TaxSaleLists.com Blog

ONE out of every TWO Americans are owed money!

In this post we want to discuss an interesting niche in the tax sale industry that we have discussed briefly before, but one to discuss in more detail due to it's amazing income potential.

As we have mentioned before, there are several ways to participate in the benefits of tax sales without actually attending a tax sale. There are a lot of people, because of their work schedules, lack of time, ability to travel or the lack of capital, who may not be able to attend tax sales. If you fall into one of those categories; you will definitely want to pay close attention to this strategy. 

During John’s active involvement in tax sales he became very familiar with the unique laws and statutes in many states as to the selling of tax liens, he became aware of a potential opportunity to create a win/win income generating money for property owners as well as him.

Specifically, we are referring a strategy we call overbid refunds or fast cash.

SO HOW DOES IT WORK?

Like tax sales there are a variety of approaches you can focus on in this strategy. A simple example is that over $38,000,000,000 is owed in the United States to people like you and me. Most of this money will go uncollected, simply because people do not know it is out there. There is a good chance that you, or one of your family members is due some of this $38 billion. You can make money, simply by collecting the funds owed to you, or you can collect the money for others, for a finders fee. It is simple and easy and we can show you exactly how to do it.

Another example we have discussed before is tied to tax lien sales, however this strategy can be applied to tax deed sales as well. There are several states that sell tax liens in a bid up process know as a Premium Bid. This is where the face value of the lien is bid up and won by the highest bidder. On quality properties, it’s not uncommon to have these liens bid up to 50% or more of the property value. In other words, if there were a $100,000 property that had $2,000 in delinquent taxes, it is very possible for that lien to sell for $50,000, especially if there is interest paid on the over bid or premium amount.

 This type of over bid includes states such as Indiana, South Carolina and Alabama. Let’s assume our example above took place in Indiana. This is a very common occurrence in Indiana because an attractive interest rate is paid on the overbid amount. We all know what happens if the lien is redeemed – the lien holder gets their principal back with a handsome return (they would receive the amount they bid, $50,000, plus interest on the $50,000). In this case, let’s assume that the property does not redeem –what happens to the $48,000 that was bid above and beyond the original tax amount? If the delinquent owner loses the property (and only if he/she loses the property) then the delinquent property owner is entitled to the $48,000. The county get to keep the over bid if it is not claimed by the delinquent property owner.

 This creates a classic example of a conflict of interest – the county certainly would like to keep it but the laws dictate that the over bid amount must be returned to the original property owner.

 At least in theory, the money should be returned, but how often does it really happen?

The fact of the matter is, in Indiana, the property owner has two years to claim the overbid funds. The way the property owner learns about his right to claim those funds is by having the county notify him. This presents another interesting conflict of interest. The county stands to benefit if the money is not claimed – they get to keep it. Nevertheless, they are supposed to notify the property owner that he has a right to claim the over bid funds. The sum total of what most counties do to notify the previous property owner of their right to the money is to send a first class letter to the address where they used to live (but no longer live). Many previous property owners do not leave forwarding address and in almost all cases they are unaware they are entitled to the money. Is it, really any wonder why so many of these individuals never make any attempt to recover what is owed to them? They never received any notice that they are owed money. This is where you come in and help them and make yourself so money as well.

BIG PROFITS IN ARIZONA

Arizona is one of the favorite states of tax lien investors. There are a number of reasons for this. Probably the major reason is the large number of liens offered. With only a few number of counties compared to most states, the Arizona counties have very large sale lists. Maricopa County (the Phoenix area) has well over 20,000 parcels in their sale.

Interest Rate: The state offers a potential rate that is attractive, being 16% per year, or more accurately, 1.333% per month, paid for any part of the month the lien is outstanding. The actual returns earned are quite a bit lower, averaging just below 11.00% for the past couple of years (see statistical averages in appendix).

Warnings: There are a couple of things we typically caution investors about Arizona Sales.

1. There are a number of liens offered for sale each year that are vacant, unimproved parcels that consist of little more than cactus and Gila monsters, with no roads or utilities.

2. There are also some liens and easements that are not extinguished by a tax lien going to deed. Specifically:

• The sale of a real property tax lien does not extinguish any easement on or appurtenant to the property.
• The sale of a real property tax lien does not extinguish any lien for an assessment levied pursuant to title 48, chapter 4, 6 or 14, or section 9-276.

 3. The auctions take a number of days in the larger counties and attract anywhere from 30 to 250 bidders. The larger institutional bidders are fairly well represented and fairly aggressive in their bidding.

The bidding method: The bidding method in Arizona is the rate bid down method starting at 16% and bidding down in 1% increments at most auctions

Redemption Rates: Based on the statistical report in the Appendix, the redemption rate after five years is approximately 93% on all liens sold. It can be assumed that the redemption rate on improved properties is substantially higher and the redemption rate on unimproved properties is substantially lower.

Due Diligence: Having either bid in the Arizona sales or prepared due diligence for bidders in the Arizona sales for a number of years I cannot over emphasize the need for good due diligence. The lists published by the most of the counties have no physical addresses for the properties, so it is necessary to get the situs addresses and determine location of the properties. Each of the cities, like all cities, have undesirable areas that you may want to avoid. The reason I say may, is that I have found that good properties in bad areas are not necessarily a bad investment. Again, I strongly suggest that you attempt to look at as many properties as you can. If you follow the due diligence process that we suggest in our training manual you will avoid most mistakes.

Assignment Purchases: Arizona does have assignment purchases, sometimes known as “over the counter” purchases. These are liens that did not sell in the regular sale and are available for any purchaser approximately three weeks after the sale. A couple of notes of caution. They did not sell in the auction for a reason. The reason was not, and is not, that there were not enough buyers at the sale. The reason they did not sell, in most cases, is that nobody wanted them. A second not of caution is that the first day that assignment purchases are available there is a line around the block in Maricopa county of people who want to buy what is left. All I am trying to say is that you should be very careful of your when you are doing assignment purchases and make sure that you know what you are buying. I would never do an assignment purchase without personally seeing the property.

Subsequent Taxes: Subsequent taxes are fairly important in Arizona. If you do not pay the subsequent taxes (the taxes due after you have purchased the lien) they will be offered in the next sale and you may lose your position in the lien. The new buyer has the right to redeem you out. This may not be a bad situation if you have made a mistake and want out, but it will end any chance of getting the property. Keep in mind that paying the subsequent taxes will entail increasing your investment in the property three fold over the next three years.

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If you would like more information about the upcoming Arizona Tax Sales

CLICK HERE to receive our Arizona Whitepaper.

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Tax Liens vs Tax Deeds: A Profit Analysis

Tax Liens & Tax Deeds can both be very profitable to investors. In this blog we are going to compare the real cost of purchasing a tax lien versus a tax deed, as well as the potential profits. But first we will review what a tax lien and tax deed is:

• Tax Lien Review:

 A. Tax Lien: A lien on real estate in favor of a state or local government which may be foreclosed for nonpayment of taxes. A tax lien can be imposed by the state, county, city or town, water district, school district, port authority or district, park district, sewer district, hospital district or any other entity of government authorized by statute to levy taxes or special assessments.

B. Tax Lien Sale: A tax lien sale does not give the lien buyer ownership of the property. It gives the buyer a claim for money that is superior to almost all other liens, including mortgages and is secured by the real estate. If this claim for money is not satisfied the lien holder can apply for and receive the property, subject to the conditions set by the statutes for the jurisdiction. Approximate redemption rate for residential properties is somewhat above 90% in most jurisdictions.

• Tax Deed Review: 

 A. Tax Deed:  A tax deed sale give the buyer immediate ownership of the property. This ownership often requires the filing of a quiet title action to have marketable title but it is not subject to redemption by the delinquent tax payer.

B. Tax Deed Sale: Tax sales where the property is sold outright.

Now let’s compare the costs of buying a Tax Lien verse a Tax Deed. The numbers below are based on averages, since every state has different fees that apply.

Tax Lien example:

Lien Cost $1,592.61

Redemption: 2 years

Market Value: $100,000

 

Cost of Tax Lien until Acquiring Property (including “fixing up” costs):

1. Initial purchase of Lien                                                                             $1,592.61
2. Subsequent taxes at end of year one                                                      $1,592.61
3. Subsequent taxes at end of redemption period (year two)                      $1,592.61
4. Title search (done after lien acquired and after year one)                        $     85.00
5. Noticing of parties in interest (from title search) 9 at $25.00 ea.              $   225.00
6. Legal expense to get the property (varies by state) – est. avg            $3,500.00
7. Average cost to fix up (paint, carpet, etc.)                                             $3,000.00

Total costs to acquire and fix up property with tax lien acquisition                $11,587.83

If you sell the property (quick sale) for 70% of market value with a quit claim deed for $70,000.00 your net profit would be $58,412.17 or a return of investment ( 2.5 year holding period) is 201.63% per year.

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Cost of Tax Deed Acquisition:

Tax Deed example:

Winning Bid: $70,000

Redemption: None

Market Value: $100,000

1. Initial purchase of Tax Deed Property at 70% of Market Value                  $70,000.00
2. Average cost to fix up (paint, carpet, etc.)                                                   $3,000.00

Total costs to acquire property with tax Deed acquisition                                 $73,000.00

If you were to sell the property at 100% of market value through a realtor your net profit would look like this:

Sell property at 100% of market value through realtor                                       $100,000.00

Less realtor commission (6%)                                                                              $6,000.00

Net profit                                                                                                              $21,000.00

Return on investment (6 month holding period) per year                                 57.53% 

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Comparison of Lien vs Deed : Using favorable assumptions on behalf of the tax deed investment the tax lien investment is still four times more profitable

                                        Tax Lien Investment                                   Tax Deed Investment

1. Cost of Property          $11,587.83                                               $73,000.00
2. Realtor Commission        n/a                                                         $6,000.00
3. Proceeds of Sale          $70,000.00                                               $6,000.00
4. Net Profit                     $58,412.17                                              $21,000.00
5. ROI                               201.63%                                                  57.53%

 

 

 

CLICK HERE to watch John Lane's video on the profit analysis of purchasing tax liens vs tax deeds.

South Carolina Tax Sales….Big Potential

The possibility of a 36% return on your investment is why South Carolina is such a great Tax Sale for investors.  The state also offers one of the shorter redemption periods in the country. The Tax Lien Sales are coming up in the fall, so now is the time to start preparing.

Why We Like South Carolina Tax Sales:

South Carolina is a Tax Lien state which holds their sales annually in the fall. They offer a one year redemption periods. It is a popular state for tax lien buyers for several reasons.

One is the rate. Although not one of the highest rates, it’s nature is such that it should usually provide a return on investment greater than 12% and could return as much as a 36% ROI if the lien redeems in the first month. The return for redemption at the end of each month of the one year redemption period is as follows:

1. Month one 36.00%
2. Month two 18.00%
3. Month three 12.00%
4. Month four 18.00%
5. Month five 14.40%
6. Month six 12.00%
7. Month seven 15.39%
8. Month eight 13.50%
9. Month nine 12.00%
10. Month ten 14.40%
11. Month eleven 13.08%
12. Month twelve 12.00%

Another nice aspect of South Carolina is that the County does most of the work for you in that they do the noticing. You will find a large number of mobile homes on the South Carolina tax sales. You are entitled to collect rent from the owners of mobile homes in addition to interest. Just remember that first word, “mobile”. They can and do disappear.

South Carolina Bidding Methods: The bidding method is the highest and best bid, meaning that the lien is sold to the individual willing to pay the most for the property. The full interest is earned on the full amount of the bid, including surplus or overbid, and the surplus or overbid is returned to the lien buyer upon redemption. There is an exception to this in that the interest you earn cannot exceed the amount the Forfeited Land Commission would bid for the property. This means that you can bid 8.33 times the amount of taxes and make the full return on your investment. Any bid above that amount will reduce your return.

Importance of Due Diligence: As in all states, I cannot over emphasize the need for good due diligence. The lists published by the most of the counties have no physical addresses for the properties, so it is necessary to get the situs addresses and determine location of the properties. Each of the cities, like all cities, have undesirable areas that you may want to avoid. The reason I say may, is that I have found that good properties in bad areas are not necessarily a bad investment. Again, I strongly suggest that you attempt to look at as many properties as you can. If you follow the due diligence process that we suggest in our training manual you should avoid most mistakes.

If you would like more information about the upcoming South Carolina Tax Sales, click here and download our whitepaper on South Carolina.

 

Due Diligence For Tax Sales - Expert's Best Practices

This one is worth repeating. If you know anything about John Lane & TaxSaleLists.com you know how important the due diligence process is! How do you determine which properties to bid on at a government tax sale? The answer is simple, you need to do your homework, or as we call the process due diligence. Due diligence is at the heart of making profits from tax sales. While we spend a significant part of our complete success training program discussing due diligence, we wanted to give you a brief overview.

 The process of due diligence is not complicated and we will break it down into three easy  main steps to help you succeed:

1.       Get the list of properties: There are a variety of sources you can use to get this information:

• Call the taxing jurisdiction: Sometimes the local jurisdiction will provide you with a list (however not all will, but if they do this would be your cheapest means of getting the information).
• The local newspaper: Counties are required by law to publish the tax sale list information. That does not mean it is be easy to locate. The other issue with using the lists from newsprint is they are very difficult to manipulate.
• TaxSaleLists.com or another list source that will provide the list in Excel: We provide over 10,000 lists across the country in an excel spreadsheet which can be easily manipulated and sorted based on your specific criteria. Frankly it saves you a lot of time.

 2.       Eliminate the properties you are not interested in – you do not want to spend time on anything you have no interest in.

• Property Type: Remove all the property types you are NOT interested in (ie, land, commercial, multi-use, single family).
• Lien Amount: Remove all the property lien values that do not meet your capital or financial requirements.
• Lien to value ratio: If you have the assessed values of the properties, you can determine the lien to assessed value percentage and remove any properties that are outside of your specific criteria.
• Improved to total value ratio: Similar to above, you would focus on the percentage of improved value to total value.
• Your own criteria: Anything you are specifically interested in – zip codes, areas, towns, etc…

3.  Get the information you need on the properties you are interested in. There are a variety of ways to do this:

• Assessor’s office (or web site):  They will provide detailed information about each property. It is the one good source for this kind of information within each jurisdiction. If they provide a website you can do this online from your house.
• Commercial programs: Lexus nexus, First America Real Estate Services, Data Quick. These services will cost you, and are not necessary (since the assessor’s office will provide the information you need), however if you can afford it, they will save you the time.
• Eyeball the property: In person, online or through a third party. You DO NOT need to view properties in person. There are a number of great ways to view properties and neighborhoods online.
• Rate the properties: We discuss a rating system in our training program, however this can be anything type of system you establish based on your interest.

Indiana Tax Sales - Great Place to Invest

Penalties, Interest Rates and What They Really Mean to Investors

We will wrap up our discussion on bidding strategies with a final review of interest, penalties and what you really earn at as a tax sale investor.

As many of you now John has been a bond trader for about 15 years making him more comfortable in this area than most, but it can even confuse him at times. So what exactly is the difference between a 10% penalty rate and a 10% interest rate? Indiana is a good place to show this (click here to review Indiana laws). A 10% interest rate earns 27.3 cents a day on a $1,000.00, whereas a 10% penalty is $100.00 on day one and is still a $100.00 on day 365. A 10% penalty earned on day 30 is a 121% annual interest rate.

Most states simplify things by staing that their interest rate is x percent per month or any part thereof. What that means is that you earn the full months interest if the lien redeems on the 1^st of the month or if it redeems on the 31^st of the month. Let’s give you an example of what this means:

Assuming our $1,000.00 lien has a 1.5% monthly interest rate and the lien redeems on the 1^st of the 10^th month. The total earning would be: $15.00 X 10 or $150.00 in 271 days (for this example I have assumed each month has 30 days). This is an annual interest rate of 20.20% instead of the 1 .5% or 18% annual rate that you might think.

The reason that I go into this is that you want to determine, before the auction, exactly how the county or taxing jurisdiction calculates the interest or penalty charges. I have found that oftentimes they state an interest rate, however it really is a penalty (South Carolina is an example). In addition, there are a number of states that have laws where the lien buyer receives a penalty and an interest rate. New Jersey has a penalty system based on lien size that is in addition to the rate bid at the auction. Florida has a penalty that is received if it amounts to more than the interest rate. Knowing the exact way that the penalties and/or interest is calculated allows you to make an informed decision on what you want to bid.

The Mystery of Missouri Tax Sales

The upcoming tax sales in Missouri are on one the most overlooked sales in the country by the lien buying public.

We believe this is due to a huge misconception that only state residences of Missouri can bid in the sale. This is not true; however this urban legend has resulted in making Missouri much less competitive than other states. We view this as a great opportunity.

The Show Me State Details:

• Missouri Tax Sales take place each year in August. 

 

• St. Louis City and Kansas City do not hold lien sales – they hold deed sales, the rest of the state holds liens sales.

 

• Missouri actually offers THREE different sales – the “regular” sale, a second offering sales and a third offering sale. 

 

• The redemption period in Missouri is 2 years, however lien buyers entitled to possession after one year can collect rent. 

 

• The bidding method in Missouri is the highest and best bid, meaning that the lien is sold to the individual willing to pay the most for the property.  

 

• Full interest is earned on the full amount of the bid (including surplus and overbid).

 

Importance of Due-Dillegence:

As in all states, I cannot over emphasize the need for good due diligence. The lists published by most of the counties have no physical addresses for the properties, so it is necessary to get the situs addresses and determine location of the properties. Each of the cities, like all cities, have undesirable areas that you may want to avoid. The reason I say may, is that I have found that good properties in bad areas are not necessarily a bad investment.

If you would like more information about the Missouri tax sales work, click here and download our white paper on Missouri.

Tax Sale Bidding Methods - Premium Biding (Interest on Premium)

We will continue on the topic of tax sale bidding methods again this week. Today we will focus on what we call the premium bid – with interest on the premium. There are a number of states, Alabama, Indiana, South Carolina, Missouri, Georgia, Tennessee and Texas to name a few where the lien is sold to the highest bidder. In all of these states the premium or overbid (that amount above the taxes and penalties owed and the winning bid) earns interest. The amount of interest that is earned depends on the state.

In a number of the states the overbid earns the same rate as the taxes and penalties. In Indiana, the overbid earns 10% simple interest while the taxes and penalties earn either a 10% or 15% penalty, depending on the time frame. These states make a great place to invest if you have a lot of money to put to work, because a property that has a $1,000.00 delinquent tax bill could have the lien sell for $50,000 or $60,000. Because of this you will find that all the institutional investors will be at these sales.

The major risk of these sales is getting wrapped up in the emotions of the moment and paying too much for a property. If you approach market value levels for the property with your bid, you are running the risk that you will end up owning the property rather than making a return on your capital. We know of a number of instances in Indiana (some of which John suffered) where the property owner used the tax lien sale as a method of selling his house for more than it was worth.

Indiana probably has the most complex of these systems so let’s use it as an example to compute our return.

Let’s assume – We bid a $25,000.00 overbid on a tax lien in Indiana that has a $1,000 in taxes, costs and penalties outstanding.

   1. Under the Indiana law you earn a 10% penalty if the property owner redeems any time within six months. You earn 10% simple interest on the overbid.

   2. Assuming the lien redeemed in 90 days the numbers would be as follows:

Penalty $100.00, Interest on overbid $625.00 for a total of $725.00 earned in 90 days. That works out to a return of 11.30% (725.00/90 X 365 = 2,940.27 which is 11.30% on an investment of $26,000.00.

Now let’s assume the lien redeemed in six months-

   1. Penalty is still $100.00

   2. Interest owed on the overbid is now $1,250.00

   3. Total of $1,350.00 earned in 180 days.

That works out to 10.52% ($1,350 / 180 X 365 = $2,737.50 which is a return of 10.52%).

Now for an interesting little quirk – In Indiana the penalty goes to 15% in six months and a day so if the same lien redeemed the next day the total earnings would be: Penalty $150.00, interest on the overbid is now $1,256.94 for a total of $1,406.94 or a return of 10.91%. As the song says “What a difference a day makes!”

The South Carolina System:

South Carolina enacted in 2000 a change to their law which you must be aware of. What this change amounts to is a cap on the interest that can be earned on the overbid. This change limits the amount of interest on the lien to the total amount of taxes, interest and penalties, including costs that are owed at the time of the sale. In simple language, if the total amount owed at time of sale is $1,000 then the most interest that can be earned is an additional $1,000.00. Now the interest earned on the basic lien without a premium is 3% for any redemption within 90 days, 6% for redemptions made between 91 and 180 days, 9% for redemptions made between 181 and 270 days, and 12% for redemptions made between 271 days and the end of the redemption period.

For our standard $1,000.00 lien that means $30.00 dollars in the first 90 days, $60 dollars for the next 90 days, $90.00 for the next 90 days and $120 for the last 90 days. This means the rest of your overbid can only earn $970 in the first 90 days, $940 in the next 90 days, $910 for the next 90 days and $880 for the last 90 days. Assuming that you want a 12% return on your overbid for 12 months, your overbid on the $1,000 lien cannot exceed $7,333.33. This calculation must be kept in mind when preparing your bid amount.

Tax Sale Bidding Methods - Premium Bid - Premium Back (no interest)

We will continue discussing tax sale bidding methods this week. Today we will focus on what we call the premium bid – premium back, but no interest on the premium.

 This system occurs in a number of states and has certain characteristics of the previous strategy we discussed (premium bid – premium lost) – the major difference is that in this system if you buy a lien and it redeems you will make a profit – it just might not be a big one. Here is how it works.

- Let’s assume we have our lien that is $1,000.00

- Let’s assume the interest rate on the lien is 14.00%.

- You bid a $25.00 premium

- The lien redeems in 4 months.

- $1,000.00 X 14% /12 months X 4 months = $46.67.

But since you paid a $25.00 premium you get back $1,000.00 + $25.00 premium + $46.67 interest or a total of $1,071.67 on an investment of $1,025.00.

What is the return? The answer is: $46.67 / 4 months X 12 months / $1025.00 paid = 13.65%.

Not too bad, but what happens if we increase the premium bid to $250.00?

The answer changes to: $1,000.00 X 14% / 12 months X 4 months = $46.67 plus $1,250.00 we paid for the lien or a total return of $1,296.67 on an investment of $1,250.00.

This works out to a return of: $46.67 / 4 months X 12 months / $1,250.00 = 11.20%.

To continue this example, with a $500.00 premium the rate drops to 9.33%.

The point of this is to illustrate that your rate of return will change substantially with the level of the premium you bid, even though you are getting the premium back.

John suggestions in sales of this type is that you should determine the minimum return you are willing to accept on a property (or a type of property) and calculate the maximum premium you can bid to acquire that return on each property you are going to bid on.

The formula for doing this is (lien amount X statutory rate / by acceptable return on investment = maximum bid – lien amount = maximum