Tax Sale Sniper Basic Training

Transcription

1 Tax Sale Sniper Basic Training Establishing Property Values and Maximum Bids Rick Dawson / DeedGrabber.com Inc PO Box 3348 Munster IN

2 Copyright Rick Dawson/DeedGrabber.com Inc All rights reserved. No part of this publication may be reproduced, distributed or transmitted in any form or by any means, without prior written permission. DeedGrabber.com Inc PO Box 3348 Munster IN Every effort has been made to reflect the applicable laws as of the date of the publication of this book. However, tax sale investing is a dynamic field of endeavor in which new laws are enacted, old laws revised and/or reinterpreted on a continuing basis and where statutes, rulings, and case law are constantly changing In this course we will teach you how to determine which tax sales have the potential to meet your investing goals, how to prepare for them, and bid effectively at them, and how to use new tools to reduce of the time that is required for these steps to a minimum. You must bring the will to try new technology, have funds to invest in tax sales, and invest your time, effort and other resources into the business to varying degrees. As with any business you need to be legally compliant. We are not your legal advisors. You can and should work with your own legal and accounting professionals. Ultimately you must be responsible for your own actions. Neither the author, sales team, printers, licensees, nor distributors make warranties, express or implied, about the legality, merchantability or fitness for any particular use of this product. The content in this manual is for general informational purposes only, may not contain all of the applicable laws, rules or regulations, those contained may not be current, and this course is not a substitute for legal advice from a qualified attorney licensed in the relevant jurisdiction. Information provided in this manual should not be considered legal advice or a legal opinion.

3 Section 5: Establishing Property Values and Maximum Bids You should always establish a maximum bid for all properties you intend to bid on at a sale. You ll then only bid to this amount then drop out of the bidding in a bid up style sale, or bid only on liens or deeds that are available below your figure at other types of sales. To come up with our maximum bid, we need to do some quick research on property values in the county. Some Basics Except for a few states in which the county obtains the property prior to it being sold, bidders cannot inspect the interior of the property or do any other research into its condition other than observing it from the street. Do not enter or trespass on any properties on the list. Because we cannot do detailed or interior inspections of any property, we have to assume that the property will be in poor to fair condition at best (similar to the condition of most bank foreclosures at the bottom of the market). Therefore, we will look at the lowest-priced properties on the market now to get some idea of what we can expect to sell our properties for, and then look at sold prices from the recent past to confirm these figures. Even though vacant land doesn t really have a condition, we ll also look at the lower end of the market when researching land for sale, to make sure we don t overestimate its value based on a seller s wishful asking price. Larger pieces of land are usually in rural areas of a county and values tend to be consistent there, so a county-wide search is usually sufficient for land. For single family homes, we ll want to look at several of the largest cities/towns in the county (or towns with the most properties on the sale) because prices can vary widely within a county depending on the town a property is located in. If we re looking at only a handful of houses (at a tax deed sale for example), it s best to research each one individually. Where to Research We ll be able to find the data we need at just a few different sites Zillow.com, Realtor.com, and Landwatch.com.

4 To research properties individually we can just type each address into Zillow and look at the sales prices and other properties on the market nearby for each one. When we have many properties on a list (usually a tax lien list), we won t be able to give many of them focused attention. At the same time, the investment required will often be low in comparison to the value. So we ll come up with conservative values per acre of land, and look at the bottom of the house market for each town to start with. Research Each Zip Code in the County on Realtor.com for Minimum Selling Prices (Single Family Homes) Use the blank Zip code research sheet, make copies, and do 10 seconds of price research on single family homes in each zip code for the sale, so you know any zip codes where property values are much lower than the others. You can go to the list in the viewer, select the Zips filtering option, and it will show all the different zip codes present on the list. Fill those in on the sheet then go to Realtor.com. Enter the first one into the search box on the home page: Then make the following changes to the search: 1. Change Any Property Type to Single Family Home

5 2. Change sorting to Lowest Price For this first zip code, quickly enter the amounts of the first three (lowestpriced) single family homes in the zip code. Now you can enter the remaining zip codes and you won t have to change the sorting or Property type just enter each near the top of the page: Make sure to note if any zip codes have more than 5-10 properties for sale less than $10,000. If you find such a zip code you should consider eliminating it completely later in the property viewer. Otherwise, note which zip codes are low priced areas where there are several listings under $20,000, and which are mid-priced areas where prices are $25-$40k. Be sure to eliminate outliers or properties that have special circumstances like heavily damaged. For low-priced zips eliminate all land later in the Tax Sniper software and be strict on property condition appearing very good (both in initial check with software, and with site inspection)

6 Single Family Value Research County, Low/Medium Priced Zips (Single Family Houses For Sale Under $20k and $25-45k) ZIP Zip Price 1 Price 2 Price 3 Price 4 Low Value Zip? (Several Under 20k?) Borderline Zip (several in 20's)?

7 Find Minimum Vacant Land Size to Leave on List (and price/acre we should pay) We also want to find the minimum acreage of vacant land that is worth our while to look at purchasing (to leave on the list) we can eliminate and vacant land that is smaller than this and cut a ton of listings off our list. Generally, and certainly for Indiana, you ll want to stay away from smaller building lots or lots with any kind of possible impediment to using them (you ll see this in the viewer later) To do this, we will type in various acreage ranges into Landwatch.com, Realtor.com, and Zillow.com (and look up sold prices in Zillow.com) and find the smallest acreage where prices are consistently at least $10,000 and preferably over $15,000. Landwatch.com Go to Landwatch.com and enter the county in the search box (i.e. Allen County, Indiana ) then make these adjustments:

8 1. Enter acreage range here (suggested acreage ranges found on worksheet, you may need to enter lower ranges if you re working in a high-priced area but buying building lots is risky if you don t know what you re doing) 2. Click Land so listings with an improvement don t show 3. Sort by: Select Price (low to high) Sometimes listings with houses or other significant improvements still show up ignore these. When an acreage range shows all listings over $10,000-15,000, this is the acreage range we will consider but we will want to confirm there are not lower listings showing in Zillow or Realtor.com In Allen County, I see that 1.75 acres and up sells for $24,900 and up so this is my test number. Confirm on Realtor.com Type in County name and state instead of zip code on main Realtor.com page - Allen County, IN for example. Then make these changes: 1. Make sure sorted by lowest price 2. Change Property type to land 3. Change More Filters->Lot Size to 1+ Acres Now look for any lots at the minimum acreage you found before, that

9 are significantly cheaper. In Allen County we find about the same results as Landwatch as we did on Realtor.com Zillow.com Let s check on Zillow.com (we often find lowest prices here, so do not skip) Enter county into search box as shown above Make these adjustments: 1. Click Listing Type and choose only For Sale (check the main checkbox which checks all subcategories) 2. Click Home Type and choose Lots/Land 3. Under More choose the Lot Size that most closely matches your minimum acreage

10 Above the pictured results, click Cheapest Ignore any results that are smaller than your acreage, and confirm that listings that are about the size you are confirming, sell for at least $15,000. Now look at the map you might need to zoom it in because even though you chose a county, if the map is zoomed out and shows more than the county you are working, it may show listings from other counties. In this example, Allen County shows a 3 acre property for $15,000 so that is going to be my minimum, not 1.75 acres. We want to pay about 10% of value and the value indicated here is $5000 per acre. So we want to pay only about $500 per acre for vacant land, and it should be at least 3 acres (we will eliminate everything under 3 acres) You can run this process on a particular town or zip code if you wish, instead of the whole county, but this will slow down the process considerably and is not worth doing when there are many houses available on a list. Also it may be difficult to find more than 1-2 listings in too small of an area, which will not give you enough data to go from. Confirming Your Result Now you can change For Sale to Sold on Zillow.com and often you can get sale prices for an area it s a good idea to check these to make sure you don t see a lot of sold properties that went for less than you expected.

11 1. Change from For Sale to Recently Sold 2. Change More->Sold in Last to 1 year adjust to 2 years if not many results. 3. Change More->Lot Size if the new lot size you re checking is different now. In this example we moved our minimum to 3 acres so we will change this to 2+ acres since that s the closest selection available. There are no sales over 2+ acres that cast the numbers from before into doubt, so we will stick with 3+ acres and $500/acre for our list.

12 Land Value Research County, Current Market (For Sale Non-City Acreage or Farmland): (Stop when you reach acreage with selling price of you minimum required) Landwatch.com AC 2-5 AC 5-10 AC $ AC $_ AC $_ AC Realtor.com AC 2-5 AC 5-10 AC $ AC $_ AC $_ AC Zillow.com AC 2-5 AC 5-10 AC $ AC $_ AC $_ AC Approximate Price/ AC Sold Properties (Not Available for Some Areas on Some Sites) Zillow.com AC 5-10 AC AC $ AC $_ AC $_ AC Approximate Price/ AC Approximate Price/ AC Approximate Price/ AC

13 Non-Typical Tax Sale Houses Occasionally, you will find newer properties, those on the nicer outskirts of an otherwise run-down town, those in an obviously upper-middle class neighborhood, and properties with a large amount of land. You should try to do individual searches for these because they justify a higher value than the typical tax sale house. You ll almost certainly be outbid if you don t assign a more realistic value. To do this, enter the entire address into Zillow/Realtor.com, and you ll see the location on the map this time find other properties nearby that more closely match this house, and choose the lowest sales/asking prices of these properties. To search a property individually, it can take 5-10 minutes, so don t plan on doing this for most properties on the list unless you re just researching a handful for the whole sale. Rule of Thumb for Maximum Bid Amount This is where your bidder profile comes into play a bit. The most ANYONE should have invested into a property is about 60% of the market value, including all potential post-sale costs that would be necessary to get good title to the property. Note that 60% is the number never to exceed. Investors seeking property acquisition should try for 10-25% of value and be prepared to leave some sales empty-handed. This is a much better outcome than getting a mediocre deal or two and then being short on capital and on the sidelines. It s very easy to deploy a lot of capital on OK deals that keep your principal safe, but leave little room for big property profits. Interest-oriented investors, after finding a sale that offers an acceptable return and duration, may find that they need to invest up to 60% of value to be able to get a significant amount of money invested into the tax sale. If possible, they should try for 30-40% of value or less, and buy more liens for better diversification and better chance at profit on the properties they are forced to acquire. 54

14 Estimate Costs Outside of Tax Sale Bid Come up with an estimate of subsequent costs (even if they won t have to be paid until you sell) should you eventually acquire a property and resell it. Estimates are OK. For Indiana, I use these numbers for a low-end house: 1. Noticing and Petition for Deed $ Subsequent taxes $ Title Certification/Quiet title $ Possession/Marketing Cost $1000 This comes out to about $4000. For land, the figures are different: 1. Noticing and Petition for Deed $ Subsequent taxes $ Title Certification/Quiet title $0 4. Possession/Marketing Cost $800 Cost for land is thus approximately $2000. Taxes are usually much less on land, and we sell them with owner financing typically, without a Realtor or much expense. And since we finance them, the time needed to be able to get title insurance, elapses while the land contract is being paid off. Low End Areas - Houses The $4000 expense figure is sobering and tells me that if I see an area with typical tax sale houses (bottom of the market) retailing for under $10,000, I should not bid on them at all in that area and I can eliminate them using the Tax Sale Sniper upfront, and/or make sure to only buy the very best properties in that zip code and not allow for any properties that need repair. This is because my goal is to get properties at 10-25% of value and I could not achieve this even if the liens were free. In these areas, therefore, I would bid only on houses that are well above average, need no apparent repair, and are in a decent-looking neighborhood. I would want to keep my bids at $1500-$2500 at most for these top-condition properties. 55

15 Note: If you re interested in getting redemptions on property and minimizing the property you deal with, you re best off steering clear of low-end areas entirely, because redemption rates are a lot lower in general and you re likely to acquire some properties when buying any significant number of liens here. Absolute Maximum Bid Per Property Based on the amount of capital you have at your disposal, you might also set an absolute maximum on what you ll bid on any property. I rarely bid more than $20,000 on a property and try to keep all bids under $10,000 so I can buy more liens during the tax sale season with the same amount of money. At live tax sale auction tours I rarely go above $10,000 per lien. Other Tax Sale Formats Note that at tax deed sales you will have no noticing or foreclosure costs, so you may find your expenses are only $3000 or so. Also note that at tax lien sales with longer redemption periods, you might have (much) higher expenses than $4000 since years of taxes will need to be paid after initially buying the lien. However, lien sales with longer redemption periods generally do not have a bid-up system, so all liens are sold for the minimum bid. The challenge at these sales is not so much finding liens with adequate security, as we just covered, but finding liens that are not bid down to an unacceptably low level. For property-oriented investors the challenge is identifying liens that are not likely to redeem. Fortunately, we have a system for just that see Section 7. 56