Early Retirement Extreme Forums

Basically in some states when a person is delinquent in paying their property taxes, a lien can be put on their property which can then in turn be sold to a private investor. The government gets their taxes to pay for things like schools immediately, and the investor gets to collect the delinquent tax, a penalty, and interest on the late payment.

Article for more information:
https://www.investopedia.com/articles/i ... -liens.asp

They seem like a good investment with about a 99% repayment rate. Has anybody done this type of investing before? Any tips in tricks?

Just imagine the worst parts of being a landlord, then add the worst parts of being a lender (i.e., being second lien) or really being a debt collector. Add them together...PROFIT?!

In reality, I assume you'd have to become familiar with the Fair Debt Collections Act and foreclosures because I assume municipalities only sell the liens that weren't paid in the ordinary course (i.e., after ordinary notices and attempts to collect). I haven't invested in these things, but I did some work on the foreclosure front, and it. is. miserable. work. If you hire a lawyer to do it, it eats into your profits, to the extent your tax lien is in the money (i.e., value of property less senior liens that you have to pay off less the cost of acquiring your lien less the cost of eviction less the cost of repairs, etc to prepare the property for sale).

I have bought tax liens in Michigan, under the old system which was as you described. It was about a 15% annual gain, over a period of less than a year. I would only buy liens on property that you would like to own, because you might get the property if the owner defaults.

Michigan changed its tax lien system and now you buy the property from the state in a tax auction.

It is difficult to find any properties worth buying. There is usually a good reason the owner has given up on the property and stopped paying taxes. I usually bid on a few properties but they usually go for 2 to 10 times what I am willing to pay.

sky wrote: ↑

Wed Jun 05, 2019 9:12 am

because you might get the property if the owner defaults.

I understand that this is a possibility, and don't have any issue owning property. However, does this really happen often? I assume that most real estate has a mortgage, so would it not be in the banks best interest to buy you out and then foreclose the property themselves?

The properties in foreclosure often have environmental contamination, leaky roofs, squatters, missing copper and water heaters, and by the way, the property tax is due right now.

I just sold a piece of land this way. It was such an awful piece of property with no chance of being sold. My mother kept paying taxes on it because her mom bought it. Basically her mom was sold a boondoggle of an investment property that was going to be in the path of California’s high speed rail...back in 1958. Sixty years later and no rail in sight.

I stopped paying taxes. They warned me they’d sell it for four years. They did. They paid the back taxes with the money and send me the residual. They sent me a check for $6000.

Who bought the thing? A land investor in the area. From Google earth it looks exactly like it did in the past. Remote desert land with trash piles and trailers on neighboring plots. The last time I went out there the neighbors looked like a bike gang with a chemistry lab. Very unfriendly folks. I have no idea what the new owners have in mind. The neighbors places are worth nothing. (Now there’s an ERE idea, move a trailer to the SoCal desert. It’s dirt cheap and technically Los Angeles County). The kind of people living out there look like they made bad decisions.

It would have been a great deal for the little drug lab people next door if they had wanted to expand their property...but since I was an absentee landlord they basically controlled the plot all along.

Another one that worked out well was bought by a friend. He owned a home in a development with a green belt a long the back of the property. Kind of an odd trapezoid shape left over by the developer. The developer just stopped paying tax on the sliver and he showed up at the assessors and bid literally a few dollars and expanded his backyard by 100%. Nobody else could access the property due to retaining walls built by the county. He rebuilt the fence right up to the wall and planted it with a nice garden. I think he increased the value of his home significantly but I would have been tempted to just make a gate on the fence and just squat on the land as if it was mine. Now he has to pay more tax.

Michigan tax sales are coming up soon. You can see properties in some counties here:

https://www.tax-sale.info/fullscreenMap

You may have to login to see it. If you want to see Detroit properties, look at the Wayne County website.

This thread on Reddit is informative:

https://www.reddit.com/r/povertyfinance ... ust_while/

Guy bought a house from the county for $705 interior unseen with the intention of living in it, so different objective than OP. Lot of work involved; he may have posted followup threads. For properties such as these typically the owners have died or moved into nursing homes and either have no descendants or the descendants don't care or decide it's not worth dealing with and let it go to the county. In higher cost of living areas these properties quickly get bought on the normal market and redevolped (torn down).

My business partner tried this. It is a lot of work. If you want to spend a lot of time sifting and sorting to find the best deals to invest in, then it definitely can be a nice return on your investment.

Mortgage notes is where it's at in my opinion. We are seeing 8%-12% consistently.
And on some of the non-performing note portfolios our banking contacts send to us for purchase, yields of 20%-45% if you know how to work them.

Good luck!

VirtualU wrote: ↑

Wed Jul 03, 2019 10:07 am

Mortgage notes is where it's at in my opinion. We are seeing 8%-12% consistently.
And on some of the non-performing note portfolios our banking contacts send to us for purchase, yields of 20%-45% if you know how to work them.

Those were the first things that failed in 2007. Yes, they make money most of the time, but when you're essentially leveraging mortgage rates and people stop paying their mortgages... It's what's called a short-vol strategy. Basically selling puts.

I'm not talking mortgage backed securities that get pooled on wall street.
I'm talking private deals..
When people stop paying their mortgages, they still need to live somewhere.
So long as the asset is a 2-3 bed home in a decent area, it's hard to lose.. and you are only risking 65%-70% of the value of the property, so a ton of cushion there should property values go down.