..ever wondered how it's done? After weeks of research (initially I was just researching "Flipping" or buying foreclose houses, referbishing them, and then selling them for profit), I finally discovered how it's done (at least, in part).

(Please keep in mind that this varies from state to state. You should consult with the county tax commissions office for which your state capital city resides. However, most states work close to the same way.)

Around October of each year, property tax becomes due. Around the first of the next year, the tax becomes delinquent. Around May of that year, any unpaid taxes on property comes up for sale (most states have annual sales, however Georgia, for instance, has monthly sales). The bid for each property start in the amount of the delinquent tax plus any fees (administrative or otherwise) it may have incurred. The winner of each bid is given a TLC (Tax Lien Certificate) and is considered the primary and first lien on the property. The owner of the property then has a "Redemption Period" (6 months - 3 years) where they can repay the TLC holder exactly the amount paid for the certificate plus interest (5%-20% per annum depending on state law). If the "Redemption Period" lapses the TLC holder can exchange their certificate for a Tax Deed. The Tax Deed owner can then foreclose on the property and take ownership of it. Since Morgages and Liens follow the owner and not the property, the Tax Deed owner takes the land "Free and Clear" of any previous debt.

At this point you're thinking, okay, I can go pay $200 for a property and maybe get $220 back (most deliquent taxes are paid within the "redemption period"). A safe investment, but I have to wait possibly up to 3 years (which would actually be $260) to get it. Money now is worth more then money later.

HOWEVER
Every year, the State purchases Property Tax Deeds that went unsold from counties all across the state. These Deeds can be purchased from the state "over the counter" for the same price they paid for them (the delenquent tax amount plus any fees incured). Best of all, many of these deeds are from sales from well beyond the "redemption period." Which means instead of getting a TLC, you'll get an actual Deed to the property (Note: a deed will cost you about $5). Each state maintains thousands of these deeds state wide and the majority of them are from beyond the "redemption period."

How profitable can this type of investment be? I'll give you an example. I obtained a .pdf list for my county of all of the state owned deeds from the state website. On one property, the tax sale was conducted in 1985. The back tax amount due plus incurred fees was $135.95 (the tax doesn't keep rolling over each year once it's been purchased by the state). It was Assessed for $2620.00. When I went to the county commission office and gave them the parcel no. provided on the list, that parcel, which was a land deed, was appraised in 1984 for $5106.00. THAT'S A POTENTIAL PROFIT OF ~$4970.05! Maybe even more if you split the land up (it was 185 X 120 ft) and when you consider that the land has appreciated since then. Now, I will be real with you and tell you that that was a good find. There are more like that, but there are also other where the potential profit value from resale is much less. However, even in those cases, you're still looking at a minimum of 10x to 20x return on your investment if you sale cheap to get rid of it quickly.

At any rate, if anyone wants any specific pointers on where to go to get started, PM me. Don't waste your money on those infomercials, the information is out there for free on the interent, all you have to do is look hard enough. I do highly advise discussing your intentions to persue this type of investment with a Real Estate Lawyer before actually going out and doing it. You need to be well advised of the specific laws in your area that might prevent you from actually taking ownership of the property. Keep in mind that, even so, there might be special exemptions on some properties, so always research the properties you intend to purchase before you do so.

I'm planning to do such things once I get myself a little bit of money. Get my hands on some rental properties. Hold on to them and rent, or turn around and sell them so I can buy a house.

This might be a really good idea. Especially as I have a little money left just sitting around.

Where would one get a listing of these state owned deeds, is there a particular branch of state goverment that handles it?

Renting generally isn't as lucrative as most people would think, unless you have lots of properties in great shape, in which case you still have to watch who to rent to, or your property value can deteriorate from a tennant's lifestyle. And very quickly.

It works if you pay so little for the property, however. That way all the rent works for a postitive cash flow.

[QUOTE=West Wind]This might be a really good idea. Especially as I have a little money left just sitting around.

Where would one get a listing of these state owned deeds, is there a particular branch of state goverment that handles it?[/QUOTE]

The following link seems to be a pretty good place to start. It has several links compiled by state:

http://www.wowmh.com/index.cfm?page=mapsearch&state=AL

Generally you get the list from the state department of revenue property tax division.



Agreed, remember that "Money now is worth more then money later." You can turn a larger profit much faster selling them then renting them. Plus, you don't have to deal with as much hassle or paper work. A steady income sound "secure" but it's not nearly as lucritive. You can retire much faster on "flipping" then you can renting.

Case in point, just about an hour ago I noted a property with on $171.45 in back taxes due. The land and house together appraise for $57,225.00!

It'd be better if you could sit on the property for 20-30 years, then sell it and retire early. Property almost always increases in value.

[QUOTE=Dj Yoshi]It'd be better if you could sit on the property for 20-30 years, then sell it and retire early. Property almost always increases in value.[/QUOTE]

It depends. What if you sit on a property that gets hit by katrina? Think of how many properties you could flip in 20-30 years...

Hit by katrina doesn't mean anything in the long run. People will still come back wanting to rebuild. Besides, that's only in one region of the US that that could ever happen.

And in 20-30 years you'd be lucky to "flip" ten properties. Trust me, it's not as easy as you think. Unless you made it your job to do so, in which case you'd find yourself out of work fast.

It's not that hard because you can sell for below market value.

That rent money is taxed. You have property taxed. More than likely, as the land lord, you will be responsible for upkeep. You will be cheated.

Unless you own alot of property, its more hassle than its worth. You'd be better off aquiring cheap property, fixing it up, and selling it right then.

Then using that money to invest in something that isn't a pain in the ***.

Rent money isn't taxed right off the bat, and it's not taxed at the same rate as other income.

I feel that this sort of thing is my destiny as well. You can profit BIG TIME by buying foreclosures at the right time, and usually after some sort of cataclysmic financial disaster. (Remember the Savings and loan disaster of the late 1980s? You could have gotten those forclosed properties cheap through the RTC in the early 90s)

Right now, I'm establishing an income paper trail and building up my credit so I will be able to borrow enough money to buy property. By the end of this year I'll be ready to move on it if things go the way I want them to.

Bear in mind that the place has to be maintained. It has building codes it must abide by or else it can (and probably will) be condemned. If something goes wrong with something in the building, it's the landlord's financial responsibility to repair it.

I was just pointing out that its not FREE CASH LOL that you get to do whatever you want to with. Which most people that buy into these infocommercials seem to think it is.

Most of the time, things break down one at a time so there is little damage to your cashflow. The odds of everything breaking at once is extremely low in a typical situation, so I wouldn't sweat something like this. Even if something expensive breaks, you will have only a temporary setback in cashflow as you pay for it (you would still have your main job at this point. The more buildings you own, the more cashflow you have, and therefore the more costs you can absorb without damage) and you could always raise rent if you have to in order to compensate.

Tax is just a cost of doing business. Sure, you get taxed with real estate, but there is also a lot of write-off. The people who are really getting screwed are the W-2 employes b/c they have very few (if any) tax shelters and deductables.

Of course. I'd be comfortable doing a lot of the maintenance work on a rental, however, which would save a lot of money. Being able to doa lot of the little things saves a lot of money.

[QUOTE=Dj Yoshi]And in 20-30 years you'd be lucky to "flip" ten properties. Trust me, it's not as easy as you think. Unless you made it your job to do so, in which case you'd find yourself out of work fast.[/QUOTE]

As Avenger said, you sale the property for about 80% or less of market value. When you get down to 80% or less of market value you start attracting other investers and not just home buyers. There's also companies that purchase homes for cash such as local Real Estate companies...especially if it's undeveloped.

EDIT: Okay, I looked up BUY KWIK and apparently they don't actually purchase property. For a fee, however, they will market it for you...

In my county alone, I pulled 63 pages of listings. Every page has about 15 listings on it. Granted, not all of them are greater then the 3 year "redemption period", but about 70% or more of them are and another 10% will be in a year. AND THAT'S JUST IN MY COUNTY! There's no restriction on where I can purchase houses like this. I could do it in any county in any state. In my state alone, there are over 4000 listings at any given time (currently there's about 8500). The average cost per listing is $500. At these prices, I can take a few thousand I get from my tax return this year and purchase 10 houses AT ONE TIME. Then I could spend the rest of the year just flipping those 10 (but I'm sure I'll exaust those before the year is over).

I think the smartest thing I'm doing is that I'm starting an actual business. A Limited Liability Company (LLC). This will help to protect my personal assets and give me additional tax exemptions. At the rate I'll be flipping houses, I could retire in 10-15 years! Then I'll turn my company over to my kids. There's pratically an inexhustable source of tax delinquent deeds to purchase, so I don't think I'll have to worry about working myself out of business (that's why I didn't hesitate about posting this very useful information here at massassi).

At any rate, if anybody wants any advice, feel free to PM me.

So for those of us who don't know anything about real-estate and little about taxes and stuff in general (me), any links? This is something I was looking into not too long ago myself.

Screw selling it, I'll carve myself an empire...

How do you plan on paying the taxes on all of those properties...not to mention the utilities...



The link I provided above for West Wind should provide you the majority of the links to important issues for your state. Most of the infor you'll need will come directly from your County Tax/Revenue Commission office and your State Department of Revenue - Tax Division.

Watch your words, Bevvil, or you'll be an enemy of the state.

Nah, I plan on establishing a research, development, and manufacturing non-profit company funded by the Real Estate Business. It's goal will be to Research, Develop, and Manufacture a Droid Army. :em321: :p

Can't. There's a specific property law that says no property owned by a private individual or company may research, develop or manufacture a Droid Army.

I think it's so the federal government can hold a monopoly on the business.

http://www.creonline.com/

Lots of articles, some free, some not. Definitely a lot of stuff to learn.


i also recommend reading Building Wealth by Russ Whitney. The book was published some time ago, so a few ideas are dated, but the bulk of it is still good.

JACKPOT!

Tax Sale Year: 1997
Delinquint Tax: $842.77
Assessed Value: $15,700.00 (In 1997)

Assessed Value: $61,760.00 (In 2005)
Appraised VAlue: $308,877.00

Apparently someone either developed an Apartment Complex on the property since 1997 or it's just appreciated that much over 8 years (I need to research into it a little more). I guess it'll come as a shock to them when I lay down the $847.77 to get the Deed to the property and foreclose on it. Then again, that's what Insurance is for. Not my fault if someone fraudulently sold the property to someone else. Then again, it's not my fault if the person who purchased it didn't check to make sure the person who sold it held the Deed and that there were no taxes owed on it. Either way, they've been enjoying $0 tax since 1997. Must have been a nice little ride...oh well.

Sounds like you got a great deal (getting an apartment complex for $850 is AWESOME) , but be sure to have the building thoroughly inspected. If the previous owner didn't pay his taxes, then he probably didn't bother to do maintenance either.

At any rate, expect to have some repair work to do before you can tenant the place again.

Actually, I know the place. It's very nice with White columns typically found on large southern houses. Believe me though, I have no desire to use it as rental property. I'm going to flip it at a foreclosure. It'll take 6 to 8 weeks to get the deed by mail and then 30 days to foreclose on the property (I have to annouce it in the paper for 4 consecutive weeks). If it doesn't sell at the auction, I'll put it on the market. Worst case scenario, I'll walk away with no less then $100,000 within 3 months from now.

[NOTE: The cost of living where I am is extreamly low. Where as you'd be lucky to find a 2 bed room house in California for less then $150,000, here, you can find 2 bed room houses for under $15,000...just to put it in perspective for you guys.]

Not in this part of California.

I was basing that off of a show I saw on HTV about "Fliiping" houses. The house they were working on was a 2 bed room house for $150,000...and it needed quite a bit of work (~$30,000 worth). I'm sure it was probably just outside of LA or something. But at any rate, I was just give a comprehable difference. A distressed 2 bed room house in this area that's been foreclosed on ussually goes for about $5,000. A foreclosed 2 bed room home in good shape would go for about $15,000. A non foreclosed house in good condition could go for about $35,000. There's a lot of factors in that such as location and what not that attribute to the depreciation percentage.

Oh, I know. The Bay Area just has some of the most expensive real estate in the country.

$150k? More like $350K-$500K.


I estimate that our property here is overvalued by at least 40%. It's this damn housing bubble.

There have been two in the last ten years, and there was no real burst where the prices dropped.