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.
Today I want to talk about those worthless tax sale properties, because odds are that you’re going to come across them a time or two, OR plenty more through your tax sale career. So, let’s go over three examples, the reasons they exist AND how they should be approached from an investment standpoint.
Alright, so what am I referring to? There are plenty of properties that are worthless or hold very little value that will come up at tax sales.
A common one is a strip of land. And I’ve see these strips go on for 10,000 feet. That’s nearly two miles. Now, the width was just 6 feet. That’s a 1.37 acre parcel of land. But at 6 feet wide, it’s pretty useless. I did a case study a year or so back about a man who thought he was purchasing a townhouse that was worth upwards of $200,000. He paid $9,100 for it and assumed he scored an incredible deal. Unfortunately, it was just a 1 foot strip of land.
And this isn’t all that uncommon. When developers subdivision real estate, they generally want to try to use every square in possible in some sort of production way. But it’s not quite as easy as it might seem, especially many years ago when you didn’t have computer programs that would assist you. The result was that sometimes small pieces of land would get leftoff of all the other parcels only to later be found and taxed. That’s what happened in the case of the gentleman who thought he was purchasing the villa.
Other issues arise when the land wasn’t used as intended. For example, there might be a strip of land where I sidewalk was going to be built. It was never built and then ended up on the tax rolls. I’ve also seen this happen with lands used or intended to be used for easements. To bury something like power lines, for example, you don’t need much land. And there’s plenty of cases where the land was divided, an easement created and then never utilized, as the provider decided to bring the utilities in from another direction. This leftover easement is then eventually sold at auction. I’ve also seen alley ways that end up with the same issues – an alleyway owned by an association or under common ownership with the neighbors. It runs behind houses, but eventually stops being used and no one pays the taxes. Then it gets foreclosed and sold, even though it’s worthless.
So, how are these as investments? Generally, they’re pretty poor investments unless you have a very specific strategy. If you’re a neighbor to one of these piece, it might make a good investment so you can actually own the property next door – you might even be able to combine it with your land to increase the value of your property. If you’re the invesotr thinking of buying it and then trying to sell it to the neighbor – well, they probably already know it’s not buildable and will be happy that you pay the taxes for the land they garden on, park their cars on, or let their kids play on. Another option is to be very creative, but not vindictive. Here’s what I mean: If you buy something that people are using and have been using for years as, say an easement or walkway and you suddenly gate it off then you’ll be hated at best and end up in court at worst. BUT, I have personally purchased an easement before that attached to a parcelof land behind it. They were actually be sold as two separate parcels, although the strip of land was being sold first. I bought it since I was interested in the land it connected to. That land actually sold for more than I wanted to spend and the buyer then approached me with an offer to double my money simply so there wouldn’t be any major issues accessing his land. I doubled my money in a matter of minutes.
If you’re buying strips of land like we described, you must be extremely careful and extremely strategic.
On that same token let’s talk about the properties that are just too small to build. And we have two classifications of this. The first are the properties that are obviously too small. Maybe it’s not a strip of land like we just discussed, but its’ a 10×10 foot or 25×25 piece of land. Obviously not much room at all. The second type are the properties that are too small to build, per current county code. So, let’s say you have a 50×100 lot but the county code requires at least 7500 square feet to build, then that property would be unbuildable. Another way to look at it is through the required setbacks. So, a setback is the distance from the property line that a structure must be built. You usually have front, rear and back setbacks. So, for example if you have 20 foot setbacks on each side and a 50 foot lot, that means your house can only be 10 feet wide. Something like this, while perhaps not obviously too small, would indeed be too small to build. The reason for this is that most of these subdivisions were developed many years ago, prior to most regulations. In a lot of areas, instead of being grandfathered in, these lots just became unbuildable primarily because it was just not practical to grandfather them in. In fact, many times these lots were sold as recreation or camp site lots.
In some areas, there is actually some demand for these types of properties. While that 25 or 30’ lot might not be buildable, you might still be allowed to use it for an RV or even still as a campsite. I’ve bought and sold many of these over the years and through some creative marketing you can develop quite a list of potential buyers. Now, the paydays are pretty small in most cases – picking up a lot for $300 and selling for $800 is common in many of these areas, large percentage return but small dollar return. But nonetheless, you can still make money with the right approach.
Another option is to combine multiple lots so that the overall size does allow building. I discussed this a couple of weeks ago, but there is an area local where you need at least 75’ to build. The lots are only 50’ wide in this area. So I bought one lot from a private individual and another lot from the tax sale, I joined these lots together and will easily triple or quadruple my money simply by combining two unbuildable lots into one buildable lot. Again, it’s all about strategy and you must make sure you have a foolproof plan before simply going out and buying a bunch of small lots.
Alright, the last one that I want to discuss today is what I refer to as specific purpose land. This is land intended, zoned, classified, whatever you want to call it, for a very specific purpose. I saw a gentleman just last week purchased a lot in a built out subdivision. All of the lots in the subdivision are a quarter to a third large. This lot was 6 acres. He likely thought he got the rare large property in the subdivision when, in reality, he purchased land that was deemed conservation land. Conservation land is one I see routinely and most often indicates that the land can’t be improved or built upon. This is often done by developers in exchange for the county’s approval of their project. Other landowners do it for tax purposes, but at tax sales it’s commonly done to provide green space.
Another common one are park areas. This is land designed to have a park of some sort on it initially on it. Most of the time the park is never built, but I have actually seen a neighborhood playground sold at a tax sale before, so it does happen. Imagine being the guy that buys that only to drive by one day and realize all the neighborhood kids are playing on the large swingset located on the land you bought, but can’t use.
The issue with these types of properties is that they are often zoned or classified with the county as unbuildable. In other words, once they are given that conservation, greenspace, park or similar designation then it pretty much sticks. In order to get it changed you would have to petition the county or city. When it comes to that conservation area, it’s highly unlikely they’re going to make any changes in the use of it – that wouldn’t’ exactly look good for the county, especially when they’re elected officials. If it’s a community park, the same goes. And not only does it not look good for the county office or officials approving the change, but the process in most areas actually requires the county to notify all of the landowners within a set distance, such as 1000’ or ½ a mile. So when you’re petitioning the county to rip out the swingset so you flip the land, be prepared to have all of the angry area property owners there to contest your change to the zoning or land use.
So in this situation, it’s usually NOT worth the risk trying to make a property like this work. The issue is that you’re reliance on the county or city to change the zoning for you is the basis of your investment, and as mentioned, odds are, they probably won’t redesignate a property from a park or conservation areas simply because you asked.
As you can see there are plenty of worthless properties at tax sales. In some situations you can actually figure out some very creative ways to make money with them. In other situations, it’s nearly impossible to make money with them and extremely risky to try. My suggestion is to first make sure you are thoroughly researching your properties so that you know how to spot these worthless properties. Secondly, if you decide you want to make an attempt to turn them into cash somehow, develop a strategy pre purchase – never buy simply because they’re cheap. Then lastly, start small. Buy one or two, executre your strategy and then buy more. So, research, strategize and then test! And if all works out, by all means, go for it! As there shouldn’t be too much competition!
That’s it for today. Thanks so much for joining me. If this episode or any of our episodes have helped you out, please do me a huge favor and leave some positive feedback on whatever podcasting platform you’re listening to us on right now. It truly means quite a bit to us when we see those positive reviews.
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