Transcript:
Hey there, it’s Casey Denman with Tax Sale academy and welcome to this week’s quick tip segment. Before we get to this week’s tip, I do want to remind you that if you are interested in learning more about investing in tax defaulted real estate to go ahead and hit that subscribe button so you don’t miss out on future training videos.
This week I want to discuss property classifications. In some areas, these property classification codes can almost be called the cheat codes to tax sale research because they can tell us so much. Now, there are a number of categories, subcategories and different ways that different areas refer to classifications. Since every area is a little different, let me try to get everyone on the same page here: I’m talking about the way that the county has classified a property. It could be called the classification, the land use code, it could be zoning, could be referred to as usage – essentially it’s just a tag that is applied to the property by the county.
And it’s an extremely important tag. It is the very thing that determines what you can do with a property. That’s right, a simple, sometimes 2-digit code is the determining factor to look for when you’re researching a property. And as a result, it’s a huge determining factor as to the value of the property you’re researching. The real estate appraisal institute lists 274 different property use classifications. This means that there are 274 different ways to classify the use of a property, at least according to them. Now, in some areas, often very rural non developed areas there are no restrictions on anything. But most areas do have some sort of restrictions and property classifications.
I highly, highly suggest getting a copy of the property classification codes used in your area and studying them. You should know them by heart – they’re such a HUGE tool so take the time to call your county or visit their website and track these codes down. Once you understand the codes, learn to spot them. Oftentimes, they’ll be included in the property assessor’s report of the property.
Let’s look at a few examples of why this is important:
You’re researching a property. It has road frontage and appears to be the last large piece of land in the area. It’s a 20 acre lot, when everything else around it has been broken down into ¼ acre subdivision lots. You think you’ve found a gold mine. And . . . many people would buy that property. But, pay close attention to that property classification. A piece of property that large in the middle of platted areas should be a red flag. Because a lot of time it will have a classification that does NOT allow any sort of future development on that property. It’s what is called a green space. Many times a county or city will allow a developer to subdivide a property if they leave some sort of buffer or green space as conservation land that is never to be developed. And a lot of times this land is taxed, but since it’s worthless, the taxes aren’t paid. And then it’s sold at a tax sale to an uneducated buyer who later realizes he or she has wasted their money. And it’s important to note that these can also be referred to as parks, open spaces or preservation areas or other similar names.
Let’s go over a few other examples that can be helpful:
How about a classification of a wetland area? Marshes, swamps, that kind of thing. The county slaps the wetland tag on them so they easily know the properties shouldn’t be valued very high for tax assessment purposes and as a way for the building department to take note should someone attempt to build on them.
Another classification that some areas use is for landlocked properties. Again, these codes prevent the tax assessor from overvaluing the properties. And it’s certainly helpful to use to know when a property is landlocked of course.
I’ve seen some codes before that are simply labeled unbuildable. Straight and to the point and again, helpful to know.
Some of the other codes I’ve seen are ones that should get you to think. An obvious one to avoid might be a code for a property that is contaminated or was previously contaminated. We avoid these property types for obvious reasons.
I’ve also seen codes for auto repair, paint shop, factory . . . that kind of thing. It might not seem like a big deal when we first see it, especially if it’s vacant, but we have to remember that there is a reason for this designation. While you might have a basic residential or commercial designation from the county, something as specific as paint shop would have likely required a land use change process approved by the county. The only person wanting to do that is going to be someone opening up a paint shop. And paint shops are notorious for contaminated soil issues, at least until the last decade or two. So even though it’s vacant, if a property is designated factory, chemical, paint or anything like that, it does not mean that the soil isn’t contaminated. Again, that’s a red flag to avoid.
Another example could be an incorrect classification. Something zoned residential in a business area or vice versa. And I’ve seen this countless times and it’s often the reason the property was tax foreclosure originally. Some properties are just classified incorrectly – you don’t want to build a house in the middle of a commcerical district and you don’t want to put your business in the middle of a residential district. And often times, the properties aren’t worth enough to go through attorneys and attempt to get them reclassified. So in the end, you have properties with classifications that make them worthless.
So, as you research your properties be sure you know what the classifications are in your area and then know how to find those classifications on the properties you’re researching. When used correctly, they really can be a huge help to us as tax sale investors as a way to avoid properties we should be investing in.
That’s it for this week’s tax sale tip. I truly hope that this has helped you out. If so, please do me a huge favor and click on that like button and don’t forget to subscribe to our channel right here on YouTube.
And for more information on how we can help YOU in your quest for tax sale success, just take a look at the links in today’s video description including one to our primary site at TaxSaleAcademy.com. Take care folks, bye bye.