Property Tax Lien investing is often advertised as a high income,
passive investment that anyone can do. Conduct a few hours of research and show up at the county auction and earn unlimited
passive income.Well, that’s complete
I’m sure you have seen books and courses on television touting
the unlimited wealth you can generate for very little work. The fact is that there are better and more
ethical ways to make money on property through unpaid property taxes.
First I’d like to explain why I do not bother with
purchasing tax liens. Only about 6 percent of delinquent tax liens end up in
foreclosure, and of those, only one half of one percent is successful in that
they are not redeemed (before foreclosure is complete). That’s because most properties have liens and
the taxes will eventually be paid by the lien holder. Additionally there can be a ton of fees and
if you are in the rare position of acquiring one of these properties, you are
basically stealing it from the owner and evicting them as a final f#*K
I just can’t do it.
In the event that you find a property that has no lien, there will likely be so much competition for the property, if it has
any true value, that the bidding will
take down the interest rate to below an acceptable investment
return.Not to mention that you will
likely be pitted against law firms and other sharks that have done a ton of due
diligence.It Sucks, and is not for the
faint at heart.
My approach is somewhat different, but it has allowed me to
purchase many valuable properties over the years.It can be a grind at times, but it also
doesn’t screw the current owner out of their bounty.
There are over $14 Billion in unpaid property taxes every year
and it is all public information.They’re
easy to find and once you learn the most efficient way to review them you can
literally look through hundreds in an hour.My favorite way is using a GIS viewer as I can probably look at over 400
properties in an hour which includes any lienholders.I compile a list of all properties with unpaid
taxes over multiple installments and begin to prioritize them by value.
Value can mean a lot of things to a lot of people.It could be proximity to another business,
zoning, or ability to combine with another property in the future.At the end of the day it’s still location,
Let me give you an example of a plot of land I acquired
using this technique.The attached picture is an aerial view of
multiple properties I acquired over approximately one year.During
a standard search I found close to 50 properties whose taxes were unpaid.I prioritized them and this one floated to
the top of my list (Property #2).Why?Because it was on a busy
street, the neighbor has commercial zoning, and although it is small and
difficult to develop, it has several opportunities to potentially combine with
I approached the owner to see if he was interested in
selling.The owner is paying a
ridiculous amount in penalties every month from the unpaid back taxes which
generally mean that he is in some type of financial trouble and is likely
willing to listen to an offer.This is
the biggest difference with my approach.The owner doesn’t get screwed.
But before I committed to the deal I quickly did research on
the surrounding lots.Property #1 was
completely worthless.Garbage!It was landlocked by other properties and
oddly shaped and therefore could not be developed on its own.However, when combined with Property #2 it
became very valuable.I did a little
research on it and discovered that the county owned it for unpaid taxes.The property was so bad that a tax lien was
never purchased against it.It was going
to be sold at a deed auction in the fall of that year.
At this point it was worth making a deal with the owner of
Property #2 given the great price, location, and knowing I would be able to acquire
the adjacent land within 6 months.So I purchased
the property for an unbelievable price and immediately paid the back taxes owed.
Now, while waiting for the tax deed sale on Property #1 I
did some research on Property #3.As you
can see in the picture it was an abandoned alley and easement.Both can be acquired through the county with
appropriate justification using a “Petition to Vacate” application.I have attached an example petition from Cape
Coral, Florida.I have gone through this
process myself many times, but I would highly recommend using an attorney.
I hired an attorney to complete the process and within a
year was granted both the easement and the vacated alley. In the mean time I purchased Property #1 at
the deed auction for the opening bid, as I was the only bidder. Now I have acquired this large plot of land
for almost nothing but some hard work and well planned strategy!
While in the process of combining the PIN numbers and
applying to re-zone the property, the adjacent property owner made me an offer
I could not refuse.He had a commercial
building and needed the land for expansion.When the dust settled I made over 10X my original investment!
I know you thinking this is once in a lifetime thing, but it’s
not.It happens all the time.There are a lot of people in financial
trouble which is indicative of their unpaid property taxes.Many of which would be delighted to get an
offer to unload the property and not have to worry about coming up with cash to
pay the taxes.
My brother in law had a great idea.Hell, everyone has a million dollar
idea.My mother in law has four, my
barber has at least ten, and the guy that details my car begs me to invest in
one of his many.
Ideas don’t matter, they’re everywhere.
The daunting and excruciating process of bringing an idea to
a viable, profitable product or service is where all of the value is.And that’s why so many people fail.Because they don’t have the knowledge,
patience, and drive to execute.They
don’t have the chops to get up and work through the pain and rejection every
day to make it work.They ultimately give
Now back to my brother in law.He had a million dollar idea.Had no idea if anyone would buy it, but
convinced himself that people would beg for his product and pay whatever he
wanted, because he liked it.He had no prior experience but somehow convinced his wife to pony up the
401K and credit cards to chase the dream.
And I’m sure you don’t have to be a rocket scientist to
guess what happened next.That’s because
I guarantee you know someone that went through a similar process.
Having no start up or project management experience, spending on the dream
went out of control. He started having
some doubts about the sales forecast after obtaining some unfortunate information.This was due diligence he should have done
prior to starting.His wife was freaking
out because it had become a make or break situation for their future.The fear and pressure was so insurmountable
that he was hospitalized after a nervous breakdown.And then they just stopped!
I don’t think he has ever been so relieved over anything in
his life.He lost his house, wife and
401K and filed bankruptcy, but he was now a free man.How did a dream turn into a prison
The reason I am writing this blog today is because this all
could have been easily avoided.My
favorite read that outlines the process of a proper start up once you are
convinced of your million dollar idea is the “Lean Start Up” by Eric
I’m sure most of you have heard of the book but if not,
spend the 20 bucks and save your ass.I won’t
go into too many details but the two most important take-aways for me were the
Minimum Viable Product and the Continuous Feedback Loop.
The Minimum Viable Product (MVP) is the process of building
the bare minimum product or service to test the market.Hell, in some cases the MVP could be nothing
but a phone call or sales pitch to see if anyone is interested.If executed properly this should give you enough
feedback to build the most basic model and that concept should be designed with
as little capital as possible until interest and momentum can be built.
I have built several MVP’s over the years that gave me
enough information to decide whether the idea had legs or not.Some so ridiculous and aesthetically embarrassing
that I don’t want to mention.But guess
what, they worked!80% of them sucked
but I had so little invested that dumping them was Ok.The other 20% did well and 5% did great!
Simply put, this process allows you to bring your idea to
the market without going broke.In other
words, LEAN!I’ve left out a ton of
shit, so again, please spend the 20 bucks and read the book before you taking money out of your 401k. Hopefully the wife
will stick around too.
See more innovative and life changing ideas at MrWallStreet.com
Investing in parking spaces is not for the faint of heart,
but in several situations can produce excellent returns. The reason I loved it was because there wasn’t
the hassles of renting an residential space.
Do your homework up front as if you were purchasing an investment
Calculate your annual gross rental yield and compare it to
the risk free rate. I always like to see
a yield of above 12%. Calculate the CAP rate and P/E ratio. CAP has to be above 8% to make it worth my
time. This is nothing new for the seasoned real estate investor.
The most important thing is comps. How desperate are people for spaces and how
much are they willing to pay. It doesn’t
take much effort to figure this out, however it is essential. Get your ass out there and look for spaces to rent. See how difficult it is to pick one up. If its easy and people are willing to negotiate, find another area. This is where the money is made so don't be lazy. SpotHero and SPACER are great resources to provide data and comps.
Income first, appreciation second. However, appreciation can take off in certain
scenarios especially around new developments.
It doesn't hurt to spend some time at the county building and find out what the parking allotment around new developments and do a little math with existing demographics.
Parking spaces have many complexities. They are often deeded with condos, there can
be several restrictions and you cannot get a mortgage for them. It's a cash game unless you want to embark on some P2P lending. It’s these same difficulties that that make these
investments interesting since they keep most investors away.
From the NY times: Marc Wisotsky and his partner, Jackie Lew,
bought two spaces in 2005 in a parking garage near their home in Park Slope,
Brooklyn, for around $45,000 each. They used one and rented out the other for
$600 a month, pocketing $310 after taxes and the garage fee. It was a tidy, reliable income, Mr. Wisotsky
said, but the real payoff came when he and Ms. Lew sold their extra space last
year for $285,000. “We could have gotten more — the prices just keep going up
and up,” he said. “There are never as many parking spaces as residential units
Check out this ridiculous story. Makes me want to get back in the game!