Tax Deed/Tax Lien Auctions Aren’t the Best Way to Invest in Tax Delinquent Property

So... you've figured out that investing in real estate is one of the best ways to make a great return on your money and build toward a secure future. You've gotten your feet wet, maybe flipped a property or two, or gotten a few rental properties. And, unfortunately, you've probably learned the hard way that Carleton Sheets and all the big real estate "gurus" were exaggerating a little when they painted the picture of collecting hundreds of thousands of dollars like it was passing "GO" on a monopoly board.

So now what? Where's the big money?

I'll tell you where it's NOT: investing in tax liens at the big tax sale auction your county holds every year. I can't figure out why so many people clamor to bid on the properties that have been lost due to unpaid taxes: shouting up the price, bidder after bidder, to close to retail value. What are they thinking? Don't they understand that they have to hold those liens for sometimes YEARS before they'll get a chance to see any money from it? Don't they know that most of those liens end up paid off before that period of time is up?

I just don't get it.

While everyone and his brother is rushing off to the tax sale, I've been sitting quietly on the sidelines, making a few phone calls, sending out a few letters, and snatching all their deeds right out from under them-- just before the waiting period is up. Understandably, it makes them very frustrated; they've started calling me "Deedgrabber" under their breath, as though it were an insult. But I wear it as a badge of honor.

Why?

Because I was smart enough to come up with a system that that beats theirs, hands-down, every time. I had to; I looked all over the internet for e-books on other ways to make money in real estate, and didn’t find anything that wasn’t bogus. And after attending only one tax sale, I realized it was not a battle I wanted to fight. However... real estate was a war I wanted to win, so I had to come up with a strategy to get ahold of that tax-delinquent property before the tax sale.

I had the bright idea of trying to contact an owner of a tax-delinquent property directly by phone. I was expecting the worst; I'd gotten next to no responses when trying to contact owners in mortgage foreclosure. So imagine my surprise when a friendly woman answered the phone, and started telling me all about the property I was calling about... how she lived across the country and had inherited it when her elderly aunt passed away. After a few minutes of conversation, she came to the point. "I really just want it out of my hair," she sighed. "I have to tell you, I've been so busy, it never even occurred to me to pay the taxes... I didn't even realize it was going to tax sale." After that, it was easy. I offered to pay her some money to allow me to take care of the situation and even to overnight all the paperwork to her and have it mailed back to me-- so she had to do next to nothing-- and that was it. The easiest $30,000 I've ever made.

So… if it’s not obvious why this method became very appealing, very quickly to me, here are a couple of reasons. First of all, I knew the taxes on her property were likely the only debts associated with it, since if there had been a mortgage, the property never would have made it so far along the sale process. The mortgage company would have paid it off long ago to make sure it didn't lose its interest in the property to the government. Second of all, we were only weeks away from the tax sale... at that point, it was either make a deal with me, or lose all the equity in the property to whoever bought her tax lien at the big sale. I knew that would make her eager to sell to me. And lastly? All my competitors were wasting their time at the tax sale… I was the only one approaching it this way!

The side effect I didn’t expect? How friendly and grateful the delinquent owner was. Fast-forward 5 years to the present- I’m still making money hand over fist grabbing deeds. Half the time, the owners don’t even know what’s going on, and I’m the first to let them know! And when I don’t get a deed? It’s usually because I just let someone know they were about to lose a property they do want, and they are so happy I called, they want to hug me. Talk about the warm fuzzies!

Nowadays, especially with the recent economic downturn, there are so many properties with unpaid taxes (THOUSANDS AND THOUSANDS of properties in some counties!) that I couldn’t begin to take advantage of all the deals out there, no matter how badly I wanted to. That’s where you come in!