Improving the balance sheet of Tax Deed investor

pic12So you’ve been successful in bidding for a tax-deed and now are the proud owner of an asset that cost you less than you expect it to be worth.  If you have any doubts about the future value of the asset being higher than the cost to you, you shouldn’t be investing in tax deeds in the first place.

Assuming you are performing appropriate due diligence, you will have a grasp on the physical condition of the property (your asset) and its occupancy status.  So you will have budgeted for your post-acquisition costs to either resale or let the asset and have an expectation of realizing more in income than the costs – this is your return on investment.

But until the title has been cleared of the clouds that the tax-deed due process inevitably creates, your asset is only worth your costs.  Your investment balance sheet has zero worth.  Indeed, until you know the title is clear, the asset value is probably less than the total of cash you have spent on it.

Pro-actively clearing the title on your tax deed assets directly after acquisition means you can be sure of the future value, and your return.  In this situation your investment balance sheet is in profit by the margin between the costs of acquisition and rehab, and the value to be realized at sale.

By improving your balance sheet position, you also open the possibility to leverage your assets by borrowing against them and using those borrowed funds to buy more property.

Thinking about your tax deed assets in terms of your balance sheet is a great way to be clear on your investment gains and losses.  Don’t wait until you come to sell an asset to know that it will give you a return on your investment, or leave you with a loss.

November 20, 2014

Posted In: Tax-Deed


What chance for real tax-lien reform?

pic51With control of both houses effectively in the hands of the Republicans, cleartosell.com looked for signs of an appetite for reform to the 100+-year old principles behind tax liens and the foreclosure that can follow.

There is little clarity on any tax reforms that the Republicans plan beyond wanting people to keep more of what they earn whilst recognizing the deficits that need to be met by taxation income. So it looks like a continuance of the dilemma of modern politics.

Although you would think that a Republican controlled legislature would move to streamline the real property tax collection process, we are mindful of the Democratic controlled White House. Even if there is a change of control of the White House in two years, we discovered a couple of instances of blustering over the morality of the tax lien laws that may impact any real change:

Firstly, just over a year ago, The Washington Post reported on changes that Democratic Mayor Vincent C. Gray had made to the tax lien process to protect people from loosing their homes over trivial tax debts. The changes did not reduce the liability of the homeowner to pay the back taxes and additions, but it did remove the opportunity for investors to take ownership.

And secondly, in 2012 The American Bar Association published, through its BiFocal Journal gave a damning account of how seniors and the disabled are at unacceptable risk of loosing their homes through tax deed foreclosure.

From what we can see, these are isolated protests that are not indicative of change that would negatively affect investors. But the early stages of a moral revolt against the tax lien system cannot be denied.

So for now, we can conclude that the landscape for tax liens and foreclosure will remain without change, but we will keep watching and report any proposals we find.

November 14, 2014

Posted In: Tax


Reducing the risks of tax-deed investing.

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The concept of Try Before You Buy works when you are purchasing a new car or some furniture.  But it has always been difficult to put into practice when you are buying property.  You can visit a house and walk around it to get a sense of the suitability of its size, layout, condition and location, but you don’t really know what it is like until you own it.

When buying a home to live in, emotional factors can equal the hard facts in deciding on which property to buy.  For tax-deed investors, there is no room for emotion.  It is all about the facts of the property on which you intend to bid.

Due diligence is conducted by tax-deed investors in three different ways.

The professional investor – This group will have developed their own systemized approach to gathering data on the properties at auction involving online and on-the-ground research into location, condition, prevailing sales and rental markets and recent transaction evidence.

The regular investor – Here is a group that are no less concerned with the facts than a professional investor, but which lacks the time to conduct all the due diligence themselves and may well out-source the gathering of data to a company that specializes in distressed property appraisal……or just not dig quite as deep.

The occasional investor – This group will take a cursory look at the basics, principally online, and rely on an element of luck.  They are generally bidding with cash they can afford to lose and approach their investment with a more relaxed approach.

Whichever group you fall into (and there may be more than those listed above), you understand the importance of some level of risk management before making bids at auction, because whatever amount of due diligence you do, you are doing it to control your exposure to losses.

Post auction, when you have out-bid the competition and own a tax-deed property, there are generally two different paths – you are flipping or holding.

But what about clearing the title?  It is presumed during due diligence, and when bidding, that you are investing in something that cannot be easily traded (whether holding, refinancing or selling on).   Here is a risk that is just accepted.  Historically your choices have been to either hold out the four year statutory period before title can be consider clean (and run all the risks associated with property ownership), or pursue a costly and time consuming quiet title action.

In recent years, a third option for cleaning title has been developed – certification of title insurability based on research.  This is quick (cleartosell.com is averaging ten days to certify) and cost effective, certainly cheaper than a quiet title action.

With the availability of title certification comes the opportunity for investors of all standards to extend their systematic approach to investing to include title certification directly after auction.

The benefits of being free to refinance or resell your investments a few weeks after acquisition are considerable.  You may still choice to hold the investment for a period of time.  But you do so in the knowledge and comfort that your options are much greater if title has already been cleared.

The five stage end-to-end plan investors should adopt to reduce all the substantial risk in their investments is:

due diligence – bid – win – certify clean title – flip/hold.

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Don’t leave the risks of poor title in your investments until the last minute.  A proactive approach to title certification will add substantially to your returns on your investments.

November 5, 2014

Posted In: Tax-Deed