The drawbacks of tax deed investing can be summarized as follows:
Liquidity: If tax liens certificates are not liquid investments, then tax deeds are even worse. In some cases you will have your money tied up for several years before you can sell the property, because title companies may not issue title insurance on the property until all liens are cleared and it obvious that clear title can be granted. This process can take more than a year.
Complexity: Tax deed laws vary from state to state.
Time: Tax deeds sales require a time commitment to learn the rules of a state and its counties, research properties and attend auctions.
Risk: Purchasing foreclosed property at a tax deed sale definitely has some risk. You must do your homework. Remember, once you buy a tax deed, you will own the property including all of its potential problems. In addition, title companies sometimes will not issue title insurance for at least the first year on any property bought at a tax deed sale. This means it could be hard to get a loan until it is clear that everything is fine with the property.
Capital: You definitely will need more capital to buy properties at tax deed sales. Although it varies from property to property and from state to state, you will likely need a minimum of $5,000 to $10,000 to get started in tax deed investing. Check local rules and regulations.
Monday, May 18, 2009
Tax Deed Benefits
Obtain property ownership for 50 to 90 percent below market value:
Although it varies from state to state, in certain circumstances you can obtain an entire property for only the taxes and penalties owed. In many cases, you can obtain properties for 50 to 90 percent below market value
Investment secrecy:
If few people have heard about tax lien certificates, even fewer people know anything about tax deed sales. When we started researching tax sales, we found very little information on how to invest in tax lien certificates and no information on how to purchase property at tax deed sales. However, many states have tax deed sales and there are more tax deed sales than tax lien sales. The supply of foreclosed properties almost always exceeds the demand. In the United States there are thousands of counties that have tax deed sales every year. At each auction, hundreds of properties may be available. Many states have so many properties that they have foreclosure lists based on how many years the property has been in foreclosure.
Although it varies from state to state, in certain circumstances you can obtain an entire property for only the taxes and penalties owed. In many cases, you can obtain properties for 50 to 90 percent below market value
Investment secrecy:
If few people have heard about tax lien certificates, even fewer people know anything about tax deed sales. When we started researching tax sales, we found very little information on how to invest in tax lien certificates and no information on how to purchase property at tax deed sales. However, many states have tax deed sales and there are more tax deed sales than tax lien sales. The supply of foreclosed properties almost always exceeds the demand. In the United States there are thousands of counties that have tax deed sales every year. At each auction, hundreds of properties may be available. Many states have so many properties that they have foreclosure lists based on how many years the property has been in foreclosure.
What is a Tax Deed and How the Sale process works?
A deed is a document that transfers ownership to property. A tax deed is a special type of deed resulting from nonpayment of taxes.
In many U.S. states and Canadian provinces, Jerry Latepay is given many opportunities to pay his taxes. After multiple warnings, the county puts his property up for sale to investors, often for as little as the taxes, penalties and fees that Jerry owes. At a tax deed auction, the winning bidder receives the deed to Jerry's property. In some cases, Jerry may still have a short time to redeem after the sale; otherwise, the investor becomes the legal owner of the property.
The investor may have to wait a year or so to obtain a marketable title, but the investor may have just bought Jerry's property for a fraction of what it is worth.
In many U.S. states and Canadian provinces, Jerry Latepay is given many opportunities to pay his taxes. After multiple warnings, the county puts his property up for sale to investors, often for as little as the taxes, penalties and fees that Jerry owes. At a tax deed auction, the winning bidder receives the deed to Jerry's property. In some cases, Jerry may still have a short time to redeem after the sale; otherwise, the investor becomes the legal owner of the property.
The investor may have to wait a year or so to obtain a marketable title, but the investor may have just bought Jerry's property for a fraction of what it is worth.
Thursday, May 7, 2009
Look for uncommon places to find your diamonds
Ask your agent to point out listings in certain key categories.
Vacant properties, for instance, are often empty because the seller has bought another house and moved. Given the cost of paying two mortgages, the seller is often eager to make a deal. And because empty homes can appear sterile and cold, they scare off many other potential buyers.
Vacant properties, for instance, are often empty because the seller has bought another house and moved. Given the cost of paying two mortgages, the seller is often eager to make a deal. And because empty homes can appear sterile and cold, they scare off many other potential buyers.
Tree treasure
You should keep an eye out for homes that have attractive trees. Real estate agents say that mature trees can add $10,000 or more to the value of your house. In fact, it was the four 100-year-old pine and maple trees in the backyard that sold Mintz on her home. "They needed a bit of cleaning up so we trimmed them back a bit," says Mintz. "Now they give the backyard a great cottage feel." The moral? Look for homes with trees — and if your house doesn't have one, plant a sapling tomorrow.
Look for freebies
Always lift up carpets to see what the flooring is like underneath. Hardwood floors beneath old, stained carpeting are the equivalent of a $15,000 gift if you calculate what they would cost to install new. Oak bannisters, too, can often be found hiding underneath chipping paint.
"If you have an oak bannister and railing on a painted stairwell, simply stripping the paint off and staining the oak underneath can change the entire look of an entryway," says Scott Carr, a real estate salesman in North Bay, Ont. "There's real wood under there and that's worth money."
"If you have an oak bannister and railing on a painted stairwell, simply stripping the paint off and staining the oak underneath can change the entire look of an entryway," says Scott Carr, a real estate salesman in North Bay, Ont. "There's real wood under there and that's worth money."
Curb Appeal
The ideal diamond in the rough is a house that packs no curb appeal, often because it lacks an inviting front lawn. You can instantly add value by planting a few hundred dollars worth of flowers and shrubs or adding rocks, paving stones and other decorative elements.
"When we bought our house, the front lawn was a disaster — no flower beds, no winding path," says Martina.
"My husband and I took our trailer, loaded up $40 worth of river rock, brought them home and laid them ourselves. We then power-sprayed the whole front patio, got some new white numbers and front entrance door, and painted the garage door and front shutters. When you look at it now, it looks like a completely different house."
As serial renovators can attest, it's easier than you may think to find a diamond in the rough. Carole Dobson has accepted a job offer in Toronto and is already hunting for her next fixer-upper. "I don't have to move until fall," she says, "but I've already started learning a bit about the neighborhoods in Toronto and where some of the more attractively priced homes near my new work can be found." As for her home back in Calgary? "It's listed for $599,000," says Dobson. "That's more than double what I bought it for three and a half years ago."
"When we bought our house, the front lawn was a disaster — no flower beds, no winding path," says Martina.
"My husband and I took our trailer, loaded up $40 worth of river rock, brought them home and laid them ourselves. We then power-sprayed the whole front patio, got some new white numbers and front entrance door, and painted the garage door and front shutters. When you look at it now, it looks like a completely different house."
As serial renovators can attest, it's easier than you may think to find a diamond in the rough. Carole Dobson has accepted a job offer in Toronto and is already hunting for her next fixer-upper. "I don't have to move until fall," she says, "but I've already started learning a bit about the neighborhoods in Toronto and where some of the more attractively priced homes near my new work can be found." As for her home back in Calgary? "It's listed for $599,000," says Dobson. "That's more than double what I bought it for three and a half years ago."
Beware of renovations
Be cautious of homes that have already gone through major renovations. You have no assurance that the jobs were done properly. And even if they were, you'll probably wind up paying top dollar for the property.
Instead, focus on homes that don't need major work but can be dramatically improved with cosmetic touches. A true diamond in the rough needs only fresh paint, new doors and tasteful landscaping to make its exterior look substantially better. When it comes to kitchens or bathrooms, the ideal diamond in the rough needs only new tiling, a new countertop, new cupboard handles and a tasteful paint job, not structural work.
Instead, focus on homes that don't need major work but can be dramatically improved with cosmetic touches. A true diamond in the rough needs only fresh paint, new doors and tasteful landscaping to make its exterior look substantially better. When it comes to kitchens or bathrooms, the ideal diamond in the rough needs only new tiling, a new countertop, new cupboard handles and a tasteful paint job, not structural work.
Know your own limitations
Some homes that look like diamonds in the rough aren't, because the cost of updating them would be enormous. A leaky basement or a big crack in a structural wall should send you running unless you're prepared to spend $20,000 or more on repairs. Floors that are severely uneven should also sound alarms. They could be a $15,000-plus disaster if they indicate a shifting foundation. And how about those signs of water damage to the beams in the attic? They should cross the home off your list unless you're prepared to spend $10,000 to replace the roof and beams.
In general, anything you have to hire a pro to do is likely to blow up your budget. Completely redoing an old kitchen, for example, is a quick way to blast through $15,000 or more. An old bathroom will cost $10,000 or more to bring up to date if you're putting in new plumbing and fixtures.
In general, anything you have to hire a pro to do is likely to blow up your budget. Completely redoing an old kitchen, for example, is a quick way to blast through $15,000 or more. An old bathroom will cost $10,000 or more to bring up to date if you're putting in new plumbing and fixtures.
Embrace ugliness
When searching for a bargain, your best friends are dirt and clutter. Mess turns off buyers and can reduce the price you have to pay. "There was dust, garbage and debris everywhere when I first looked in my current house," says Dobson. "But I could see a beautiful floor layout. The rooms were large and spacious. And even though there was no landscaping, it had a fairly large front and backyard with a driveway and small garage. There was great value there."
Like Dobson, you have to look beyond the obvious to find a deal. First rule: get out of the car and take a look no matter how bad a place may appear from the curb. Second rule: be systematic in evaluating a home. Because clutter can deceive you into thinking rooms are smaller than they really are, carry a tape measure to check room sizes. Pack a digital camera so you can snap photos to remind yourself of key points.
If a house is broken into a warren of small rooms or seems awkwardly laid out, tap the walls to figure out which ones are weightbearing. A solid sound indicates a structural wall — one that bears weight. Changing a structural wall can cost thousands of dollars and sabotage your renovation budget.
On the other hand, a hollow sound usually indicates a non-weight-bearing wall that can be removed with relative ease for a couple of hundred dollars and a few hours of your own labor. If all that stands between you and a beautiful new floor plan are a few non-weight-bearing walls, you may have found a diamond in the rough.
Like Dobson, you have to look beyond the obvious to find a deal. First rule: get out of the car and take a look no matter how bad a place may appear from the curb. Second rule: be systematic in evaluating a home. Because clutter can deceive you into thinking rooms are smaller than they really are, carry a tape measure to check room sizes. Pack a digital camera so you can snap photos to remind yourself of key points.
If a house is broken into a warren of small rooms or seems awkwardly laid out, tap the walls to figure out which ones are weightbearing. A solid sound indicates a structural wall — one that bears weight. Changing a structural wall can cost thousands of dollars and sabotage your renovation budget.
On the other hand, a hollow sound usually indicates a non-weight-bearing wall that can be removed with relative ease for a couple of hundred dollars and a few hours of your own labor. If all that stands between you and a beautiful new floor plan are a few non-weight-bearing walls, you may have found a diamond in the rough.
Think like the next buyer
To be truly blessed, forget about your own needs. Think instead of others — specifically those future home buyers that you hope will one day hand you a big fat cheque for your house.
Think of parents, for example. Few things are more effective at selling a house than great schools. So even if you don't have school-age kids yourself, make a point of inquiring into the quality of local education. Similarly, you should think of potential landlords. A basement apartment can make an expensive home affordable to a wide range of buyers, so even if you don't want to take in tenants yourself, you may want to buy a house with such an apartment already in place. Finally, in large cities, it pays to think like a commuter — a home that is close to downtown office towers can possess value simply because it reduces travel time for buyers who work close by.
Think of parents, for example. Few things are more effective at selling a house than great schools. So even if you don't have school-age kids yourself, make a point of inquiring into the quality of local education. Similarly, you should think of potential landlords. A basement apartment can make an expensive home affordable to a wide range of buyers, so even if you don't want to take in tenants yourself, you may want to buy a house with such an apartment already in place. Finally, in large cities, it pays to think like a commuter — a home that is close to downtown office towers can possess value simply because it reduces travel time for buyers who work close by.
buy the worst house on a good street
buy the worst house on a good street, and that's still the best strategy. Doing so almost guarantees you won't overpay for a home. You can boost your property's value simply by doing small renovations that bring your house up to the level of its neighbors.
Problem is, you may not be able to find an affordable house on a good street if the market is hot. In that case, you have to be prepared to look further afield. Drive around the neighborhoods that border affluent, upscale areas. Many of these marginal neighborhoods are marginal for a good reason — it could be that a large public housing project, a smelly factory, or some other immovable and permanent feature is dragging down property values. But in a surprising number of cases, the problem isn't that bad. A neighborhood may be lower-priced simply because it was originally a blue-collar enclave with smaller homes than nearby areas. That doesn't mean it can't be gentrified. Especially if there are early signs that other renovators are moving into the neighborhood, you should take a closer look.
Carole Dobson, who has bought, fixed up and sold three homes in the last 15 years — all for hefty profits — insists on proximity to good neighborhoods when she buys. She also seeks leafy areas that have a bit of natural beauty since those advantages can't be easily bought or duplicated. "Two of the most expensive neighborhoods in the city are kitty corner from my home," she says. "And I have great mountain views." Both factors help to explain why her home's value has taken off over the past three years.
Problem is, you may not be able to find an affordable house on a good street if the market is hot. In that case, you have to be prepared to look further afield. Drive around the neighborhoods that border affluent, upscale areas. Many of these marginal neighborhoods are marginal for a good reason — it could be that a large public housing project, a smelly factory, or some other immovable and permanent feature is dragging down property values. But in a surprising number of cases, the problem isn't that bad. A neighborhood may be lower-priced simply because it was originally a blue-collar enclave with smaller homes than nearby areas. That doesn't mean it can't be gentrified. Especially if there are early signs that other renovators are moving into the neighborhood, you should take a closer look.
Carole Dobson, who has bought, fixed up and sold three homes in the last 15 years — all for hefty profits — insists on proximity to good neighborhoods when she buys. She also seeks leafy areas that have a bit of natural beauty since those advantages can't be easily bought or duplicated. "Two of the most expensive neighborhoods in the city are kitty corner from my home," she says. "And I have great mountain views." Both factors help to explain why her home's value has taken off over the past three years.
Tips for Investing in Foreclosed or Distressed Properties
1. Search on the world wide web for distressed or foreclosed properties as a starting point. Use a professional REALTOR to identify great foreclosure deals for you. You may be successful at searching the web on your own, but keep in mind some of the information is outdated, some may be incorrect, and some of the available properties are not even listed. A REALTOR subscribes to updated MLS listings and can offer you the most current information available.
2. If you search yourself for distressed properties and purchase from the selling agent, you are paying a commission to someone with a vested interest. Obtain objectivity in the sale by working with your own REALTOR. You won’t pay any more. Technically, everyone works for the seller, since they pay the commission.
3. With distressed or foreclosed properties, time is of the essence. Purchasers must close on the date specified by the agency, and cannot close after this without penalties of $25-200 per day.
4. It takes 1-3 weeks to qualify a loan. If you are approved for a loan, make sure you are qualified by your lender as soon as possible. If you are paying by cash, make certain funds are available. If finances are in order, the REALTOR will then submit an offer. When the offer is accepted by both seller and buyer, the REALTOR will submit the ratified contract to the lender and closing agent. These steps will begin the process of a successful real estate transaction.
5. When purchasing a distressed property, always obtain 3-4 bids from different contractors to estimate costs of repairs, if you do not plan on doing the work yourself.
6. If you are going to sell the property after rehabilitating it, ask your REALTOR to research similar properties in the neighborhood to ascertain market price.
7. Keep copious records for tax deductions. Any expenses related to the purchase, repair, or maintenance of the property may qualify. Meticulous records are key to a profitable real estate venture.
8. The title you receive after purchasing a distressed or foreclosed property is a special warranty deed rather than a general warranty deed. Some buyers are alarmed by this, but there is no need to worry. The purchase of title insurance protects the buyer. Each lender purchases insurance to protect the loan as well. Titling insurance should be obtained by the property purchaser. It is always offered by the closing agent. Consider using an attorney instead of a titling company as your closing agent. An attorney is only $50-75 more than a titling company. A real estate attorney can remedy any situation that may arise. Therefore, they are more efficient representatives on time sensitive foreclosure properties.
9. Foreclosure properties require special addendums and special contracts by the individual bank and HUD office (where applicable).
10. Foreclosure properties are potentially the most profitable, but require the most attention to detail. A REALTOR experienced in foreclosure deals is highly desirable because the paperwork must be in order to submit a proper bid, and timeliness is critical.
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