How to Buy Back Tax Property (CFFL 556)
How to Buy Back Tax Property (CFFL 556)
Transcript:
Jack Butala: Jack and Jill here.
Jill DeWit: Hi.
Jack Butala: Welcome to the show today. In this episode Jill and I talk about how to buy back tax property. It seems basic, but-
Jill DeWit: There’s a lot to it.
Jack Butala: -it’s requested. It’s a heavily requested topic let’s put it that way.
Jill DeWit: Yes.
Jack Butala: Before I get into it let’s take a question posted by one of our members on the landinvestors.com online community, it’s free.
Jill DeWit: Okay. Aaron asks, hey, I’m getting ready to sell my first property in Oregon. The buyer is interested in a terms deal. I am wondering if the contract/purchase agreement needs any stipulation regarding specifically against growing marijuana as it is legal in think state, yet it still federally illegal. What protection do I need as a seller, does having an LLC or an addendum to the promissory note give any added security here? Is this even something to be concerned with?
Jack Butala: Yeah.
Jill DeWit: And my answer-
Jack Butala: Yes, it is something very to be concerned with.
Jill DeWit: Go for it Jack.
Jack Butala: Even though that sentence is incorrect. Yeah, you want to make sure if you ever signed a lease, and all of us have for apartments and stuff it says, hey, you agree to not do anything that’s illegal in any way on this property. It’s no different for land versus apartments or houses or anything else.
Then at that point, I’m not a lawyer, this is incredibly important and could sink-the-ship topic so you want to make sure you really get real legal advice on this, but it’s not so much … This is true for all kinds of legal advice. It’s not so much philosophical as it is all right let’s just say the guy buys a property. He’s the owner now, not you. He’s making payments and he’s doing some illegal stuff on the property. Are you responsible? If the legal answer is no, no, no you’re not responsible at all, you don’t just close the file and forget it and go on your way. You play it through in your head.
Let’s say a guy really is making drugs on a property that I sold him.
Jill DeWit: But it’s terms, this is the whole thing it’s a terms thing is why.
Jack Butala: I understand.
Jill DeWit: Yeah, no, no I’m telling not you Jack.
Jack Butala: Oh, oh.
Jill DeWit: I’m telling the listener. The reason we’re getting worried about this and talking about it is because it’s a terms deal because you still own the property. They’re making payments to you, once you sell the property it’s a whole different ballgame.
Jack Butala: It’s sold.
Jill DeWit: That’s what I mean.
Jack Butala: The property is sold to the guy he’s just making payments. Just like a house.
Jill DeWit: Right.
Jack Butala: You purchase the house, you’re making payments to the bank, he purchased the land, he’s making payments to you, who’s acting as a bank, he’s responsible for the house and what goes on there.
Jill DeWit: Right.
Jack Butala: If a bank like Bank of America let’s say gave this person a mortgage and then all kinds of illegal stuff went down, the cops are not going to show up at the Bank of America’s door and say, what the heck-
Jill DeWit: Right.
Jack Butala: -you let this go on. So that’s my point about thinking it all the way through, forget about what the law says, that’s great. If it gets that far and everybody’s loaded and they can pay lawyers for ten years to have court figure it out, but that’s not really what happens. What ends up happening is you got to deal with this stuff in the real world.
Jill DeWit: Right.
Jack Butala: My gut tells me you’re probably okay, but I would really check it out for sure.
Jill DeWit: Right. Did you understand my point?
Jack Butala: Yeah, Jill, absolutely.
Jill DeWit: Okay, good. All right. It’s like say it’s a car, say you can’t sell someone a car … If someone’s making payments on a car for you, you can say in the payments, don’t drive it to Mexico because insurance is weird there, you can do that, but if you sell a car for cash and it’s 100% your name is out of it, you are not responsible, they can drive it anywhere they want.
Jack Butala: Right.
Jill DeWit: It’s not going to come back on you. That’s why this is important.
Jack Butala: It’s really different than renting-
Jill DeWit: Yeah. You know what … Here’s another thing too, Aaron. Okay let’s just play this out. This is the whole situation, now you as the owner and the seller, you might not want to do a terms deal.
If you’re in any way worried that these people might be buying this property because it’s in a real lush area, it’s perfect for doing this, I’m not going to do terms so I don’t even have it, that’s not even going to come back to bite me. I’m going to sell it for cash and I’ll hang out until I get a good cash buyer.
Jack Butala: Exactly.
Jill DeWit: Thank you.
Jack Butala: If you have a question or you’d like to be on the show, reach out to either one of us on landinvestors.com. Today’s topic, How To Buy Back Tax Property, this is the meat of the show.
This is what Jill said right before we turn the mics on. Oh, this is your show, I don’t have to do anything.
Jill DeWit: I was waiting for it to be something else. I’m like, um.
Jack Butala: Maybe next show is going to be like, How To Stay Motivated, then that’s what I’m going to say. Jill [inaudible 00:04:37] I’m going to watch TV.
Jill DeWit: I’ll be over here. Call me when you’re done.
Jack Butala: Turns out she’s right, as she always is 98% of the time.
Jill DeWit: Yeah.
Jack Butala: How to buy back tax property. Here’s an overview 35,000 foot overview. There’s two types of back tax property out there in the universe. Number one, the real simple kind where you buy a deed. The properties up at auction, it’s called tax-deed property, you go to the auction, you’re the high bidder, you own it. You own the property, that day or whatever the stipulations are. You put the money down, and you go jump up and down on your property and film it and sell it for more. We’ve done it thousands and thousands and thousands of time minus the jumping part. Now we just hang our head and say, man, we’ve got a lot of work to do.
Jill DeWit: Right.
Jack Butala: Tax liens are a little bit more complicated, but I will keep it simple. A tax lien it’s the right, you’re purchasing the right to do some stuff with the property as an … You have an equitable interest, that’s a technical term. You can now make decisions based on the property.
John Smith who owns the property, he stops paying his taxes, a lot of years go by and if it’s a lien state they issue a lien and investors can buy the lien. Now the investor that buys the lien if John Smith has a couple choices he’s going to say, nah, forget it I never wanted this property anyway. Then the lien holder, the tax lien holder can foreclose on him and own the property, the result is the same as a tax deed, but it’s a little bit more lengthy and there’s some legal stuff to do.
The trade off is that you can truly buy property for the amount of back taxes that are owed on it. In a lot of cases it’s worth it, but that’s for you to decide. That is a tax lien. Go ahead Jill.
Jill DeWit: Isn’t this the reason the county is doing this is because it takes the work off of them and puts it on you? They can make money off it, right? Can they make much money off it?
Jack Butala: No-
Jill DeWit: Or are they more just taking the burden off of their plates.
Jack Butala: [inaudible 00:06:46] playing logic to government.
Jill DeWit: Oh, this is just some crazy person’s idea of I don’t know what.
Jack Butala: Crazy person’s idea?
Jill DeWit: Crazy county person idea of a way of complicating it even more?
Jack Butala: I think really, I should write a book on this too. When I researched it, before we did the cash flow [inaudible 00:07:06] program, the tax lien scenario puts a middle step in the tax deed scenario. It’s all in favor of helping the buyer, I’m sorry, helping the owner, give them a little bit more time to get their stuff together to get the money together to own their properties, continually own their property. That’s my understanding.
Jill DeWit: Mm-hmm (affirmative).
Jack Butala: That and then there’s another theory that it’s like a complicated investment vehicle like the stock market and derivatives and stuff.
Jill DeWit: I’m going with that one. Anything that says complicated.
Jack Butala: To make rich people richer.
Jill DeWit: There we go and that’s the one, that’s the reason I think.
Jack Butala: I love tax liens, I love them, you have to be real organized. You can buy some property, I’ve bought property on tax liens, thousands and thousands of acres for like 20 grand. Tax liens are a great way to invest.
Lately it seems that Wall Street has literally put together funds and stuff, you know how there’s a fund for everything?
Jill DeWit: Mm-hmm (affirmative).
Jack Butala: They put together funds for you just by tranches of tax liens for millions and millions of dollars and they get tens of millions of dollars worth of property and then they don’t know what to do with it. Anyway that’s a topic for a different show.
Jill DeWit: Mm-hmm (affirmative).
Jack Butala: Those are the two types of back tax property. To make it a little bit more advantages some counties especially out west have what’s called OTC property or over-the-counter property. That’s the property at the end of the line where you call them and you say, hey, I know you had an auction for all this stuff, can you send me a list of the property that didn’t even sell at the auction, nobody wanted it.
Jill DeWit: That’s my favorite.
Jack Butala: Oh, yeah, that’s the OTC property, over-the-counter property. We buy [inaudible 00:08:49] regularly buy property over-the-counter in certain states Jill and I do every month.
Jill DeWit: It’s cheap and it’s easy.
Jack Butala: And it’s fast and there’s no competition and-
Jill DeWit: Let me back up, can I ask you some questions here?
Jack Butala: Sure.
Jill DeWit: This comes up often and I’m not … I’m a fan and I’m not a fan depending on how you do it. If you’re doing it the hard way and the long way and you’re spending a lot of time on these, I’m not a fan. You’re going out looking for stuff and you’re only mailing back tax, out-of-state owners, boy you’re missing a lot of people.
I just talked to a guy about this yesterday. Shucks I’m trying to remember his first name, really good guy. Anyway we talked about this. He says boy I hear ya, I get it. I’m like, there’s plenty of people that live two counties over that own property that don’t want it that have still been paying on their taxes and you’re missing them and I’m buying from them, number one.
Number two, there are some times that this is appropriate. Number one, you have some spare time. On these over-the-counter things, you know an area and you’re really comfortable with it and you might call the county and do the OTC list like Jack said or even calling an HOA and buying some property off of them that they took from back taxes, that’s a great way to get some properties.
I’m not a fan 100% focusing on this, because it takes-
Jack Butala: Me either.
Jill DeWit: -overall it takes a lot of time.
Jack Butala: You still have to go out and do stuff.
Jill DeWit: Right.
Jack Butala: If you sent a bunch of mail out like we teach you don’t have to do anything, you just send the mail out and then you wait for the people to come to you. They sort themselves out.
Jill DeWit: And by the way-
Jack Butala: So buying tax property while it can be effective, it’s only effective if you already know the area, you already know the name of the person that you’re buying it from the county and you kind of jellify the whole thing.
Jill DeWit: Right.
Jack Butala: The law up there … There’s two laws that basically apply to back tax property. The law of averages, which means that to really make this work back tax property, you have to buy a lot of it and some you’re going to crank one out of the park and some you’re just going to hit a single and very rarely you’re going to actually strike out. So you have to buy a lot.
To reiterate exactly what Joseph said, now you’re in the game to buy a lot of property. If you’re going to buy a lot of property cheap, send a mail-out. I think that’s what you’re really saying.
Jill DeWit: Mm-hmm (affirmative). Well I firmly believe that you don’t go only head-on for these properties and you also don’t scrub them out. They will be in your mix.
Jack Butala: You’re absolutely right.
Jill DeWit: Thank you.
Jack Butala: Absolutely right, dead on.
Jill DeWit: Thank you. Just hit everybody. You will pick up some back tax property. We just had a call today with a guy, it’s a property he’s looking at that he’s like he would pay what was it, 6 or 800 bucks for it.
Jack Butala: Right.
Jill DeWit: 2-1/2 acres or something like that I think, he was going to pay $650 for it, it’s worth $2000 or more maybe, right? Now he found out the guy has $400 in back taxes. All right. Doesn’t mean we run from it and it doesn’t mean we eat it, that means we just account for that, right and adjust it. And guess what, technically it’s a back tax property or could be because the guys about to let it go, so he’s making him an offer to get, just so the guys going to get something out of it so everybody kind of wins.
Jack Butala: Right.
Jill DeWit: Thank you. Thank you for letting me have a little rant.
Jack Butala: No, no. That’s where this is all going anyway. That’s what this topic is really about. Here’s the takeaway from this topic. Back tax property is not the most efficient way to buy incredibly undervalued property.
Jill DeWit: Bingo.
Jack Butala: It’s one of the most difficult and here’s why. Here’s an example I came up with before the show. I just came off of … Jill can attest to this unfortunately. I came off of recently a year-long acquisition effort, mailers and all, to buy the perfect boat.
I was naturally because of my personality and everything, I was gravitated toward the cheapest, biggest value, the cheapest boat per linear square foot and I ended up buying none of them because I got in there and found out there’s problems, there’s ownership problems, people are passed away, there’s conveyance issues, it’s not in the right country.
Jill DeWit: Physical problems.
Jack Butala: Yeah, not to mention the fact that it’s been neglected. In the end, it’s going to cost me how much to get this thing back to where it needs to be so I can actually enjoy it with my family?
Jill DeWit: Mm-hmm (affirmative).
Jack Butala: So what did I do, I went and paid almost retail for a boat that is really well maintained.
Jill DeWit: Mm-hmm (affirmative). Paid fair, good price for a good boat.
Jack Butala: Property that has back taxes associate with it is a massive red flag for the fact that there’s other things going on.
Jill DeWit: True.
Jack Butala: Not just with the property, but the ownership structure and everything else. Over the years Jill and I, like once a month Jill and I get an email that goes like this, Jack and Jill, thanks so much I listen to your show all the time and I just want to tell you that you guys are dead-on about back tax property.
I’ve been a back tax property investor for a million years and I purchased hepi depi, depi, dep and I look back at all the numbers and what I found out is I buy about 5% of the back tax properties I review and when I send a mailer out I buy about 90% of the properties that I review there and it’s all because of what I just said.
It’s so initially attractive to think that you can buy 40-acre property, buy a tax lien on a 40-acre property for $80 and foreclose on it for a couple hundred and own it. There’s so much other stuff that goes on that you have to check out.
Jill DeWit: Mm-hmm (affirmative).
Jack Butala: Liens and-
Jill DeWit: Your time.
Jack Butala: Things that you don’t have to usually have any-
Jill DeWit: My gosh.
Jack Butala: Yeah, your time. Any issues with when you send a mailer out to everybody who owns a 40-acre property in the county.
Jill DeWit: Well, let me say two things. One thing is your time, that’s one when I realize okay I just spent 20 hours this week on this one stupid thing hitting my head against the wall to get this transaction to go through right and figure this stuff out. In that 20 hours, I could have done four properties and made even more money.
Jack Butala: Or 40.
Jill DeWit: Or 40 properties, right?
Jack Butala: If your us and you know what you’re doing it’s 40.
Jill DeWit: And made more money and that’s the reality you have to really look at. What’s the point?
The other point is I love this one, it’s so common and so easy to do. People are out there driving for dollars and they come up across this gorgeous street and you’re … Look at the trees how they just hang over and look at the … Look sweetheart, there’s white picket fence and, boy, isn’t this gorgeous?
Then there’s a house at the end of the block and it’s all boarded up. You’re like oh, look at all the weeds, oh, babe imagine we could buy this and we could flip it and what we could do … you start dreaming about what-
Jack Butala: You’re a good storyteller.
Jill DeWit: What we could do, isn’t this awesome. Thank you.
Jack Butala: I have a vision in my head.
Jill DeWit: Don’t you. Thank you. It’s all boarded up, the weeds are 4-feet high, you can barely get into the front door and look in the windows because they’re all … And you’re like what we could do with this house.
Jack Butala: What’s in there, finish the story.
Jill DeWit: Oh, it’s a mess, they left fast.
Jack Butala: Who lives there?
Jill DeWit: Nobody lives there it’s all boarded up and it’s vacant. This is exactly what you come across.
Jack Butala: Is there a surviving spouse? Finish the story, Jill, finish the story.
Jill DeWit: Okay. You like this? Okay.
Jack Butala: What’s in the garage?
Jill DeWit: Then the … oh it gets dark-
Jack Butala: A ’69 Camaro?
Jill DeWit: Now the sunset is starting to come and it’s getting dark and you hear noises. You’re standing on the porch-
Jack Butala: I have a total mental image.
Jill DeWit: You hear noises from the other side of the door and you know there’s nobody there and it’s getting … Oh, yeah.
All right. I painted my picture of this home, right?
Jack Butala: Is there a ’69 Camaro in the garage?
Jill DeWit: Yes, you can peak in, you go up to the garage and there’s a window and you use the inside of your shirt to wipe off the-
Jack Butala: I use the outside, you use the inside.
Jill DeWit: -to wipe through so … There’s a vehicle under a tarp, sweetheart, bonus. We want to get this property, we know we can flip this property, somebody obviously died and it’s just sitting here waiting for us.
Do you really think, here’s my reality check, do you really think you are the first person that’s come along with this idea and it’s just sitting there waiting for you? I hate to say this, but 99% of the time you’re the 130th person who has seen this property and started down this path and now you’re wasting, you wasted all day by this first of all, because you got all excited and started-
Jack Butala: You got distracted.
Jill DeWit: -you started calling contractors to come out and look at it, because you don’t even know who owns it yet, you’re already thinking about what you could do to it.
Jack Butala: You could have put 10,000 units in the mail.
Jill DeWit: Right.
Jack Butala: Offers in the mail.
Jill DeWit: Right. Next thing you know you’ve wasted a week to find out there’s a reason why it’s boarded up. It’s in a legal mess and the cost and the time and the energy to undo it because it’s six generations now, people are gone and they can’t find the documents and the attorney even gave up.
Attorney’s fees are more to get this undone, are more than the house is worth. This is the reality.
Jack Butala: That’s right.
Jill DeWit: I want to paint this picture just to remind everybody that-
Jack Butala: Unless the Camaro’s worth a lot.
Jill DeWit: Yeah, you haven’t even got that far. Well, again-
Jack Butala: I’m just joking.
Jill DeWit: I know. It’s just not worth your time.
Jack Butala: You can’t mechanize that either. You can’t automate it. You can’t automate driving for dollars. You can’t automate buying back tax property as much as you think you can.
Jill DeWit: That’s good, and you can’t automate it, you can’t grow it.
Jack Butala: You can’t scale it,
Jill DeWit: That’s it.
Jack Butala: You can’t repeat it. What you can scale and repeat is sending unsolicited offers out and [inaudible 00:18:47] sending a sea of offers so that the people who do want to sell the property to you, find you.
Jill DeWit: Right.
Jack Butala: You don’t like your acquisition situation, send out more mail, or change the pricing. Too many offers are going out, adjust it back down. Jill and I have these conversations [crosstalk 00:19:08].
Jill DeWit: Pick a different area.
Jack Butala: You have complete control of the risk associated in your real estate career. That’s another takeaway from this. With law auctions you have no control.
With driving for dollars and the beautiful story that Jill [inaudible 00:19:21] if you have work that’s actually worse because now you’re emotional and you actually look at the property, I mean it’s a mess.
The reason that I wanted to put this in here is because we get so many questions about back tax property and I see people teaching other people, teaching the value of buying back tax property.
Let me end on this, I want to dispel a few myths about back tax property. You will never, ever buy your primary residence in a back tax auction or in a tax lien auction, it’s never going to happen.
Everybody who’s successful financially at selling back tax programs and education tells you that lie. That you can buy a beautiful house for just the amount of back taxes that are owed. That’s just not how it works.
You can buy an ugly apartment building in the ghetto and make a ton of money, but you’re not going to buy a primary residence. That’s what sucks people in and it really makes me mad when I see that.
Jill DeWit: Mm-hmm (affirmative). I agree, thank you Jack.
Jack Butala: You will never automate back tax acquisitions and if you’re going to buy tax liens in an urban area, you’ll be up against Wall Street acquisition people and you don’t want that.
Jill DeWit: Mm-hmm (affirmative).
Jack Butala: Why the headaches, why do it?
Jill DeWit: Yeah, why make it hard for yourself?
Jack Butala: Have you ever heard of a Wall Street firm sending out blind offers, no way. They’re not organized enough, they don’t get it. A bunch of dingdongs work there, trust me. I used to be one.
Jill DeWit: We had one guy one time remember that? He was in this big group of investors and he has a pretty big company that they’re buying a couple million dollar, hundred door maybe 50 to 100-door apartment complexes and he was the one guy that said, we do … He doesn’t really know how to do it right it sounds like-
Jack Butala: No. Not at all.
Jill DeWit: -but he has had some positive results from direct mail, so they still do direct mail.
Jack Butala: He also has said that the people that are backing him on these acquisitions are private equity groups like KKR.
Jill DeWit: Right.
Jack Butala: So it’s hard to lose.
Jill DeWit: Right.
Jack Butala: This is for regular people.
Jill DeWit: Right.
Jack Butala: When I was younger people would say, hey, you’re never going to buy a house, like just what I just said to make me want to go out there and do it.
Jill DeWit: That’s how I am too.
Jack Butala: I know you are that’s why we’re together.
Jill DeWit: Oh, you’re just a girl, you can’t do that. Oh, yeah, watch me.
Jack Butala: Oh, my God. Did somebody ever say that, I can’t imagine.
Jill DeWit: Oh, yeah.
Jack Butala: God help somebody if they said that to you now.
Jill DeWit: Oh, yeah.
Jack Butala: You’re just a girl.
Jill DeWit: I know.
Jack Butala: Oh, my God Jill.
Jill DeWit: Yeah.
Jack Butala: Write a book about that.
Jill DeWit: Mm-hmm (affirmative), maybe I will.
Jack Butala: Join us in the next episode where we discuss the Power Of Being Debt Free. Oh, I didn’t write that title.
Jill DeWit: Oh, that is going to be awesome and we answer Joshua’s question about pricing by square foot.
Jack Butala: Good, I can help there.
Jill DeWit: Yep.
Jack Butala: You are not alone in your real estate ambition.
Good show Jill.
Jill DeWit: I’m glad you liked my-
Jack Butala: I loved your story.
Jill DeWit: -my picture.
Jack Butala: We should have story time with Jill.
Jill DeWit: We could do story time with Jill.
Jack Butala: I would get a glass of milk and put a little blanket on the floor and listen to your story.
Jill DeWit: You know what, I can do it in the next show and tomorrow’s show. I’ll tell some stories about life being debt free and life not being debt free.
Jack Butala: Okay. Can you tell the story of Mr. and Mrs. Smith who live in a house and they’re debt free and how happy they are?
Jill DeWit: I am happy to do that for you Jack. Get your blanket tomorrow.
Jack Butala: Information and inspiration to buy undervalued property.
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