Categories
Tax Lien Guru Interview SeriesUnited Tax Liens Blog

The Tax Lien Guru Interview Series: #10 Mastering Due Diligence

The Tax Lien Guru Interview Series: #10 Mastering Due Diligence

Eric, let's talk about research that I need to do on tax liens and tax deeds. I don't want to make mistakes. Is there anything I should be looking out for? 

You bet, let's talk about the things that you want to be aware of first on your to-do list. So the first thing is figuring out: what type of investor are you? Are you an active investor or a passive investor when it comes to your tax lien investing. Remember, passive investors purchase and wait. Active investors purchase and file TDA's because they want the liens; they want the deeds. Once you've determined that, there are some very important numbers that you can go by on your research every time to make the right choices based on the right decisions you want to have happened. One of the most important things is you want to know the year on that tax lien. And that's basically going to go ahead and tell you a story. 

Can you tell us a little about redemption periods?

How soon is the redemption period going to be complete? How long is the lifetime of that certificate? And when do you need to file your TDA? So that's going to tell you a lot of information. You also want to know the interest rate. Especially if you're a passive investor, you want to know how much return you will get off it. 

Even if you're an active investor and you file a TDA right now, it won't matter. You'll go to 18%, and that's how it will work. So you want to understand what the delinquency was of the face value of taxes that were owed. The reason why that's the case is that's where the interest comes from. Let's say it's an 18% tax lien on $1,000. That's what the interest is moving forward every year. It’s 18% on $1,000. So it's going to be $180 every year. Now some states are not compounding interest; some states are. Just be aware of that. Interest is definitely important. So we've got our face value, we understand what the face value is. Redemptive value is what we pay for that tax lien. Based on the face amount, plus interest to the day we purchase it. OK. So we want to understand what that is. 

And then the rollup is: it's a total of all the property tax liens against the property rolled up into one. And we pay that amount, and then we file our TDA. When we pay that rollup, remember we get 18% on that entire amount, and then we go ahead and file our TDA to move forward. Now the last thing we want to go ahead and know is our assessed value. And the reason why is that it will tell us what the county thinks our property is worth and let me cover these things again really quickly. 

So this is our research. We want the year. We want the interest rate. We want the face value. We want the redemptive value. We want the rollup, and we want the assessed value. Those are vital for us to know in making the best decisions possible. Now you also want to be in a place where you choose the appropriate state for you. Whether it's an administrative state or a judicial state, or maybe you just want to invest in tax liens that are closer to home. Or deeds that are closer to home. Learn how that process works. Now, if you're going to invest in tax liens, I would recommend you choose three counties. 

Can you give us an example of a specific state, like Florida?

If you're going to go to Florida, choose three counties that you're going to work with and get bitter numbers on those and have those be the initial counties that you work with before you go after every single county that's out there. Now another thing that you want to do on your tax liens, once you've figured out that initial — the year, the interest rate, you want to get a viewpoint of where this property is located. Because if you end up picking it up, is that going to be of value to you. Can you sell it and make money on it if you end up picking it up. So a couple of things you do want to be aware of. Is that property landlocked, which means it doesn't have any street access, right? 

You can deal with that, and there are ways to deal with it, but it's timely, and it costs money. Another thing is the property could be underwater. Another thing is the property could be undeveloped. And so is it essential to have streets and utilities. And so, when you do the research, you want to validate the market value. And when we talk about tools in a minute, I will talk about different ways to validate the value. But one of the best ways to do that, I've found both realtor.org and Zillow provide a huge vacant lot or residential, where you can see the sole comparables of that given property and the surrounding ones. 

And the ones that have sold, the dates, how quickly they took to sell, and that way you can go into that tax lien purchase with confidence knowing, hey if I have to file a TDA, I'm confident because I know if I get it I'll be able to sell it. I also know what it will sell for. So then you can move forward with your investing ROI strategy, and that's going to make a huge difference not only toward your portfolio, but to your confidence as you move towards your goals. 

Eric, let's talk about market research. Where am I going to invest, what neighborhoods, how does that all fit? 

Oh, you're talking about the analytics dream and nightmare at the same time, right. Because some of us who like information and data can get way too hung up on it. But when used the right way, you can understand the best marketplaces throughout the country and even in your own different neighborhoods. Let's talk about the big picture first; if you really want to get a handle on what's happening with the economy nationwide, one of the best resources that I would recommend is realtor.org. And they actually have these quarterly reports that show information, job growth, what sectors are growing, what's declining. Make sure you go into their presentation slides; you're going to get so much excellent data. It will help you make decisions if you're looking to invest in different parts of the country. 

Also, you can use your real estate software to figure out what the best resources are that way. You can look at it as a whole and say everything is across the economy. What you can also look at in the big picture is interest rates. Because whether interest rates are super low means lending will be a little easier, which means that individuals can typically afford more, all of those things that kind of drive the economy. So that's a big picture. Now when we're in a place where we are looking at our local market, we need to get a little bit more defined. What are some of those things we think about? 

What is the most important thing that we want to know when we're in a specific area? Well, I want to see if it's on the incline, if it's stagnant, or if it's on the decline. I want to be prepared for that in knowing what's happening. 

Can you explain this process a little further?

There's an easy way you can tell that too; you can take that certain area and tell how many properties are listed active for sale, how many are under contract, and how many have sold in the last month. I'll give you a quick example. Let's say you have two properties that are active in that area. Let's say you have 17 properties that are under contract in that area. You have 42 properties that are sold. In your mind, where do you go? It's like that's a hopping area; I can price it for whatever it's going to sell. 

What if we change it up? What if we have 32 properties active, two properties under contract, five properties sold. Well, that's telling you it's on the decline, or you have to be super competitive with how I did it or how I fix it up. So you have to know what's happening. Incline, is it stagnant, is it going down? Stay on top of it. One of those indicators also is called dom. If you don't know what DOM is, it's: days on the market. It means how many days was the property actually active until it went under contract. And so the shorter the days on the market, it means things are moving really quickly, right. And that means it's going to be a shorter time if you're doing a flip, to where as soon as you get that ready where it's going to turn quickly. So days on market are definitely important. Now see what the inventory is like, is there an inventory shortage, is there too many on the marketplace. But here are some unique things that you want to pay attention to. In an area that I went in, two major factors came into play regarding how the local economy and the local jobs affect property values. 

What can you say about the role of big business in infrastructure and real estate investing? 

Recently, a small company named Facebook decided they would go ahead and invest in a 5 million square foot warehouse facility, not too far away from one of the properties that I hold. Now with that being the case, what does that kind of tell you? You have a large company that's investing infrastructure into an area. The natural consequence is there will be more jobs; there will be more commerce, there's going to be more things that are taking place. So you got more of a buzz. What happens when an Amazon hub opens up, which it also did in this area. What that does is that it creates jobs, like energy, people moving in and around closer to that distribution center. So look and see what's happening with the local economy as well. 

Understand what's going on in that market. How are the jobs, how is the city, how's that neighborhood, understand those things and that's going to put you in a super desirable neighborhood. Look at the school districts, look at the schools and see what's happening that way. Find out where the desirable locations are, use that. Check out your days on market, because all of those are factors that are going to help you make the right decision on your investment because you're going to understand the marketplace. Use your real estate tools, too. Have your agent pull up comps for you. In fact, you're going to be able to pull up comps with your real estate software. So you may as well do that and stay on top of what's taking place. Because the more you understand your marketplace, the more confidence you will have when making your offers. And the more authentic you'll be, and the more deals you'll do. 

About The Author

unitedtaxliens

United Tax Liens is a group of experienced, active investors providing everyday people with access to one of the best Real Estate Investment vehicles available today.

Write A Comment

Your email address will not be published.