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.
On today’s podcast we’ll be talking about tax liens. Specifically we’ll be discussing the tax liens that have the highest redemption rates.
Now, let’s jump back just a little to get you caught up on what a tax lien is if you’re not familiar. So, when an owner fails to pay their property taxes on time, the county is impacted since they aren’t able to collect the funds that they rely on for their budgets. Those budgets, of course, fund law enforcement, fire resuces, roads, sidewalks, parks, bridges, schools and so much more. Those taxes are required for the county to operate like we know it. So when those taxes aren’t paid, the county must take some sort of action. In a tax lien state, shortly after the taxes become delinquent the county will sell what is known as a tax lien. Essentially, an investor, like you or I, will step in and buy that lien. When we do that, we basically pay the taxes for the delinquent tax payer, which allows the county to get the funds they need and it puts us as the owner of a priority lien against that parcel of real estate. In exchange for doing this, we will earn interest on our money. The owner of the property, the delinquent tax payer, will have a window of time to come in and make payment of those taxes, could be two or three years. When they do that, they’ll owe the back due taxes, PLUS the interest to us as the tax lien investor. They make the payment, we collect our initial investment plus interest, and then the lien is released. IF they don’t ever pay the taxes, we can as the tax lien holder to foreclose the tax lien and become the owner of the property.
Now, some tax lien holders seek out liens that will be redeemed. They are more focused with earning interest on their money than having to go through the effort to foreclose and resell a piece of real estate. And the truth is that the large majority of tax liens do end up getting redeemed prior to the redemption window expiring.
Other investors are interested in the returns, but would rather have the property. I always tell investors to invest in tax liens for the return. Invest in tax deeds if they want the property. It takes the guess works out of the equation. But, with that said, there are many investors who want to invest in liens, but would prefer the ones where they’ll have the best chance of eventually acquiring the property. So instead, of say the national average of be able to foreclosre on 5 out of 100 liens, they want to better their chances so they can maybe foreclose on say 20 or 30 out of 100 liens.
That’s who this episode is for. I’ll be discussing a few of the properties to look for that have the best chances for you of going through the entire tax lien process without being redeemed. Again, this isn’t to say that all of these situations described will end up not being redeemed. But, if you focus on a slightly higher percentage of these types of properties, you’ll likely increase your chances of being able to acquire a property through the tax lien system compared to just going at it randomly.
So, with all that said, let’s go over the types of properties attached to the liens to focus on that have a slightly higher chance of going unpaid.
The first one is vacant land. In terms of tax sales, vacant land is an extremely popular product type that is sold. The reasons are endless, but generally speaking you can use a home, whether you live in it or rent it out, whereas vacant land you can’t use immediately without some sort of additional effort like building on it which can be expensive of course. It’s also one of the first things people forget about or lose interest in as they change plans or move away. So people tend to let their vacant properties go much more often than properties with structures.
Another one will be structures, but it’s going to be those structures that you might not want. I’ve seen lots of dilapidated structures sold through liens and many will even have some special surprises along with them like city or county liens, which often won’t be cancelled in the even you do get to foreclose that lien. And after owning that tax lien for another year or two, and then being able to foreclose, you have another couple of years of a property sitting in the elements and in disrepair. Many owners of these properties know that they are too far gone to be salvaged, so they’ll let them go without any real purpose to pay the taxes. These are the types of liens that likely won’t get redeemed . . . but you might want to ask yourself if you really want to own that property in the first place.
Along those same lines are properties that lack overall desirability. I actually train people how not to buy many types of real estate. Some could simply be in areas where there is zero development. Others could be worthless strips of land. Some could be homeowner’s associations parks or water retention areas. There might be landlocked parcels. And there are a whole bunch of properties just like this that will have tax liens against them sold at auction. Naturally, there is a significantly higher chance that the owner won’t come in and redeem them. Of course, you might not want the property unless you have a very specific strategy you’ll be using.
Another one are the liens in economically depressed areas. If there was a major employer who recently shut down operations where many lost jobs, you can guarantee that there are many homes where the owners have simply left town for a new life or other homes where landlords aren’t able to pay the taxes. Obviously, you need to make the decision if you really want to own real estate in that area, but in my experience it isn’t so bad if you have a plan set forth well in advance. Take the time to figure out that plan, then considering investing in liens in those economically challenged areas. If you do, you should be proud as you’re one of the ones helping the area to recover.
Now that we’ve talked about a few property types, let’s discuss owner types. As you’re doing your research you can scan through property records for these types of owners.
The first type are the out of area owners. Many people will buy property in other parts of the country or world with excitement, only to have that excitement wain over time. Others will simply change plans and not care anymore. If you see someone out of town that’s going to be a good sign. If they’re out of state, that’s usually a better sign. And if theyre out of country, well, that’s even better. I’ve purchased many liens that were owned by out of area owners. Even if the property is redeemed, it usually takes them slightly longer than the local owners so your returns will be higher anyone. So check the mailing addresses for the tax bills and look for the city and state or country and let that help you decide what to buy.
Another common occurrence for liens that end up going unredeemed are those held by estates or heirs. In most states, when a property owner dies the property doesn’t just magically go from the deceased to the next person that wants the property or has a claim to the property, like a child. Instead a certain process must be followed to transfer ownership according to the wishes of the deceased. In many cases, the deceased simply doesn’t have any relatives. In other cases, the person that ends up with the property doesn’t want anything to do with it . . . especially when it means they have to fork over some dough to keep it out of foreclosure.
Another one are the properties owned by defunct businesses. And this is extremely common amongst some very speculative developers and investors. They’ll buy properties in the name of a company, that company will then have financial issues. Sometimes they might considering liquidating the property or getting whatever they could for it, but that might mean they are forced to satisfy other judgements against them and it’s not worth the effort. So they’ll let it go through the tax foreclosure process since it serves now value to them personally and it’s only attached to a nonexistent company.
And the last one are the commonly delinquent owners. If you see a company that has 50 or 100 liens against them, do a little research. Figure out just how capable you think they are of paying those liens. If they were a well ran company, the properties wouldn’t have gotten to that point since they will have already been paying thousands in late fees on day one when you total everything up. So, do some research, see what their story is and if you can figure it out, then you might stand a very high chance of acquiring the properties. A few years back I ended up with numerous homes from an investor who was locked up on some fraud charges and ended up losing dozens of homes.
So hopefully this episode has provided you with some ideas on what types of liens to look for if you seek to become the eventual owner of the property. Obviously, regardless if you’re investing to get the property or just for the return on your money, you want to make sure that the real estate backing that lien is going to be worthwhile based on your specific investment objectives and that’s the most important part of this business.
I truly hope that this episode has helped you out. If so, please take just a few seconds to leave us some positive feedback on whatever podcasting platform you’re listening to us on as it really makes quite a bit of difference for us.
And as always, if you’re interested in learning more about investing in tax lien and tax deeds, there are a bunch of incredibly helpful links in today’s show notes. Including one, which will take you to our primary website at taxsaleacademy.com where you can join the academy for our most comprehensive, step by step training.
Again, I truly hope that this episode and this entire podcast has made a positive impact in your tax sale business. Take care, bye bye.