Truth about Property Tax Bills (LA 777)
Steven Butala: Steve and Jill here.
Jill DeWit: Hi.
Steven Butala: Welcome to the Land Academy Show, entertaining land investment talk. I’m Steven Jack Butala.
Jill DeWit: And I am Jill DeWit, and I am, we are, broadcasting from beautiful southern California.
Steven Butala: After I turn the lights on.
Jill DeWit: Thank you.
Steven Butala: Today, Jill and I talk about the truth about property tax bills all week. It’s everybody just wants the truth week.
Jill DeWit: Yeah, we just want the truth.
Steven Butala: We get so many questions, yeah.
Jill DeWit: You can’t handle the truth.
Steven Butala: Jill and I have built … That only took two episodes for you to say that.
Jill DeWit: I know. I beat you to it.
Steven Butala: Jill and I built this whole company on this concept. In fact, in the end it was a material point. It was a turning factor for us to actually do Land Academy. You know, we buy and sell real estate every day. That’s our real job, but we decided to do Land Academy because just nobody seemed to be doing it right. Everybody, there’s so much bad information out there.
Jill DeWit: And basically, our land-buying customers were coming to us and asking us to share, and we did. We did. It was like, “There’s enough property to go around.”
Steven Butala: They’re like, “What do you mean? It’s that easy?”
Jill DeWit: Yeah.
Steven Butala: Yeah, it really is.
Jill DeWit: Kind of. There’s a lot of moving parts, but …
Steven Butala: If you know about data and you understand acquisitions or you have a huge interest in it and a lot of time to dedicate to it, it pays out.
Jill DeWit: Yeah, and you can learn. It does.
Steven Butala: We have hundreds and hundreds of examples of people in our group that really are shining examples of this.
Jill DeWit: Exactly.
Steven Butala: I put an order in for one of our staff. I don’t think you know about it.
Jill DeWit: Okay.
Steven Butala: I asked one of our staff members to send an email out to all of our members, just writing one little paragraph.
Jill DeWit: I’m listening.
Steven Butala: It’s a testimony. It was on a web site. I don’t like to brag about it, but the truth is people … Everybody needs the truth. People need to know what’s going on with their members and how and why they’ve made it work for themselves, that kind of thing.
Jill DeWit: Oh, okay. Cool.
Steven Butala: Before we get into the topic, let’s take a question posted by one of our members on the Land Investors online community. It’s free.
Jill DeWit: Sarah asks, “I’m a mildly successful real estate agent and pretty good at getting listings. I’m thinking about plying my skills to purchase land or houses and then turning the deal over to a flipper. Do you have any examples of members who do this?” One, two …
Steven Butala: Do we have any real estate agents? Do you know the answer to this question? Do you have any examples of real estate agents in the group who have applied this skill to doing their own deals?
Jill DeWit: I have real estate agents in our group, yes. We have people that have done this in their group. Are they the same people? I have to look. I’m not sure. I’d have to check. But the quickest way to find out, Sarah, is doing exactly what you’re doing by posting it here, because I’m willing to bet by the time this show airs you probably have four that have weighed in, seriously, and said, “I’m doing it, I’m doing it,” whatever.
None of this is crazy. The only thing, when you’re a real estate agent, you do have to disclose certain things depending on the states and the laws and things like that, even though you’re not representing somebody else, you’re buying and selling for yourself so you’re your own investor. Some states, from what we’ve heard, do require you to disclose certain things about it. That’s it.
It’s like if you’ve ever driven by a house and you see a for sale sign out front and they say “agent/owner,” they’re required to do that. They don’t just do that as, “Hey, I’m volunteering that information so you know how cool this is, I happen to be an agent and I happen to own it so the commission’s staying here,” whatever it is. It’s usually they’re doing that because it’s a requirement by the state.
Steven Butala: Here’s the super good news. You’re good at getting listings. It’s basically the same skill. You got there first. I started out as a commercial real estate agent in Michigan, in one of the worst … In Detroit. In Detroit, in one of the worst economic environments, and still did okay. Through that, I learned, hey, if I can find somebody who wants to sell a building, a complicated building like a long-term care facility, and I can successfully find a buyer, across the country, it was very complicated, I think I can probably find a land seller who’s willing to sell and put a land buyer together. Maybe I’m the buyer, and then I just mark it up to the seller. I find it’s the same basic skill.
Jill DeWit: I just thought it too. I just thought it too, as a matter of fact. I know a guy, he’s a broker here in southern California, and he’s doing it. He’s doing it because … It’s like he’s finding the deals, he’s using our program to find the deals, get the deals, and then as he sells them to the guy, he takes a commission off it.
Steven Butala: Wow, that’s a great way to do that.
Jill DeWit: That’s what he’s doing. I just …
Steven Butala: He’s got no skin in the game that way.
Jill DeWit: No, no. It’s great. It’s awesome.
Steven Butala: Wow, good for him.
Jill DeWit: He’s getting a deal. He’s getting some money, because he’s got investors that are helping buy the deal, right, so he’s getting a piece of the action on the buy side, because he’s using it to source the deal, find the deal, they fund the deal, it’s great, now it’s owned by them, now he goes and markets it and sells it for them, and takes a commission, which is brilliant.
Steven Butala: Absolutely. There’s a hundred ways to cut this up so that you can make it work for you. Our most successful members take the basic concept and they make it work for them some way.
Jill DeWit: Yeah, that’s awesome. Good plan.
Steven Butala: Today’s topic, the truth about property tax bills. This is the meat of the show, but all week this week it’s the truth. Everybody just wants the truth. Here’s some myths that I’ve heard direct that are not … They’re myths, but I only know about them … I know the truth about it, I always have, but it’s clear to me as the questions that we get, we’re going to answer them all right now.
“If my property gets foreclosed on, does it affect my credit? I own a piece of land, right? I own it free and clear, and I stopped paying the back taxes for whatever reason, or maybe my parents did because they’re old and they just don’t care about the property anymore, or maybe it’s just not a priority for whatever reason. Does that affect their credit?” The answer’s no. Real estate does not … The real property, just not even with taxes, but it’s a whole thing about real property, it’s not like a mortgage where there’s a lien or anything. It just stays with the real estate.
You, as an individual, without a corporation at all or any other entity, could own thousands of pieces of property and all of them could go back to the county authority or the taxing authority or the HOA. There’s no recourse or financial implication to you, except for, obviously, the loss of the property.
Jill DeWit: Right.
Steven Butala: That’s a great situation to be in.
Jill DeWit: It really is. People don’t know about it.
Steven Butala: It’s automatic non-recourse to own real estate. Now, if you own real estate with a lien on it, like a mortgage, that’s a whole different story. That’s total personal guarantee stuff. I learned that the confusion about this … Because a lot of times, we buy property from people who have gone through some type of mortgage foreclosure on their primary residence and they ask us, “I really just want to get this … I want to sell this to you because I don’t want to go through that again.”
Jill DeWit: Right.
Steven Butala: We don’t sit around and correct them at all, but the truth is if you stop paying your property taxes, or if you own a ton of property like we do and just decide not to pay property taxes that year, it’s not going to affect you at all.
Jill DeWit: Right. If you have some debt on it … That’s what happens with the primary residence, it’s because you had some outstanding debt on it. That was a whole different thing.
Steven Butala: Here’s another thing. Property taxes stay with the property. If you buy a property and you check the property taxes and there’s $1,000 of back taxes and you buy the property from John Smith …
Jill DeWit: That’s a good myth, yeah.
Steven Butala: Right now, John Smith owns the property and he owes $1,000 on it. If he deeds it over to you for $1,000, and you pay him $1,000, now you have inherited that liability and you still have to pay the taxes on it.
Jill DeWit: Isn’t that funny? It’s amazing.
Steven Butala: Here’s my whole point. Here’s the takeaway. Liens and … Not liens. Taxes in all forms stay with the property. They don’t stay with the owner. A lot of people don’t know this.
Jill DeWit: I know, it’s really interesting. I have another myth.
Steven Butala: Yeah.
Jill DeWit: Okay, like every time you buy a house, all the taxes are done and current up to that exact day. They’ll even prorate it so you’re paying … If you buy the house in the middle of the year, you pay the first half of the taxes and then the seller pay the whatever, the other half. You know what I’m trying to say. But that’s not the same with this.
Technically, with property taxes, like you just said, not only does it stay with the property, it doesn’t have to be settled up the day that you take ownership. I love this, and I use this as a … This is perfect for land sellers. I use this as a nice thing for buyers.
Sometimes we’ll sell property, like Steven just used that example. Maybe I paid $1,000 for a property that’s worth five, and the guy has $1,000 in back taxes on it. You know what? I don’t really feel like catching that up too, or maybe I didn’t have time. Whatever it is, I properly conveyed that on my posting, like, “Hey, I’m now selling this property that’s worth five for $2,000. P.S., you need to know that it also has $1,000 in back taxes on it.”
You want to always disclose that information. My seller is coming along, thinking, “Okay, so I’m getting it for three. I have to pay them two and I owe the county one, so I’m still getting a $5,000 property for $3,000. Great deal, right? Okay.” Here’s the thing. They call me up and they say, this happens all the time, “Okay, Jill, I’m buying this property from you for $2,000 and I know that you said in your posting that the county is due $1,000 in back taxes. Do I pay that now? Do I pay it when I record it? When do I do it?”
It’s so nice for me to say, “Take your time. All you do is pay me. You need to know you’re assuming that $1,000. If you want to pay it next summer when you’ve saved it up, or however you want to do it, pay it at Christmastime, you’re getting a bonus, whatever, that’s up to you. You just need to know the situation we’re getting into. It doesn’t have to be done right now.” Which is, for me, it’s a nice selling point, because some people go, “Wow, this is great. I can budget that last $1,000 out. This is even a better deal.” I don’t know if you think that sounds silly, but I use that. I use that.
Steven Butala: You know what’s interesting? Because you and I, we’re a good team because you always have a people’s perspective on everything and I don’t.
Jill DeWit: Thanks. What’s your perspective?
Steven Butala: Here’s the thing about taxes. Here’s the truth about property taxes. They’re good. When can you ever say that about taxes?
Jill DeWit: Why are they good?
Steven Butala: Here’s why.
Jill DeWit: Okay.
Steven Butala: Everybody can’t stand the taxes. Property taxes, in 30 seconds or less, here’s the history of property taxes. A bunch of people from Europe came over to what is now known as the United States, conquered, then they split the whole piece of real estate into one-square-mile chunks and gave it away.
Jill DeWit: As a section.
Steven Butala: It didn’t cost them anything, except for the cost of whatever they incurred to get here and all that. As a section. Why would they give it away? So they can tax it. They gave it away to farmers and homesteaders. That’s what homesteading is. Then they taxed it. So now they have themselves a government revenue stream. Everybody wins. The guy who got the property who’s a homesteader or the farmer or the developer, and now he’s paying, back then it was five to $10 a year, and they own the property. There’s a deed. They won. The government wins because now it’s got a little bit of a revenue stream. They can put roads in and infrastructure. It’s not a bad business model.
Jill DeWit: It’s really not.
Steven Butala: Then, to add to it, they allowed for the taxes … They wrote the laws like this … To tax his estate with the property. Every year, get this, this is really the takeaway from this, every year people get a tax bill. Landowners and homeowners and everything else. It forces them to say, “Do I want this property? Do I want to keep writing checks to this county for stuff I’m not using, or do I want to get a check from Steve and Jill? Because they just sent me an offer, and yeah, it’s a little bit lower than I thought, but I’m not usually going to use the property and I’m really tired of writing this check.” It drives the real estate business.
People ask me, “Man, is it too late? Is it too late? Am I too late to the game?” No. The whole thing’s going to happen again next year, probably times four, because they’re all going to get tax bills again and they’re all going to say, “You know, sweetheart, I got this bill again and you didn’t want to sell last year. How about now?”
Jill DeWit: Isn’t that funny? That’s one of the things that we notice here in the land business, and what we all do, is that we joke about it in our online community. Like, “Uh-oh, it’s tax time. Here come all the calls.” It’s funny, but it’s true.
Steven Butala: We don’t sit around and track tax time, but we know when it hits.
Jill DeWit: No, and we don’t try to send our mailers and time it like that, but we know that, because we send mailers out year-round with these offers and there’s people that want to act on them right away for whatever reason, something’s going on, and the other people, whoever it sings to, they’re like, “This is on my mind,” it always goes in their file, and it’s so darn funny. Then like you’re saying, so twice a year, these tax bills arrive. What do they do? They go to their file, look it up, and go, “All right, now I’m calling this Land Academy group. I’m calling these people. I’m calling Jill whoever. Who sent me that letter? Steven?”
Steven Butala: “Yeah, remember that offer we got for $4,200 and 13 …”
Jill DeWit: “Sweetheart, dig that out.”
Steven Butala: “Yeah, let’s call and see if those guys are still in business.”
Jill DeWit: “Exactly. Oh, and don’t tell them …”
Steven Butala: That’s the first thing they say.
Jill DeWit: “Shh, don’t mention the back taxes. Maybe they won’t know and just buy it.”
Steven Butala: “Hello, are you still in business?” Every single time.
Jill DeWit: Exactly. It’s so true. Those are my favorite. I love those, because we have people that have hung on to these letters, our letters, for over 10 years. It’s so great to get these calls. They’re like, “Oh my gosh, I can’t believe you answered the phone.” You know, that’s the best. We’re like, “Yeah, we’re still here.” It’s really good. I think we covered that.
Steven Butala: Well, you’ve done it again. You spent another 15 or 20 minutes listening to the Land Academy Show. Join us next time, where we discuss the truth about Ugly Houses. The Ugly House franchise versus House Academy.
Jill DeWit: Oh, this is going to be good.
Steven Butala: Yeah. Could be a rant.
Jill DeWit: And we’re going to answer your questions, should you have one, posted on our online community. It is free. Please go find that and sign up. It’s LandInvestors.com.
Steven Butala: You’re not alone in your real estate ambition. Man, we covered that.
Jill DeWit: I think so.
Steven Butala: I know I’m missing some stuff, but that was actually relatively helpful, I think.
Jill DeWit: I’m sure it was.
Steven Butala: Everybody thinks property taxes are so bad. You know what we didn’t talk about? Why the heck property taxes in certain states are so high and why they are not high in other areas, and it’s directly associated with the costs that they incur. For example, did you know California’s number four …
Jill DeWit: That’s what I was thinking.
Steven Butala: … On the cheapest state for property taxes?
Jill DeWit: I’m sure it’s, as a whole, not …
Steven Butala: New Jersey’s number one, but here’s why property taxes are so darn expensive in California. Because the property’s worth more. To look at that … We didn’t cover this either. It’s calculated … Everybody’s got a different way of calculating property taxes, and they’re all need-driven, which I’m not a fan of. They’re all because, “Oh, it costs more money to run this county than it does in a rural county in Arizona, let’s say.”
Jill DeWit: Exactly.
Steven Butala: There’s some truth to that, but … Man, we could go off on this.
Jill DeWit: I know. It’s okay.
Steven Butala: I think we made our point.
Jill DeWit: I think we did. Share the fun by subscribing on iTunes or wherever you are listening, and while you’re at it, please rate us there. We are Steve and Jill.
Steven Butala: Information …
Jill DeWit: … And inspiration …
Steven Butala: … To buy undervalued property.
If you have any questions or comments, please feel free to email me directly at steven@BuWit.com.
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