Category: Tax Sale Real Estate

Tax Sale Property – By the Boatload

Tax Sale Property An Epidemic

When properties are taxed at outrageous rates, they can become worthless (even as a tax sale property) in a hurry!

Tax Sale Property - A Result of Chronic Property Tax Burden

When it becomes too much to bear -- most just walk away - and a tax sale soon follows.

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n a previous article, “Second Chance Tax Sales“, I briefly mentioned the irony of ANY property not selling at a county tax sale.

Any given property, you would think, should be taxed at some relatively small percentage of its actual market value each year. Voters in California pioneered the idea that homes should only be taxed at 1% of their value all the way back in 1978.

And Indiana recently passed a state constitutional amendment limited taxes on homestead properties to 1% of value or 2% for rentals. See the results for more information – it received over 78% approval by voters. Tax sale property should have been greatly reduced.

The Debate: What is an appropriate yearly tax burden to guarantee only a small percentage of value is owed at any tax sale: 1%? 5%? 10%?

Even if it were appropriate to tax a property at 10% of its value every year (preposterous in my opinion, by the way, and 10 times the rate of some areas), properties would have no more than 30-40% of their value accrued in taxes by the time a tax sale would be held.

In most states, much less would accrue before sale (most get the property to a sale before 3-4 years of delinquency piles up).

Even in today’s terrible market, investors line up to pay 30-40% of current market value for tax sale property sale. By definition, it’s “free money”.

Sure, some tax sale property is truly worthless, and yet might have to be assessed for SOMETHING. And so the county should eventually acquire those properties.

But many very useful properties are taxed the entire amount of their value in the span of just a few years are not worth what owed at the first tax sale held.

With over-taxation rampant, especially in low-income areas, this brings up a an interesting question:

Is it really possible to lose money on a properly-managed, free and clear tax sale property as a rental, where there is demand for rental housing?

One would hope that this couldn’t possibly be so, but unfortunately it is, at least for now.

The Sad Truth About Tax Sale Property Perpetuating Itself

Overtaxation is a vicious circle. Once taxes reach a point where cash flow cannot be obtained by renting free and clear properties, property values in that neighborhood get very close to zero.

A viable rental strategy can be to buy houses so cheap that they are disposable – in other words, you never pay the taxes on the property.

Rent it out unti it’s eventually becomes a tax sale property again. Between delays in holding tax sales, and waiting for subsequent “second chance” sales to be held, several years can go by where rent is collected. Yet with property taxes paid (the main expense in this property), and a tidy profit can be made.

This is also known as “milking the property”.

You can probably imagine the effects this kind of business model (which is forced upon landlords by overtaxation) can have on a city. See my recent post on Gary, Indiana.

Tax Sale Property Examples

Let’s look at some typical tax sale property in East Chicago, Indiana, or Gary, Indiana.

Both communities still have well-kept, though low-income, neighborhoods where rental demand is adequate.

Say you get your hands on a well-kept, clean property in Gary’s Horace Mann neighborhood for only $2000. It has a built-in renter getting 100% section 8 assistance. Sweet!

Section 8 pays $450 per month for the property, and the tenant is a pleasure. $5400 per year is direct-deposited into our account each and every month.

Just get some more tax sale property like this and we’ve doubled our social security benefits, right?

Let’s run the numbers:

1. Generally accepted operating expenses for property (includes vacancies and maintenance): 45% of income.

Never mind that in lower income examples, this figure is actually higher because renters are more transient (higher vacancies) and maintance is generally consistent on a property regardless of market value. Cost: $2430

2. Taxes: Taxes in Gary can run as high as $2000 for properties worth no more than $10,000 in reasonable, rentable shape. Cost: $2000 per year

3. Insurance: Insurance for properties in lower-income areas has exploded in cost the past few years. With the mortgage crisis, most low-income areas have a high number of vacant properties, and the opportunities for thugs to cause trouble (and insurance ) abound. Yearly insurance premium: $1000.

Rental income: $5400
Expenses: $5430
Profit: $30 loss for well-managed, free and clear property.

The Solution:

This setup leaves an attractive, high-profit option for the entreprenuer (but potentially devastating for the community)…become a slumlord!

Note that $3000 of the expenses shown here don’t NEED to be paid for a landlord to receive the rent.

So it’s possible to pay $2000 for this tax sale property at a second chance tax sale. You could then turn around and earn almost $3000 per year while paying no county property taxes or insurance. This wave could be ridden for for 4-5 years or more before the property is lost again.

I hope you find the numbers I presented here (and the effect they will have on overtaxed communities) as outrageous as I do. The solution is to spend less and/or obtain city/school revenues from some other source than property taxes. The market will severerly punish any jurisdiction that doesn’t heed this warning, tax sale or not!

Get all kinds of tax sale property with no bidding or waiting – get my “Underground Tax Sale Strategies” guide below.

Tax Sales – Essential for Every Community

Tax Sales are GOOD for the Community

Tax Sales are GOOD for the Community

Tax sales allow us to make our living – but they are also essential for every community’s health.

Each year, a certain number of properties “fall through the cracks” – the owner becomes unable or unwilling to do what’s necessary to keep their property maintained – financially for sure, and physically as well in most cases.

Perhaps the owner dies. Perhaps he or she moves out of the area and gets busy with a new life. Maybe an heir receives the property and that person just isn’t meant to own property.

Sometimes banks even start foreclosure proceedings against a property and never get around to finishing the foreclosure. Without a mechanism to clear out the dead wood in a community, we would find a growing number of “orphan” properties that would just sit and rot.

Tax Sales: Necessary Evil?

Many people think of tax sales as an evil – after all, poor innocent homeowners have their hard-earned homes “taken away”. Rarely is that the case.

Rather, tax sales are often the rain that washes clean the community each year.

The properties sold at the sale are usually purchased by investors who, in exchange for receiving a good price for the property, proceed to fix up the property and return it to life.

These properties then return to the tax roll, and reduce the amount of property tax burden that everyone else has to pay.

In fact, there can be disasterous results when a community holds off its tax sale for even one year – especially a community that’s already teetering on disaster.

This really makes our mission of contacting tax-delinquent owners not only a profitable, but NOBLE cause. The sooner we get these properties into the hands of a profit-minded individual (another investor usually) or a caring homeowner, the faster the community improves and recovers from the lost tax revenue that this delinquent owner causes.

When Tax Sales are Delayed

It would seem to be no big deal when tax sales are delayed for an extra year or two to “give homeowners more time”. But in reality, this is very harmful to the community, especially a low-income community. This extra time actually causes the tax burden on many properties to exceed their market value, especially if the properties are in run-down shape.

This means the properties will not be purchased at the next tax sale, and may remain off the tax rolls for years, or even forever! Properties laying around vacant are no good for the community or the county coffers.

By pursuing tax-delinquent and tax sale property before tax sales occur, you are helping to maintain your community that much faster.

Tax Deed Sale – It Can Happen to the Best of Us

Tax Deed Sale for Paul’s Property?

Bad things happen even to good people, including an unwelcome tax deed sale.

Take Paul Sosnowski of Bethel Island, California.

First, in 2008, a storm did almost $2 million worth of damage to improvements on Mr. Sosnowski’s property. Then, the real estate market crashed, leaving him with 62 lots, each complete with its own boat slip, and no buyers.

According to a Contra Cost Times article (http://www.contracostatimes.com/real-estate/ci_16535310?source=most_emailed&nclick_check=1), “Sosnowski found himself the No. 4 biggest defaulter in Contra Costa County on its Sept. 1 published list this year. According to the tax collector list, he owed $238,680 in property taxes on 15 defaulted properties.”
Unexpected tax deed sale owner

So here’s an apparently honest businessman who finds himself the 4th biggest tax defaulter in a California county. And owning many properties on the way to tax deed sale.

If this situation could happen to him, is it that hard to believe it can happen to a “regular Joe” property owner?

The answer isn’t to buy these defaulted properties at the tax deed sale. See why this doesn’t work in my article Tax Deed Sales – A Way to Get Cheap Property? Not Usually..

The best way? Approach the owner to buy the property. You’ll often find the owner has given up or just wants to get SOMETHING out of their property.

You can offer to cure the tax deed sale by paying off a relatively low amount of taxes. Or if you don’t have cash, you can keep the property out of the tax deed sale by flipping it to a buyer who DOES have cash.

If you read the article, you see that Paul has worked out a pay plan with the county, so he’s safe for now if he can keep the back payments coming in. A rare tax deed sale “happy ending” indeed.

A lot of others on the tax deed sale list WILL NOT have his resources (or resourcefulness) and will need your help to salvage something from their property. Discover alternative (and better) ways to profit from a tax deed sale below – with my Insider’s Guide.

Indiana Tax Sale

Indiana tax sale files bulge with unsold properties

The Indiana Tax Sale has become a mess from re-assessments and missed sales.

Indiana Tax Sale Gets ‘Out of Whack’

It seemed like a good idea back in 2002-2003: Replace the entire property tax system. That has put the Indiana tax sale in limbo right to this day.

Someday it will likely prove to be best in the long rung. But for now, there’s pain.

Before the Indiana tax sale system underwent change, taxes were assessed based on replacement value of a property. This was not a realistic figure in most cases.

Meanwhile most of America was on a true market/resale value system which is much more fair. So, Indiana set out to revalue all properties based on what they would sell for in the current market.

Every four years the properties would be “trended” to reflect new market values. At the time, values were thought to be only capable of rising further.

Assessments were ridiculously high on some properties, especially in blighted areas where assessments were sometimes 10-30 times true market value. Plus, the revaluing of properties took much longer than expected in most counties.

This resulted in delayed tax bills, and thus, delayed tax sales. Indiana tax sale dates were often canceled for several years while the mess sorted itself out.

In the meantime, properties that were barely worth 1-2 years’ worth of taxes in normal times, and usually sold at the Indiana tax sale, sat unsold.

They then accumulated 3-4 years worth of taxes during the confusion, making them worthless and completely unappealing to any tax sale buyers at the prices offered.

This phenomenon also had the unfortunate effect of placing the burden from the uncollected taxes on these properties onto the remaining homeowners and landlords in the area.

A typical result was that cities like Gary, Indiana had to raise their tax rates. So high in fact, that on many properties rents were barely able to cover the property taxes.

With annual market rents of $4000 – $5000 per year, taxes rose to in excess of $3000 per year. This made owning even a free-and-clear property in clean rentable condition, hard to profit from. Therefore nearly all properties of this type that were offered at the Indiana tax sale went unsold.

And, a vicious cycle of increasing abandoned properties and taxes on those properties that remained, continued.

Now that 2010 is here, trending (an attempt to again revalue properties) was once again completed late. It’s caused many counties to have 2-4 years worth of accumlulated tax-delinquent properties on their sales that formerly sold at the Indiana tax sale.

This won’t change the fact that many properties on this sale will now be worth less than the minimum amount owed. But consider the opportunity this will afford to us when we contact owners of mid-value properties ($20,000 – $100,000) offering to purchase.

Redeeming one year’s worth of taxes plus interest is often hard enough for these delinquent owners. The Indiana tax sale is unforgiving – no extensions.

But it’s even harder now – redeeming 4 years’ worth of taxes and interest will be nearly impossible for most. Required tax redemption amounts of $10,000 – $15,000 will be commonplace. Yet owners will still have some equity above and beyond this amount.

Smart tax sale investors at Indiana tax sales will be skipping the sale this year, and dealing with owners of properties in the mid-value range.

These properties will still likely have had tax liens sold against them this year. So get our early and approach the Indiana tax sale from another persective – using what you discover in my free “Underground Tax Sale Strategies” report.