Tax Sales 101

Mike: Hey, it’s Mike Hambright with FlipNerd.com. Welcome back for another exciting expert interview, where I interview successful real estate investing experts and entrepreneurs in our industry to help you learn and grow. If you haven’t checked out the all new FlipNerd.com, we now have the most robust and powerful platform in existence for real estate investors. So go to FlipNerd.com and check it out.
Today, I’m joined by Corey Taylor. Corey has purchased hundreds of houses, but started between deployments while in the Marines. Wearing a few hats there, and became a full-time investor in 2004 after getting out of the Marine Corps. A few years ago, Corey shifted gears when he started to get more competitive and focus on tax sales, and he says now he wishes he had done it all along. So, he’s become an expert in buying properties at tax sale. Today we’re going to talk all about that.
We kind of realized that there’s a number of shows that I’ve had in the past where we probably should have taken it more from the beginning. So, today we’re going to kind of have a tax sale 101 show, and talk all about what they are and how you can benefit from it. How you can generate leads, and a lot more. Before we get started with Corey, though, let’s take a moment to recognize our featured sponsors.
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Mike: Hey, Corey, welcome to the show.
Corey: Hey, good to see you.
Mike: Yeah, yeah. Thanks for being on. So, it’s an interesting topic. I will say that I had somebody on the show about a year ago that talked about tax sales. And it actually was a widely popular show, in terms of number of downloads, because I think there’s a lot of misinformation out there about what tax sales and tax liens and all that stuff even is.
Corey: Right.
Mike: You probably see that yourself, right?
Corey: I do, yeah. A lot of our students just need the clarity. It’s a whole new world.
Mike: Yeah. Yeah, awesome. Well, I’m excited to talk about it today, because I like to talk about new opportunities, and I think there’s a lot of stuff that a lot of people that listen to this show, they know a little bit about it, but not enough to kind of take action and go do something. So, hopefully they’ll learn a little bit more today.
Corey: Absolutely. It’ll be great after today.
Mike: Hey, before we get started, tell us about your background and how you got into real estate investing and how you made your way into tax sales.
Corey: Yeah, well, I came out of the Naval Academy years ago and took the Marine option. I was in from ’97 ’til the end of ’04. My daughter was born about then, and we loved the area. Frankly, we’d been doing really well in real estate by then, just doing the night and weekend thing. From about 2000 to 2004, my wife and I were just working as hard as we could.
It was just us. No children by then. Nights and weekends, going to events, the national REIAs, and doing what everybody else is doing right now, trying to get educated as much as you can. I was pretty thankful that we were action takers. My wife was real supportive. Was every course perfect? No. Did it have every little detail? No, but you and I both know we just need to keep taking action. You kind of fill in the gaps yourself and do the best you can, and fill forward, if you will.
So, we just spent a lot of time being uncomfortable. Like, “I’m not sure what to do, but the book says let’s go try.” Kind of found our way, and pretty soon it became you got to get through being bad at something before you’re good at it. My wife and I bled the same kind of mantra. We just kept going through.
So, by the time the 2004ish late in the year rolls around, I was either going to decide to spend my time with the Marine Corps. My life, at that point, about eight years. Either keep going in career or let’s get out. We love the Virginia area, and thankfully we didn’t have to make a financial decision. Some people kind of decide careers or jobs on whether they have to make the money. By then, we’re making more from our real estate investments part-time than what the Marine Corps was even paying us.
Mike: Wow, that’s crazy.
Corey: So, for a while, it was nice to have the dual income, if you will, right? But, it was kind of nice. So, it’s nice to just say, “Hey, you know what? Finances don’t matter. Do we want to stay here and keep doing this? Is the Marine Corps the way to go? What do we want to do?” I’d been on a couple of deployments before. Here’s my new baby. We loved the area, so it was a pretty easy decision to make, to say, “You know what? That’s a great chapter in life, but let’s go ahead and take root here and keep doing the real estate thing.” Of course, we kept telling ourselves that if we’re doing this part-time imagine what we can do full. It was really living the dream. It was awesome. It was really awesome to not have to….
Mike: Yeah, that’s great.
Corey: So, the people that hear this that are going to think, “Man, can real estate really do that for me?” It really can. Done the right way, it really can. You just have to be uncomfortable to get good at it, and then you find a niche and just latch on. You really can get up when you want, have breakfast with your family, and then decide to go to work. Then, “Oh, I got to take Friday off because my kids have something.” The whole control my own schedule, now after the rat race issue, really can happen when real estate’s is done the right way. So, I’m eager to talk about tax sales today, because I’m [inaudible 00:05:21] help them do that.
Mike: It’s funny, too, because I think we’ve said this a few times lately on shows recently. I think a lot of people will hear your story or other people’s story, and they think, “It was always easy. Or, you probably didn’t have any failures.” Subconsciously they’re thinking those things, but I think I always have started to find myself using an analogy of a professional athlete.
Corey: Absolutely.
Mike: They fail more than they win, and that’s why they win. So, as a real estate investor you’re not going to fail more than you win, but you’re going to fail once in a while. You have to.
Corey: That’s exactly right. What you also said was, we say it in our organization, “Are we training correctly? Are we getting the right people? Are we training?” Those guys are in the gym, they’re on their own petitions. They’re catching passes. I mean, to be professional, you’ve got to be professional. Right? Isn’t there a great phrase out there somewhere like, “Professionals practice so they never lose,” or something like that. They practice so they get it right every time. Amateurs kind of practice until they get it right once, or you something like that. This mentality of how good do I need to be to get success? Rather than can I be the best at it? Can I be the best every time? It really is a mentality, so, this really should be treated like anything else. Dollars are important. Your time is very important.
Maybe, if we’re going to talk about failures for a second, we did a lot of things wrong. As the downturn was coming, we were positioned improperly. We had some, a lot, of lease options that we really shouldn’t have taken on the debt we did. Shouldn’t have signed for things over here. We didn’t have our head up looking at the right market. Frankly, we thought the worst case in our market here in Northern Virginia would have been, maybe, no appreciation. We would never have dreamed of a 40% drop here in pricing. So, we know more now from those downturn issues than we did on the way up, but, either way we have a lot of uncomfortable conversations with sellers that we had no idea what to say. Would we get the deal, or whatever, but you know what? There’s the next one. So, yeah, it’s always about pushing through and practice.
Mike: It’s interesting because, so I started investing in 2008 so you started well before me, but still in the 2000s and I think that we’re in the same boat. A lot of people that are listening or a lot of people that I’ve had on the show are too. You’ve really only been in one, so far, kind of one up cycle, one down cycle, and now we’re kind of having another up cycle. So, it took kind of going through a cycle like that to realize here’s what I’ll do next time.
Corey: That’s exactly right.
Mike: But, you know what I mean? Because, you kind of have to go through those things every once in a while to cleanse the bad habits, and to be prepared for the next time it happens.
Corey: The perfect phrase you just said was, “Cleanse the bad habits, too.” To realize what you’re doing from success doesn’t necessarily prepare you for the worst. Really, a sound business prepares for both, really at all times.
Mike: Yeah.
Corey: That’s great, and you know what? People getting counsel like they do now, to download what other investors have to say that have been ahead of them in those cycles that say, “Please, don’t do this,” or, “You need to do that,” is huge, because without the right education you don’t even know what land mines to look for. You don’t even know what they look like. So, it’s been awesome that you guys can provide good insight like this routinely, because you can’t do it without it.
Mike: Yeah, yeah. Well, let’s dive into the topic of the day.
Corey: Okay.
Mike: Tax sales 101. So, why don’t you tell us first why you got into tax sales, because you weren’t doing it all along.
Corey: I wasn’t doing it all along, and I think you mentioned competition, actually. You were saying that any professional investor out there these days have several sources of leads coming in, right? Whether it be the signs or some ads in the paper or some direct mail that goes out, we have those sources. I rely on all of those. At the time, I had a lot of internet leads as well from some of the big name web domains you can buy some counties in, and send some leads over.
With those, they won’t really do the job as much. The broker relationships I used to have, whether REO or not, either way got more and more competitive, because there’s always a guy with big money that wants to walk in and sit down with them and offer them something. So, if I would get a call on a listing that’s about to come out, early on I would be the only guy that gets called, even if listed. I’m at least a day ahead of some people, but then I noticed I was showing up with three or four guys. I would always perform, always buy.
So, it wasn’t anything I was doing. I asked somebody about it, and they said, “No, Corey, it’s not you. It’s just there’s a lot of you, and I need five guys looking to make sure I get something sold and not just one guy.” So, it was just the competition level got to the point where it seemed like it was becoming more work to get the same deals.
Mike: Sure.
Corey: So, we’re all kind of looking at, “Wait a second. What needs to happen here? Is there a source I’m not tapping into?” So, I met somebody, a friend of mine now and business partner, too, Tom, who had been doing some tax sales kind of off and on, wanted to get heavy into it again. I said, “Well, let’s talk about this.” So, we kind of jumped in. I think I’ve mentioned this to you before, I’d been ignoring tax sales, because I kept hearing the tax lien word. In a minute I’ll explain what I’m talking about there.
Mike: Yeah.
Corey: But, I kept hearing tax liens, and I looked at tax liens before earlier in my career, and I thought, “Okay, well you go get this lien and somebody might pay it back or not, and you earn this interest rate.” Even though it was numbers like 12%, 15%, 25%. I was only just flipping at the time, right. I want the $50,000 check. So, not only do I have to tie my money up, I’m flipping. Even though some of the lease options I was doing, my return on my capital was more, so I ignored it largely, because I didn’t understand it. I never had somebody explain the whole gamut of tax sales.
Mike: Right.
Corey: So, by the time Tom rolled around, we said, “Let’s look at this thing entirely. Let’s see what’s going on.” So, what I can explain now is kind of this conversation I had given to me, so everybody else on this call can benefit here. The beauty of tax sales is that half the country does a thing called tax liens, meaning half the country’s legislative bodies, these counties, it’s all done on the county level by the way, not really the city. Sometimes the city level, but mainly the county level, and they say, “Hey, you know, there’s really two things that we say. How late are we willing to let somebody go on their property taxes before we take some kind of action.” That’s what they have to decide, and then if we take some kind of action, what action is that?
That’s what every legislator has to figure out, because if you don’t let people pay they would never pay. If there’s not some consequence, they would never pay, right? So, imagine every county reps got to decide not only what do we charge for taxes, but how do we collect it, and all those things. So, they have this dilemma they’re always in between how much time they allow to be fair, in their mind, versus having a reasonable consequence to actually get them collected.
So, if anybody’s on this call, by the way, that doesn’t realize there’s such a thing as property taxes. Yes. By the way, in this country, a couple hundred years ago we decided land ownership is not free and you’re going to pay Uncle Sam or you’re not going to own anything. So, it makes me feel like a serf sometimes, having to pay the taxes on something.
Political comments aside, there is a thing called property taxes that you have to pay. Granted, most of the money, the police, and the fire, and the schools, and the roads, it goes to valid things for us to live in communities. So that’s really what it’s for.
So half the country has this thing called tax liens, where they say, “Look, you know what? I know you’re only a year and a half late, but we’re going to have this thing called an auction, and we’re going to have this investor over here and we’re going to sell him this tax.” Now, let’s say you owe $2000 in back taxes. So, we’re going to have this auction, and this investor is going to pay us your tax money, and now when you pay us back your tax money, because you went past the line in the sand, you’re going to owe a lot of interest now.
When we get that interest, we’re going to pay this investor over here, because we need the money now. The police guys are going to get paid that money now, not whenever you feel like paying your taxes. So you’ve gone as late as you can. Here’s an auction, you’re house is going to get liened. This investor over here is going to own this lien, and this lien is, in most states, this lien’s first position. Meaning, if Bank of America was not escrowing taxes as part of this guy’s payment, this lien position is senior to Bank of America.
Mike: Wow.
Corey: Even though it’s been recorded to the facts. So, it’s a very highly secure lien, because legislator wants to be fair to the property owner, but they know me, as an investor, showing up, what good is a piece of paper for me to be passed the lender? What good is a lien to be passed to anybody, right? If you’re going to sell me taxes, I want to know that I’m going to be paid. So, they have to give me incentive, as an investor, to buy those taxes.
Mike: Right.
Corey: So, the other incentive point is well, county, you want me to come buy this lien that you want to sell me as an investor. What rate are you going to pay? I mean, it’s great you’re giving me some security. I don’t really want to deal with this if it’s just not going to pay, I mean, what’s going on? Well, so, they have to incentivize with interest rate. So, you have some states paying, I want to say, as low as 12%, which sounds ridiculously high to some people. As low as 12%, and some are charging 18% for six months, 36% a year in some places. These large rates, because they’ve done what they have to do to incentivize investors to come, while also being fair to the property owner. Does that make sense so far?
Mike: Yeah.
Corey: So, there’s this thing called liens.
Mike: That percentage, what’s the basis?
Corey: It’s a basis that’s with the tax amount owed.
Mike: Okay.
Corey: Okay. In some states, and I’ll get down to all those differences in a second, there’s a couple nuances, because every state decides a little bit differently how they’re going to charge. I can explain at least some of those examples in just a second.
Mike: Yeah.
Corey: So, this auction occurs at whatever interest rate, whatever the tax amount was. The idea was investors showed up, and now they say, “Okay, homeowner. We had the auction, but don’t worry. We had to get our money, but now you’ve got X years to pay this thing before the investor can actually take his collateral now, that we’ve given him, and harm you in some way. You have X time to pay.” Some states say one year. Some states say two years. Some states go as far as three years, which is a long time, but all the while that lien is earning interest.
Mike: Yeah, and these are the redemptions, kind of, for it.
Corey: There’s a redemption period, that’s exactly right. So, this redemption period means, homeowner we had to take action, we got our money, but now you’re on the clock. So, please go call Aunt Martha. Call grandma, ask your neighbor, whatever you got to do. Please go get the tax money. Your federal income tax return rolls around in February, whatever. Please get the money and pay your property taxes so we don’t have to allow any foreclosure. Okay.
Mike: Well, what happens with future taxes? So, let’s say that you bought the tax lien on December 31st of 2014, for example. Of course, they’re going to owe taxes for 2015 in the years ahead. So, if the person’s still living in the house, that income stream is still due to the county?
Corey: Yes. Taxes are owed every day the property exists, right?
Mike: Right, right.
Corey: So, what you just described is a perfect nuance that when somebody’s going to decide and say, “I want to invest in this state,” there’s a list of things which they are going to need to know. One of those lists of things is, am I required to buy subsequent taxes, or not? For instance, Arizona will say, “We only want one lien holder on this property. So, if you buy the first years of taxes that is owed, and if their late again next year, you need buy those too or you’re going to lose the rest of your first one.”
Mike: Oh, wow.
Corey: Okay, whereas Florida says, “Hey, we don’t really care. So, you might buy 2013s taxes at that auction, and the next year rolls by and somebody else might by ’14s, and by the time ’15 comes, the ’13 guy can foreclose or the ’14 guy. Whoever goes to do the foreclosure needs to pay the other guy.
Mike: Right.
Corey: So, it kind of works out, how that works. There is a process for that, but the states handle it differently about multiple agreements.
Mike: Okay, okay. We don’t have to dive any deeper there.
Corey: So, we just described those nuances about paying the lien or whether you need to buy subsequent taxes or not. That’s a great one to find out, but in general, there’s this first distress point I want to highlight here is that fact that when somebody’s house gets liened, just before them getting liened in that auction, they can be communicated with. Now, you have somebody. By, the way, most, I shouldn’t say most, a lot of the ones we focus on, they’re not living in the property.
Mike: Okay.
Corey: If we’re going to buy liens we think wants to pay us interest, we like it to be occupied, but a strategy I’ll cover in a second is we like looking at some that have a deceased owner or an out-of-town owner, things like that. So, you can, based on who owns it, you can kind of look at that and say, “That’s probably going to redeem,” versus, “Probably not going to redeem.” Based on property type, right?
Mike: Okay.
Corey: So, we like to communicate with people before this lien auction, because there’s some stress going on. There’s clearly a problem. They haven’t paid their property taxes. So, there’s some great direct mail strategies prior to the lien auction to get a hold of property owners and discuss what could happen before the sale. Now, when you do that, they may have loans, they may not have loans. You know, whatever. You’re dealing with a normal seller, just like any other direct mail you would send, they own the property and you’re going to talk to them about it.
Mike: Right.
Corey: Okay. Then, the other distress point is they went through this redemption period. We like communicating with them again close to the end of their redemption period. So, they didn’t solve it heading into the auction, all this time has gone by, they still haven’t solved it. Now, at the end of redemption, there’s two distress point right there with the same property that they’re not paying. There’s something wrong. Can I please keep giving them a message saying, “Can I please solve your problem?” Okay.
Mike: What’s your goal? What’s your goal there? Give a couple examples of what your goal is.
Corey: My goal there is to…
Mike: Prevent having to foreclose? Kind of taking the property back?
Corey: Well, they clearly don’t have any money to pay the taxes to save this property from whoever owns the lien forcing some foreclosure or action. So, my goal is to buy the property for whatever I can, and make it worthwhile for me, right? That person may or may not have equity. There’s different situations.
So, if it’s a debt situation, I can just take over that debt with X amount of dollars in taxes paid. Is there no debt? They just couldn’t come up with the money at all. So, is there some equity I’m willing to pay to buy the property? So, I want to buy it. I don’t want to give them tax money, or anything. I want to buy it, but I don’t know what they have until they call me where I just see what the situation is.
Mike: Right.
Corey: Like, if I was to call you and go, “Oh, hey. Mike, I want to sell my house. Well, yeah, but I owe $250,000 and it’s worth $190,000.” Well, whether you’re not sure of the short sale business, right? You may not choose to work it, right? So, depending on the situation, but it’s a great chance for lead flow. It’s a great chance for lead flow, because it’s a distress point there, and we do that.
So, now, the other half of the country also needs to get their tax money, and we call them deed states, because they say, “Hey, you know what homeowner? It’s been about three years, and you haven’t pay. So, we really need you to pay the taxes. There’s an auction coming, and there’s no lien. There’s no redemption period. The auction’s the auction. Corey’s going to show up, and we’re going to raise paddles, and whatever price compared to the value of the property, you’re going to lose it right then and it’s over with. So, please come pay the tax.” So, those states still allow about two to three years to go by without paying, they just didn’t bother with the lien process upfront to get their money. Make sense?
Mike: Yeah.
Corey: So, even the lien states ultimately allow about three years before foreclosure action, they both allow about the same amount of time, both kinds of states. One just gets the money early in the form of a lien, whereas the deed states just skip the whole lien process and do auctions.
Mike: I see.
Corey: Make sense?
Mike: Yeah.
Corey: So, but you can see the same pre-auction opportunity arises there in those states, because there’s an auction coming. They’re really going to lose it there, and, so, communicating with them before that auction is important. Depending on the property taxes, some just give you the property. They don’t even want to pay the tax. They don’t care. Can you just take it? Yes, I’ll take it, thank you. Then you can decide, do I pay the tax or not after the fact, right?
Mike: So, in the lien states, they’re auctioning off as little as one year’s back taxes? Or, are they letting a few years accumulate?
Corey: It’s almost always one year of back taxes at auction.
Mike: I see. Okay, okay.
Corey: Yeah.
Mike: Yeah, I never knew that. That’s great.
Corey: Yeah, so you can see that even though there’s two different types of states, there’s still this idea that the taxes are coming, there’s a distress problem, and I’m going to communicate with them upfront.
Mike: Yeah.
Corey: By the way, the counties produce these lists. They produce these lists. So, they tell you, “These are the people that are about to go to auction,” because they’re required to give notice. So, the counties are required to give you the list of leads, which is kind of cool.
Mike: Yeah.
Corey: Would you think the county government would give you a list of leads, Mike?
Mike: No. No. My taxing authorities have never given me anything other than a bill.
Corey: It’s trouble. They give you trouble, right? So, they give you lists of leads. Now, one thing I’m going to talk about in a few minutes is that a hurdle in tax sales is getting this list they give you, which is pretty cruddy, a name, a label of the description, the sale date, a partial number. It’s not like MLS where you get everything, right? Everything you’d ever know. My wife said, “Oh, it’s great. They give you, here’s what coming.” Now, you’d think they would be incentivized to give you everything they could, but to buy something they don’t care. The minimum required information, right?
Mike: Yep.
Corey: So, we’ll talk about a way, in a second, where we’ve made software ourselves, right. Automation is beautiful these days, right? So, we have software now that converts the cruddy county lists into what we call investable lists. Bedrooms, baths, square feet. Is it land? Is it house? A sliver by the highway? Or, is it a real piece of property you’d want to buy?
Mike: Right.
Corey: This is all the kinds of things I get in paying taxes. Is it a common area between apartments? Or, is it really the apartment building, right? All those things.
Mike: Right.
Corey: So, we have software now that can easily convert what used to be very painful to convert this list into something I can now look at it and make decisions. So, we’ll talk about that in a minute.
Mike: Okay.
Corey: So, now, we’ve talked about pre-auction distress, and so somebody just did that, they’re going to get deals. Now, there’s the auction itself. We don’t typically go to the auction itself only because if anybody does know anything about tax sales they tend to know about the auction. So, if you had to pick out the most competitive part of tax sales, even though there is relatively less competition than say foreclosures, people want to go bid. They’re either bidding on the lien, or they’re bidding on the house. Either way, just, the typical bidder frenzy.
There’s a few places in the country. I’ve heard of a good Tampa auction before. I’ve heard of a good Vegas auction. I know some guys that just go to the auctions, and they find some stuff they are willing to pay $0.50 cents on the dollar, and make some good deals out of it. That’s what they do. So, I know auctions are fine, I just want to tell you a few other strategies. We just don’t need to go to the auction.
So, we largely ignore that, but it is a source of deals. Tax sale auction, show up there. I recommend people showing up and see how they go. Do some evaluation. See what’s there. See what you would have paid. Just show up and watch, and see if guys would have paid at or above your number. If not, you know to go back there next time, because these auctions are typically pretty often. Okay.
Mike: Yeah, and that’s a great tip for folks that are interested and kind of hearing this and say, “I might be interested in doing that.” Just find out what some properties are that are coming to auction, and then put together a number of what you would pay for it, and then go see what happens, right?
Corey: Yeah, if nothing else you’ve practiced in the process. You go out and you say, “Oh, I would have paid $75,000 or $150,000,” whatever the number is, and somebody paid double you, well then, okay, that’s probably not going to happen for you to go to these auction source.” Then, here’s the trick we like the most, people aren’t really aware that tax sales are so prevalent, they replenish themselves so frequently, that sometimes at these auctions there’s not enough money there to buy the good ones. There’s just not enough money there. Even though institutions show up sometimes, there’s just not enough.
So, here’s what happens. Let’s go back to lien auctions for a second. After the auction, there is a subset of liens in many states, not all, but many, where they’re good houses that just the lien didn’t get bought. When I say good I mean, they weren’t the best house by the water. They weren’t the perfect one in the neighborhood, or whatever,but they’re good houses where it’s occupied. It’s worth something, okay? There’s a lien there for a couple thousand, even if the valuable was $50,000, for a couple thousand, that’s pretty good security on a couple thousand dollar lien. It may even be $150,000. Different regions of the country mean different values. I live in Virginia where everything’s $250,000, whereas South Carolina everything’s $50,000. It’s all relative.
The point is, there’s this large amount of security. Besides I’m going to lose the security for that tax amount, it’s probably going to redeem. It just wasn’t the best house on the street in the lien auction. So, the beauty of buying a lien after the fact, is that you avoid all the competitive bidding issues. For instance, I’ll give you an example. In Florida, you don’t bid at the auction on the amount of taxes. The taxes are what they are, it’s $2,000. They say, “Hey, Florida pays 18% on a $2,000 tax lien.” So, the auctioneer stands up, really it’s online, but he stands up and says, “Hey. Who is willing to take 18% for this $2,000 tax lien on this $100,000 property?” Everybody’s hand goes up. “Okay, whose willing to take 17.5% interest on the tax lien?” Everybody’s hands go up, right? They bid this rate down.
Mike: Oh, wow.
Corey: So, the auction is really whose willing to take the least amount of interest on this $2,000? It might bid down to 5% if it’s a waterfront condo. Or, it’s $200,000 that’s owing $3,000 in taxes. The old guy that was disgruntled with his .5% CD in the bank thinks he’s tickled pink to make 5% on that lien for the next two years. So, he’ll go ahead and take that.
Mike: Yeah, that’s interesting.
Corey: He was like, “Why would you do that? I’ll pay it.” That’s perfect for him, right? Well, the liens that fall through the floor at auction that you can buy right after the auction, first come, first serve, as soon as they publish it, a lot of pros like us will jump on the list, and there’s lots of liens we can buy. The trick is, you get the maximum rate allowed automatically. So, they’re 18%. So, I can go find some perfectly good liens with just as likelihood, or a close likelihood, at redemption as this other guy’s condo, but I can be making 18% and he’s making 5%.
Mike: Wow.
Corey: So, it’s called over-the-counter. So, the trick to tax sales is really after the auctions, or before the auctions, not during the auction. Okay? That’s the thing you need to understand. Here’s the other beauty of this. Imagine if you’re at the lien, and you’re trying to make Interest, Mike, right? You did some research, and you see the ones that are occupied and you’re, “Off my list group of properties are nine foot grass, the owner looks like their dead.” That just scares you, because you don’t want to own a property, you want to get interest.
Mike: Yeah.
Corey: Well, another man’s trash is another man’s treasure. So, we love the ones that come on the OTC list, because deceased owner? Perfect. Nine foot grass? Perfect. Needs renovation? Perfect. I want to buy those liens, because my odds of redemption are much lower on those, because I’m going to own them. So, I can buy a batch of 17, and when a year roles around I can get eight properties at one time, just because they’re much more likely to do it.
Even the ones that did redeem, I can call the estate and say, “Hey, I know you don’t want to lose it for taxes. I had the lien, you paid it. That’s great, but do you want to sell that thing?” “Oh, yeah, we want to sell, we just didn’t want the taxes.” “Well, what do you want? Five thousand more? Okay, thanks.”
I still got a steal of a deal, right? So, what people don’t want in the auction, we want after the fact, and we can go ahead and lien that thing right afterword, and now wait for our batch. That’s kind of what I mean about digging down. Digging it down, dig the well, put the pump on. We have batches now. In the state we like working in the most, the worst case is we got 12% on our money. Best case is we get a third of the properties. So, it all depends on how that plays out.
Mike: So, in the event where, let’s just say, somebody is deceased, and the house is vacant, you buy the lien. Now, let’s say that, you pretty much have to wait a year in order to take the house back.
Corey: Whatever the redemption period is, you would wait. A year, two years, whatever it might be, you’re going to wait that period of time.
Mike: I see. So, even if you know it’s already vacant, that house may just have to sit there and wait.
Corey: It has to sit there. Yeah, and we’ll talk about some ways in just a second where you don’t have to wait, but we call this priming the pump.
Mike: Okay.
Corey: So, the marketing somebody’s doing to the distress upfront, well properties some provide some deals you can buy right now, because you can buy a contract for sellers and buys those right now. But I always tell people to get started on the lien process, because you’re going to be really happy two years down the road when five properties fall in your lap, because you did the work two years before then, because you won those properties. Pretty soon, they’re coming out every year, because you primed your pump. You got the process started of these liens becoming deeds, if that makes sense.
Mike: Sure. Yeah, absolutely.
Corey: So, yeah, so that’s an awesome one. Then, there is a market called secondary liens, where companies have bought these liens and they’re almost to the end of the redemption period, and the sellers of those liens will like to sell for some discount. They might have earned some 30% by now. They just want 15%, so you can buy them now, and the worst case is you get 50% back on your money if it redeems. The best case is, you own the property. They’ve already aged a while, so you’re going to know a lot sooner whether you’re getting paid or not, or whether you’re going to own it or not.
Mike: Right, right.
Corey: It’s just one of the worst of liens. So, it’s almost like an over-the-counter list that’s been aged already, and you can buy some of those and get deals there, too.
Mike: Okay.
Corey: Okay. Even after some of these companies foreclose on them, tax foreclosures, they don’t want them all. Hey, there’s some tax foreclosures for sale from some of these companies, too. So, there’s just these constant streams of, before the auction motivation; during the auction, some opportunity; post auction, some motivation. There’s just, what you can buy, there’s properties falling out everywhere.
Mike: Yeah. Wow, that’s fascinating.
Corey: It’s just one of those things. The issue is just getting through the list to get the junk out as soon as possible, then get the [inaudible 00:30:53] that you want to the top as soon as possible, and that’s that software. So, that’s how that works to get the process done.
Here’s the last thing I want to talk about this, strategy-wise, because it’s all about timing, when I tell you before the auction your natural question is, “Well, when’s the auction?” Well, when is it in that state? When is it for your county? Is it May? Is it November? It depends, right? So, for somebody to say, “Well, I want to do this in my backyard.”
Okay, your backyard probably only has it happen once a year. Could you mail a couple months before, and a couple months after? Maybe, but that means about three or four months of your year you can deal in your backyard, if it’s a good place to be. But I tell people, “If you’re not the most qualified person to be looking at a house, anyway, what difference does it make if it’s across town or three states over?”
Mike: Right.
Corey: You’re still trying to hire the proper experts that you can believe and trust to give you the right information. The experts that expose themselves to social media, usually, which is a great platform you guys have to do that. So, what does it matter if it’s your backyard? Be in the right market. So, find when your market can do the strategies. Find when the other markets you like does the strategies, and have places that work all year long.
So, as I was telling you earlier, we’ve got four or five spots that keep us busy all year long, because their auctions are throughout the year. So, we’ve always got a place where we’re buying some liens, sending some mail, getting some calls, and buying in different locations in the country, because the right markets to be in, right? Job growth, good conservative governorship, that kind of stuff we know that economically they’re growing. We want to be there. Not that we need the appreciation, but it’s kind of nice to be in a flat or increasing market versus a decreasing market. So, I would like to keep getting our students out of their comfort zone of being 30 miles away when they really need to invest in a great big country that needs to provide lots of good opportunity.
So, to summarize these strategies, their awesome, that we employ every day, is, your sending mail to people, motivated because they have a tax problem coming with a lien auction, and you’re mailing people who have a tax problem coming with this deed auction. Or, you can go to the auction itself, or, you’re investing in these leftover liens and leftover deeds. By leftover, they’re not all junk, like some people would have you believe. We buy a lot there. Amazing properties. Buy those. There’s this idea of the secondary market, meaning resellers of these liens.
So, between all those strategies, doing it in multiple places in the markets in the United States, it’s all the deal flow we would ever want. So, to go back to the original, kind of, question, what kind of got us into it when we discovered there’s all kinds of ways before, during and after to keep getting lead flow from the tax sale process. There really just wasn’t need, or time, or money, to go do other marketing. It wasn’t necessary. When the county hands you the list, and software that you press some buttons to get the data, there’s really not a whole lot of marketing being paid for.
Mike: Yeah.
Corey: So, I tell people, “If you don’t have a lot of money, the signs are great and advertising is great, but the more you do those, the more leads you won’t get.” We all know leads is the business, right? Getting leads. So I’m not telling people not to do that. I just tell people that maybe starting out with limited capital to market, you don’t have to have a $5,000 a month marketing budget to begin buying real estate if you immerse yourself in the tax sale markets that provide you leads. You just got to know how to sort through them.
Mike: Yeah, and what’s fascinating, even for me, I’ve definitely learned a number of things here today. I’ve never done a tax sale, so, I’m far from an expert at that at all. It’s that how many different ways there are to make money. I think most people, the general, probably, belief is the going to the auction part, and not really thinking about the pre-auction. The fact that it gets on their radar, and they can learn about that, or all the stuff that happens afterwards.
Corey: Yeah. Again, I think I told you before, I wish I’d done it from the very beginning. So, those listening now, if I had to start all over again, and to have certainty of lead flow, I would have started in this, and made some money, and then used whatever portion of my capital I wanted to increase my advertising dollars and get some other leads, just to have more. So far, even as a professional in this business, we’ve gotten really all we wanted by buying batches of them in different parts of the country, and having properties fall out. Do you think we got two minutes I can cover one more quick point?
Mike: Sure, yeah. Let’s do it.
Corey: Yeah, two good examples, just things you get into that anything could happen. I’ll cover an okay one, and then a great one. An okay one, recently was, I bought a lien a year ago. It kind of went through, got the deed. An acre right on the lake. It had some kind of run-down sort of structure on it, and the total cost of this land was $1,600.
We went to the county, and the county says, “There’s this structure there. What are you going to do about that? It’s kind of across the line.” They were like, “Well, we’ll tear it down. The property owners, you and the other guy, to have that torn down” at whatever the county discount rate was plus they augmented. So, it was like another $2,000 to have that structure taken down. So, now it’s a buildable, great lot on the lake. Now we’re into it about $3,500. The assessed value of that lot was $85,000.
Mike: Wow.
Corey: So, even if we discounted by half, I’m okay making $40,000 on my $3,500.
Mike: Yeah.
Corey: That one is just one of the examples that came out, and another example just being in the list. I tell people that taxes are about being in the list, meaning get as many lists as you can, review them for what’s there, make decisions as fast as you can. We noticed a lot of parcel numbers of land, which normally we would have really kind of ignored, because we’re not big land buyers. You can be, but we’re just not.
We noticed a bunch of sequential parcel numbers. So, we thought, “That’s kind of odd. Is that in a neighborhood? What is that?” So, we started pulling the string a little bit more, and we discover that back in ’75, some neighborhood was approved. Fifty-five lots in this subdivision, so it was an approved subdivision that just never decided to get built.
So, we’re like, “I wonder if, and I wonder if that.” It was about $25,000 in taxes owed, and we got a hold of the owner, who wasn’t going to redeem, but we weren’t sure that’s why we wanted to get a hold of her, and she was willing to have some discussion. I went to the county, and said, “Hey, county. Are you going to honor all these agreements about this being a real subdivision?” Some were septic. All of it was city water, by the way. Some of it was city sewer, half of it was septic. Well, we were like, “Are you going to honor?”
The first thing they said was, “Well, you need to resubmit all of that, because the rules are different now.” We’re like, “Come on. You did it all.” Ironically, they were like, “Okay, fine. We’ll honor all those agreements.”
The agreements were, leaving it all planned as is, septic systems as is. The city water as it was. They even kept the agreement that was bringing the road, the black top, as far as each house gets built around this big circle. A big race track like a big oval, right?
Mike: Wow.
Corey: So, even the road is all in there. So, we went to her, and said, “Hey, what can we work out?” The taxes were $25,000. She took an additional $25,000. So for $50,000, we were a into 55 plotted, approved, city sewer, city water, part septic subdivision. It was like, “Are you kidding me?” So, that was a real find. Took some work, but it was just being in the lists.
So, by the time we go ahead and build those out ourselves, because my partners are builders, so we’re going to build those out. That’s going to be about a $1.5 million net for us, said and done. We want to sell them this year price, not making it a three year deal. We want to get them done. So, we went and finished some of the developing, got some clearing done, etcetera. So, that’s on a tax sale list.
Mike: Wow, that’s fantastic.
Corey: It’s unbelievable. So, do those come around every day? No, but I tell people, once you’re in the business, you just never know what comes along, and all these things can be on tax sale lists.
Mike: Yeah. We talk about it a lot. We’ve said it a few times, recently, even is that at the end of the day most of us, people that interview on the show like you, we’re in the opportunity business.
Corey: That’s right.
Mike: So, I think a lot of folks get hung up on this is my niche, this is exactly what I do. But once you realize that you have to be open-minded to opportunities, then the whole world kind of opens up to you.
Corey: I say practice. Practice to see them, getting help to see them, practice to see them, and the more you see, the more you can take advantage of. That’s right.
Mike: Yeah, yeah. Great. Corey, well thanks for sharing your information. I feel like this is a topic we could probably talk about for several shows.
Corey: Absolutely.
Mike: Maybe we’ll have to have you back another time.
Corey: Let’s do it, yeah.
Mike: So, tell us if folks want to learn more. I know you teach others how to do this. Where should they go if they want to learn more about what to do?
Corey: There’s a website. The best site to go to is CashFlowCommanders.com. You know, Tom and I both have a military background, so that’s kind of what we go with. CashFlowCommanders.com is a great way to get involved with us. We stay that way because we love the hold. I know I’m on a FlipNerd.com show, but we love the hold stuff. We love the tax advantages of holding. We love passive income. You know, the rich dad idea of out of the rat race on things. You can roll out of bed, and still get paid.
Mike: Right.
Corey: Real estate should be fun, and flipping is awesome. But flip because you love to and want to, not because you have to.
Mike: Yeah, yeah.
Corey: I know you mentioned that before, too, getting some holds. So, we love the idea of getting that cash flow, and using these tax sale properties to actually build your wealth so you can stop working and just do real estate if you want to, because it’s fun.
Mike: Yep. That’s fantastic. Yeah, and there are some misnomers with our name of FlipNerd.com. I would say generally speaking, it’s a universal term for all that is real estate investing. We celebrate all real estate investing.
Corey: That’s a good definition.
Mike: Awesome. Well, we’ll add the website you just provided down below the video for those that want to check it out. CashFlowCommanders.com. Corey, thanks so much for being here today. Definitely appreciate your time, and appreciate you educating us a little bit on tax sales.
Corey: Absolutely. I had a lot of fun. Thank you so much.
Mike: All right, we’ll see you again.
Corey: Take care.
Mike: All right, bye-bye.
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