Tax Delinquent Real Estate Explained

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01 Tax Delinquent Real Estate Basics

Most people have never heard of investing in tax delinquent real estate – in properties whose owners have not been diligent in paying their property taxes.

This course outlines the basics of investing in tax delinquent real estate as well as methods that you can use right now to make money.

Hi, Jack Bosch here and welcome to the tax-delinquent real estate investing mini course. I’m very excited you made it here, I’m very excited to share this with you because tax-delinquent real estate investing is one of the most misunderstood ways of real estate investing and actually one of the most, if you truly do it the way we do it, which is different than most people do it, then it’s one of the best hidden secrets in real estate investing.


In this mini course, which has multiple pieces and multiple parts to it, I’m going to walk to you through the foundations to the basics of what tax-delinquent real estate investing means, which in essence, just in a short word, means we are focusing on real estate investing by going after people who haven’t paid their property taxes on their properties, and literally nobody in this country does that the way we do it, almost nobody does it. There are probably a few people around that do it the way we do it but nowhere close to the amount of people that go after the other ways that you know for real estate investing.


So, really it’s a niche that has very little competition, the highest profits of all profits that I have seen in the single family and land area and it’s the simplest way to do real estate deals – because you typically don’t deal with either banks, no mortgages, not a lot of red tape and things like that, it’s very, very simple real estate investing.


So, whether you are a beginner and you want to start real estate investing in a way that you start learning a simple way to real estate investing and right away one of the best ways, or whether you are a worn-out warrior of real estate investing and are sick and tired of dealing with banks and dealing with inspectors and dealing with repairs and so on, this is what I call the simplification of real estate.


So in this multi-part course, we’re going to focus on, and this first video, I want to say, of this multi-part course, we’re going to focus on showing you basically the terminology. I got a little cheat sheet here to make sure I don’t forget anything, so if you see me looking down, that’s what I’m doing, I’m making sure I cover everything that I wanted to cover so you get the most out of this course. And in video one, we’re going to talk about the foundation and the terminology so that we’re all on a level playing field and you know what I’m talking about when I use certain terms in these videos. And in video two, we’re going to go into one of the foundational ways, which is tax lien investing. Video three, we’re going to talk about tax deed investing. And in video four and going forward from that, we’re talk about really the way that literally my wife and I and our team invest in tax-delinquent real estate investing.


Which is not by going for tax liens at the auction, which is usually not by going to the auction and buying tax deeds, because that’s what you usually associate with tax-delinquent real estate investing, boring tax deeds and tax liens. And I’m not saying “boring” in a bad way, as you can get tremendous deals at tax lien and tax deed auctions, but the real money is done when you go outside of these auctions and go directly to the owners and buy tax-delinquent properties without even attending the auction. And also in video number four, five, and beyond, we’re going to talk about the exact methods on how to do that, the risk factors involved, what you need to take care of and so on and so forth so that you get really a ton of information in this tax-delinquent real estate investing course here.


All right, so quick word about myself, a quick introduction about myself and also my wife Michelle. We’ve been married since 2001, we’ve been operating together in real estate since the end of 2002. We started out with literally just $3,500 to our name. Everything we owned was on installment payments. We just bought a house with, like, a 97% or 98% financing, so the house was owned by the bank effectively. Our couch was owned by the bank or we made monthly payments on it, monthly payments on our cars, monthly payments on our bed, on our bed frame, even on our refrigerator we had monthly payments, so we owned absolutely nothing. And starting from that point, fast-forward 18 months, we were worth $1 million. One million dollars in 18 months, that’s our story, that’s our claim to fame, and since then, we have done over 3,000 deals, going on 3,500 deals in real estate, both in land and houses and in commercial deals in-between. To both, to all these techniques that I’m going to talk to you about, to tax liens, tax deed, and particularly by circumventing these auctions and buying property outside of the tax lien and tax deed auctions directly from the owners with literally no competition.


And we’re active-investing to this day. We literally just bought several properties last month, we’re selling properties on an ongoing basis, we’re doing deals, we’re partnering up with other guys on deals, we have a cash flow portfolio of rental houses of commercial properties – I mean we are actively in the trenches every single day.


All right, so currently…the thing is I mentioned that to you because whenever you listen to a course, whenever you watch any kind of course or anything like that, you want to always ask yourself who you are listening to, who are you learning from. Are you learning from somebody who did a deal 10 years ago and now teaches you something that doesn’t work anymore, or are you learning from somebody who is actually doing this, who has done hundreds, or even in our case, thousands of deals and who is actually in the trenches doing this day in day out? Well, we are in the trenches, we are doing this on an ongoing basis. So, I’ve taught people all over the world doing tax-delinquent real estate investing, I’ve taught over 10,000 people over the last, I don’t know, 8 years on how to do this and I’m excited to have you here too.


So now let’s talk about terminology. What’s covered by the term “tax-delinquent real estate investing?” Well, first of all, you’ve heard the terms “tax deed,” you’ve heard the terms “tax lien,” you’ve heard the terms from me, like, circumventing the auction. You might hear the term “pre-auction deals” and so on.


Well, the basics is very simply, when tax-delinquent real estate investing means the following: all over the United States, there’s people who don’t pay their property taxes. So let’s actually step even one step further back and that is, every piece of real estate in the United States and Canada and in many countries around the world have property taxes on them. That means that when if you buy a house, wherever you buy this in the United States or Canada or many other countries, you will have to pay property taxes every single year as long as you own this property.


Now, if you don’t pay the property taxes, if somebody doesn’t pay their property taxes, there’s a process in place that is different from country to country, and as a matter of fact, within reason, there’s actually two different ways in the United States that if you…if somebody doesn’t pay those property taxes, the government ultimately takes that property away from them. And the way they do that, they’re actually doing that in a process that’s either a tax lien process or a tax deed process.


At least that is in the area that I’m covering, which is the United States and Canada. And so the tax deed process, in very short words, that the next three is actually going to be exclusively about tax deeds, is such that basically the county waits for a few years, then takes the property, puts it up on an auction, and sells it at the auction to the highest bidder. The highest bidder becomes the new owner, the former owner loses the property, and all the mortgages and things like that, that are attached to it are wiped out. That’s the short version.


In the tax lien world, what happens is that…and the United States is about 50-50, half of the states follow the tax deed process, the other half follows the tax lien process. In the tax lien world, the county does not put up the property for auction. Instead, the county basically puts a lien against the property for non-payment of property taxes and then puts the amount of tax lien, basically if this property owes $2,000, they slap a $2,000 lien against it and then they put up an auction where they sell the lien to the highest bidder, or to the lowest bidder, and I will go into that in the second or third video about tax lien, whichever one is the one about tax liens. And therefore, whoever buys that lien now basically is kind of like the bank, has an IOU. He’s being owed his money by the property owner, and if the property owner still doesn’t pay the property taxes after several years that tax lien holder can now foreclose on that property and become the new owner after the foreclosure is complete. So therefore, just for a few years of back taxes plus foreclosure costs, he can own, free and clear, a house without any mortgage on it. So that’s the basic gist of tax-delinquent real estate investing.


Now, when we talk about going or circumventing the auction, here’s the thing. There’s no law that says that in order to buy a property with back taxes we have to actually attend the auction. If we could just figure out who these people are who haven’t paid their property taxes, couldn’t we go and contact them directly? Couldn’t we go and send them a letter or postcard or find out their information and call them and ask them if they would be willing to sell their property to us? They already stopped paying their property taxes.


It means either they are short of cash and they need cash in some kind of form because they do not have enough cash to pay their property taxes, or for whatever reason, they don’t want this property anymore, they’ve closed their books on it and they just want the county to actually take it away and they’re fine with letting their property go for zero and not making any money of it. Wouldn’t it be, in that case, better if you could contact them and ask them to sell their property to you? You offer them some cash for their property, wouldn’t they be willing to accept that property. And yes, that’s the promise of these three methods, and particularly the third method that I just mentioned is responsible for the vast majority of our deals.


Now, this has been around, these tax-delinquent real estate strategies. The tax liens and tax deeds has been around for hundreds of years. I think actually Thomas Jefferson almost lost a big piece of land, a big farm to a tax lien foreclosure because he didn’t pay his property taxes back hundreds of years ago. So this has been around since the founding days of the country and the law is being written such that this is the way that counties use to basically flush these properties out of the system and put them back into the hands of people who pay the property taxes again, because the county needs that money off the property taxes to actually pay for their services, like for the schools, for the police, and for the streets, and those kind of things. S


o this is really cool and you can look at it from multiple angles. If you become an investor and at a tax lien auction, you actually get a high interest rate, we’ll talk about that in the module about tax lien investing and can use that to just invest in tax liens for high interest rate, you can invest in tax liens to actually get the property, you can invest in tax deeds to get the property. And when you own that property, you can literally just rehab it and live in it.


Now, you might have gotten a $100,000 house for $20,000 at a tax deed auction, rehab it for another $10,000, and for $30,000, you have a $100,000 property that you can now rent for $800, you can move in yourself, you can flip it and make a quick 50, $60,000 on it. There’s multiple ways that you can profit from these deals. Or, of course, if you go around the auction, go directly to the owners, you can buy properties at literally 5 to 25 cents on the dollar. You can buy houses for under $1500. One of my students literally last week told me about deal that he’s checking out worth $50,000. He gets it for $1,500 net to the seller plus some back taxes. So it’s really crazy the kind of discounts that you can get with these deals.


So now, if this is so great, why isn’t everyone doing it? Well, first of all, nobody knows about it. You might have heard the word tax liens or tax deeds but even if you know the word tax deed, if you’re familiar with tax lien and tax deed investing, I want you to ask around in your circle of friends what they think tax lien and tax deeds are, and you will find out very quickly that the vast majority of people doesn’t have a clue how this even works.


So therefore, most people don’t know about it, but most people don’t know how to even get a list of tax-delinquent properties. They don’t even know how to even get a list of tax liens and tax deeds, let alone a list of all the properties that are currently tax-delinquent, even the ones that are only delinquent a month or delinquent five, six years and so on. Nobody knows how to do this.


I belong to a mastermind of real estate investors. With the average investor does 100 house flips a year, some of them do 4 or 500 house flips a year, and some of them have portfolios of thousands of rental units. I stood up front and I explained to them what I was doing and they gave me the Wicked Smart Award of the week and of the session because nobody was doing it. I asked them to raise their hands and asked them, “Who in the room of the 35 top real estate investors in the country is using tax-delinquent real estate leads to go after to buy their properties?” And one hand was up and that was actually a student of mine that had become a millionaire himself and was doing deals left and right. So he had learned that from me. That’s why nobody does it, because nobody knows about it.


So also another thing about tax-delinquent real estate, if somebody lets their property go for taxes, there’s a big misunderstanding there, a misconception that it affects their credit. It doesn’t affect their credit. I want to get this out of the way right at the beginning before we even dive into the details of this mini course. Here’s the thing, a property comes with property taxes, I’m not giving legal advice, please check with the attorney on that, but my attorney told me that when a property comes with property taxes and you never sign up for these property taxes.


And that’s why property tax debt is not what’s called “in personam debt,” so it’s not debt that you as a person own but it’s debt that’s called “in rem debt.” Rem is a Latin word that means “the thing,” so the debt is in the thing, the debt is in the property, and therefore, since you never signed personally on the dotted line that you take on a loan or property tax loan or anything like that, you just bought the property that came with property taxes built in, the only thing that the county can do to get their taxes paid is take away that property and either sell it at auction or have the tax lien holder foreclose on it, and that way they get their money back again for the property taxes and hopefully the next owner pays property taxes on it.


But they cannot affect your credit because, first of all, they don’t even have your social security number and secondly because this is a county, not the federal government, and secondly, again as I said, you didn’t sign for that debt, it’s not a debt that you sign up for as a person. It’s a debt that came with the thing, and the thing is the property, so it’s in rem debt, and that’s why you’re not responsible for…you’re only responsible for it if you want to keep the property, if you want to keep owning your property. But if somebody stops paying their property taxes, all they can do is take the property away.


Also, a couple of answers to quick ground-level questions. In order to invest in these kind of things, tax liens, tax deeds, or properties directly by going around the auctions as 95% of our deals are about, you don’t need a license to invest because you are the principle investors. Just like you don’t need a license to buy a house for yourself or a rental house, you don’t need a license for that, you don’t need a license to buy tax deeds or tax liens or flip houses or land in any shape or form.


Also do you need an LLC to start? Well, every attorney will tell you yes, however, here’s the thing that I always say is that I started without an LLC. I started putting properties in my own name and the reason why I did that is because my understanding is that when somebody sues somebody, they want to go after money. So if you already are wealthy, you definitely want to have an LLC first. If you start like me with $3,500 to your name, then who’s going to sue somebody with $3,500 to their name?


Now, as you build assets, you definitely need to put them into an LLC. So what we did is we just started putting them in our own name and then as we made some profit, we created an LLC and then we put the properties in there and from then on, we built a fairly complex legal structure. But at the beginning, we didn’t do it. Now, you do this whichever way you want. I do recommend you do check with an attorney on that. You can also use the IRA funds to invest in these kind of properties, you follow that and perhaps we do a module on that or I might be talking about that later on in this multi-part mini course.


And lastly it’s a win, tax delinquent property investing is a win, win, win. The seller, instead of getting nothing when the property gets foreclosed on or sold at auction, he gets money. The county wins because their property is now in the hands of somebody who’s going to pay their property taxes again. Who else wins? Let me see. Then you win, of course, because you get a property that you can flip for a tremendous profit, and when you sell the property to somebody depending how you do this, if you perhaps buy a house cheap and you wholesale it to a rehabber, the rehabber also makes money and, therefore, after rehabbing the property and the city, again, is better off because after the house is rehabbed and has been sold, it’s the prettiest house on the block. And the end buyer of the house is also happy because he lives now in a prestige, pristine, beautiful house which is, again, the prettiest house on the block.


So really everyone wins in this transaction. Also if you do the tax lien investing, you win because you get a great interest rate, the county wins because it has the property taxes, again, and the seller of the property, the owner of the property also wins because he gets rid of the property that, to him, is a burden on their shoulders. All right? Okay.


So in the next video, what we are going to talk about is…let me quickly see. Actually the next video is about tax lien investing and then the third video is about tax deed investing. So I’m looking forward to seeing you there. What I would love for you to do is go below this video. There should be a little box that you can put in comments. I would love to hear your comments about this video and then I’m seeing you in the next module. Bye-bye.

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