It was a Saturday, and I had just finished a presentation on tax lien investing when a smallish man wearing brown pants and a blue polo shirt approached me.
His hair was disheveled, and it was obvious he had not shaved that morning. His glasses slid down the bridge of his nose, and he looked at me over them and started talking.
He told me he was a dentist in a small, rural community. (I don’t know why, but I always immediately look at the teeth of a dentist to see if they practice what they preach.)
He lowered his voice. “May I ask you a question?”
“I live in a small community, and we don’t have that many tax liens go to sale.” That is true in many smaller rural areas.
“But,” he continued, “there is a man in town who owns 15 rental properties, and he is late every year in paying the property taxes on them.” That too is true for many real estate investors who own rental properties.
He went on, “He will eventually pay the property taxes, but he is always late. Is it possible that I could purchase the tax liens on all his rental properties and earn the interest until he pays?”
“Of course!” I replied.
His eyes lit up with that electrifying “Aha!” — the moment a new tax lien investor is born.
Because once you realize how this game is played, you realize how incredibly profitable — and powerful — tax lien investing can be. And you realize how much money you can safely make by being responsible when others are not.
The trick, though, is knowing just how to play the game.
The Inside Track to Winning
With the plethora of real estate investing infomercials on television, many people have entered the market — but without really knowing what they’re doing. In some areas, if you enter the fray without a plan, the competition will crush your dreams.
On the other hand, there are those who have had moderate to great success. And they’ve done it by mastering one particular aspect — like spotting undervalued properties.
But those folks are not adept at all the aspects — particularly paying the property taxes on the rental properties on time. No infomercial or real estate course spends a lot of time extolling the virtues of timely tax payment.
Flippers and landlords often do not take a portion of their monthly income and set it aside for the yearly property tax bill. So when the property tax bill arrives, they may not have the money.
This creates a huge opportunity for a wise tax lien investor.
When you discover a real estate investor delinquent on one of his rental properties, you can usually rest assured they are late on the other properties as well. And the average investor owns three–five properties — providing you with a healthy, juicy target.
Of course, there are those who own 60 or more properties — but they usually have their act together and pay the property taxes on time. The majority of real estate investors don’t own anywhere near that number. And the delinquent ones are where you are going to focus your attention…
Take a look at this:
Notice that the property’s address and the owner’s address are not the same. The owner has the property tax bill mailed to her residence. That’s how you know it’s an investment property.
If you discover that the delinquent property tax payment is due on a property or properties and the mailing address of the owner is in the same city or town, there is a strong possibility the property (or properties) are rentals.
Once you’ve got a target, simply use a quick name search on the site where you found the first property. This also applies if the owner is a company, corporation, LLC or any other entity.
With that, you’ll get a list of all the properties they own.
To find everything the owner might own, you’ll have to enter various modifications of their name as well. For instance, instead of “Mike Barnes,” enter “Michael Barnes.” Or enter the last name of the owner and you’ll get every Barnes who’s delinquent. Then just look for possible variations of “Michael.”
Once you’ve got a master list of all of one owner’s properties, take them through my 12-step checklist. Remember to utilize Google Maps and Zillow to get an indication of the area and if the owner is maintaining the property. (Zillow may even indicate if the property is a rental.)
If the properties meet the criteria of your due diligence, buy every good lien from the same owner. You don’t have to buy them all — just the good ones. These are likely to be cash cows because rental owners are good for the money eventually, even though they often don’t plan for the tax bill at tax time.
The following year, look for the same properties. You’ll already have the parcel ID number and will have done all the research.
If you’re diligent, over time, you can wind up with an enormous portfolio of rental property tax liens. And these are some of the best investments out there.
Expect the best,
Mark R. Walter