for say, $10,000, foreclose that lien a couple of years later and become the owner of a ten million dollar mansion, it just doesn’t happen very often. The large majority of properties that end up going through tax foreclosure are the lower valued properties. And there’s nothing wrong with that whatsoever, by the way. There is a substantial amount of money to be made through these property types. But that’s what the norm is. It is not multi million dollar properties. Now, every year I will see a few properties worth hundreds of thousands or even millions that never get redeemed. But if you review a tax sale list and pick out the highest valued properties, there’s a good chance that 99% of those will end up getting redeemed.
And the last one that I want to point out really corresponds to the one we just discussed. But if you want liens solely for the interest rates, your search should start with the most expensive liens first. If there is a lien for $30,000 for example you’ll benefit in a few different ways. First, provided it’s a good property of course, you’ll have your money in a lien against one property, opposed to 30 different $1,000 liens to worry about. So it will likely be easier to manage. Secondly, a $30,000 tax bill will likely be for a valuable piece of real estate since taxes, of course, are based off of tax assessed values. And lastly, the person who gets a $30,000 tax bill will likely be able to come up with the funds prior to the redemption period expiring. So start with the big liens and then go smaller and smaller until you find exactly what you want.
So hopefully this episode has helped out. Tax lien investing is an incredible business and there are numerous strategies to make it work best based on our objectives. So between last week’s episode where we focused on finding liens that won’t redeem and this week’s episode on finding liens that are most likely to redeem, you should have an idea of what exists in this business.
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We’ll see you next time on The Tax Sale Podcast.
Take care and make it a successful day. See ya!