Tax Sales, Tax Certificates, Tax Deeds: Due Diligence Matters!

By: Darius M. Barazandeh, Attorney at Law / M.B.A.

 

We have all heard the ‘infomercial’ and the Internet claims regarding tax foreclosed property: 

 

• “You will own the property FREE and CLEAR!”
• “All other liens and interests are WIPED OUT!”
• “You will hold the FIRST PRIORITY security interest!”
• “The Government Guarantees these properties!”
• “All liens, interests, and encumbrances are ERASED!”
• “You can do this part-time with nothing down!”
• “You don’t need to set up a company…just get out there and make a deal!”

While this can make great marketing material it is not in accord with the reality of tax foreclosure purchases.  As an attorney, I learned in law school that every rule of law has an exception. Knowing how these exceptions work will mean the difference between success and failure as a real estate investor on the grandest of scales!  I don’t make that statement lightly, rather I make it with as much of the emphasis and weight that the English language will allow. Please read it again, “Knowing how these exceptions work will mean the difference between success and failure as a real estate investor on the grandest of scales!” If you intend to be successful you must be able to separate marketing fluff from well researched and analyzed fact.   If you rely on marketing materials and hype your failure is nearly certain, however if you rely on well researched information formulated into a methodology then the keys to success in any endeavor are in your hands. 

 

 

What Does This Mean to Me and Why Should I Care?

 

What this means is that you must forget about blanket marketing statements when dealing with tax foreclosed property.  For every statement that is contained in the bulleted list (at the top of the page) there is an exception and just like any business what you don’t know WILL hurt you.  If you have contacted me by email or purchased one of my courses you know that I absolutely believe in covering all the positive and negative aspects of investment techniques.  This does not mean focusing ONLY on the benefits or making wild claims about investment techniques.  It DOES mean thoroughly covering what could go wrong and a relentless approach to risk reduction.

 In the following sections we will review some of the areas that you must consider when researching and evaluating tax sale properties.  I call them due diligence areas #1 through #5.  These are not an exhaustive list but they do set out some of the areas which are typically left out of most people’s analysis.  For a complete list please review my course materials.

 

 

Due Diligence Area # 1:

What Liens Will Survive Foreclosure?

 a

One area that really upsets me is when I hear a general rule of law blindly applied to every tax foreclosure situation with reckless abandon.  Whenever you hear that the foreclosure of a tax lien ‘wipes out all over liens’ or that the property is now ‘free and clear of all other liens’ a general rule has been overstated.  The general rule can be found in the property code of every state and the UCC (Uniform Commercial Code) which covers commercial transactions.  The general rule can be stated as: The foreclosure of the superior lien will eliminate the rights of any junior interests in the realty or personal property.  This general legal rule stands for the proposition that: that when a superior lien (one that was recorded or ‘perfected’ before all others) is foreclosed (i.e., through the state’s legal foreclosure guidelines) any junior interests will lose their interest in the property.  Remember that there are exceptions to this general rule. 

 a

Let me give you an idea of some of these exceptions:

 a

1) Federal Tax Liens – Since most liens on a property will likely be liens from the state or a municipality within the state you must be aware of the possibility of a federal tax lien.  You can ask your title company to search for this, however a good title company should spot this lien pretty quickly. 

2) State Income Tax Liens – Some states which have a state income tax may give priority to any liens for unpaid state income taxes.  As the purchaser of the property or the holder of the lien you could still have these liens surviving as encumbrances on your property even after foreclosure.

3) State Sales Tax Liens – Unpaid state sales taxes can result on a lien which attaches to the property of the delinquent taxpayer.  You should contact an attorney to find out if your investment state has a sales tax lien which could survive foreclosure.

4) Mechanics Liens and Materialmen’s Liens – Work performed on the property where improvements or repairs are made can result in a mechanics lien if payment is not made by the party who contracted for these services.  You will find many different names for this type of lien, for example: mechanics liens, materialmen’s liens, artisans liens, workers liens, etc.  

a

Don’t forget to learn more about your investment state as your state could include others or exclude some of these liens. Don’t be scared off by this list, BUT glad that you are now informed about this potential risk. Since you have the knowledge you need only perform adequate research to avoid the risks in this area.

 

 

Due Diligence Area # 2:

 Are Environmental Risks Associated with the Property?

a

In some instances you can run the risk of purchasing someone else’s environmental liability.  Congress passed the ‘Superfund Act’ (42 U.S.C. 9601 et seq.) which made every landowner liable for previous environmental contamination on a property regardless of whether they caused the damage or not.  There is some good news for lienholders since Congress has given them an exception from liability if you are a lienholder not considered an ‘owner or operator’.  Court rules and interpretations have been changing regarding this issue so don’t risk it.  I want to be sure my liability is limited therefore I believe in being extra cautious when dealing with commercial properties in the tax sale setting.  If there is some question as to the area or type of business conducted on the parcel you should contact an environmental specialist and ask some preliminary questions about the area and property you are investigating.

 

If you want to steer clear of the whole issue then you should avoid commercial properties all together. The chances of environmental damage found on residential properties in zoned subdivisions is much less.  I do tell my students to avoid commercial properties unless it’s a really good deal.  Naturally if it is a good deal you can afford to do the extra research to make sure there are no environmental problems on the property.

a

 

Due Diligence Area # 3:

What About Other Fees Not Included in the Foreclosure?

a

You should always get an idea of whether there are any other fees or dues not included in the foreclosure purchase price.  I know this sounds odd but it can occur if an entity that is owed money was not included in the tax foreclosure lawsuit.  If they did not get notice or did not decide to ‘join’ themselves in the collection lawsuit then the money simply won’t be added to the opening bid amount. The purchaser of the property would still be responsible to pay for these fee amounts.

 a

Here is what I suggest that you do:

 a

 Contact the tax collection entity or authority (typically the tax assessor)

Ask them which entities they collect taxes for

Then ask which entities are outside of their collection area

Create a list of entities whose taxes are not collected by the assessor BUT may still be owed by delinquent taxpayer

Call and ask the entity the amount of back taxes, dues or fees

Add this amount to your bid analysis

 

 a

Again, by following a simple step-by-step methodology you can greatly reduce you risk and boost your success rate ten fold.  Make sure you go through this checklist of tasks with every property you consider purchasing.

a

Due Diligence Area # 4:

Bankruptcy of Delinquent Property Owner

a

You must check to see if there is a looming bankruptcy associated with the property.  I see very few tax sale products covering this issue.  This is an ABSOLUTE MUST in your analysis of any property.  You can access federal bankruptcy records through the federal bankruptcy court in your state.  Some of these records may be online.  There are generally two main possibilities that you must be wary of:

 a

1) A Bankruptcy has occurred prior to purchase – Sometimes you will find that a property is tied up in a bankruptcy administration while it is being prepared for tax sale.  You should avoid properties which are on a tax sale list which have a pending bankruptcy suit.  

a

2) A Bankruptcy has occurred during the redemption period – This scenario can be problematic as well.  Here the property has been sold to tax sale investor but while the redemption clock is ticking the delinquent property owner has declared bankruptcy.  Now a trustee has been appointed to protect the assets of the estate.  The biggest risk to the tax sale purchaser is that the trustee will attempt to argue that the tax sale purchase was a ‘fraudulent transfer’.  For such an activity to occur there must at least some dealing or scheme between the debtor and the purchaser such that an attempt is made to avoid liquidation of the estate by transferring property to a 3^rd party.  While the tax sale purchase really should not be classified as such a transfer if the trustee raises this argument it can interfere with the tolling of redemption period, your ownership rights and the final disposition of the tax sale property or lien.   Keep in mind that if the trustee wins this argument you won’t lose your initial investment, but you will lose any of the anticipated profit.  It is not an easy argument for the trustee to win but just be wary of this possibility. 

a

The best thing to do is to avoid situations where you know the property is involved or will be involved in a bankruptcy.  You should check in the owner’s district of residence for any bankruptcy filings.  Lastly, don’t be too frightened by this issue because doing your research will help you greatly reduce your risk of being affected by a bankrupt estate.

a

Due Diligence Area # 5:

Doing Deals in Your Own Name

a

This is an area that is very critical to apply and apply correctly.  If I could refuse to sell my products to someone who does not have a legal business entity from which they will make these purchases, I would do it. That means that if I find out you are buying tax sale property in your own name I will come and take my course from you!  No seriously…this is a very critical issue and I just want you to understand how much it worries and keeps me up at night knowing that some of you will ignore my advice and buy tax deeds as ‘John Jones’ instead of ‘Jones Real Estate, Corp.’

a

Why is this such a bid deal? The reason is that when you purchase a property as an individual you are now personally liable for the anything that goes wrong with the property.  This could include someone getting hurt on the property (yes, even a trespasser can sue you), environmental issues with the property, liability from ‘unknown’ liens, and a myriad of other problematic scenarios.  

a

However, when you form an entity you generally will not be personally liable for these acts, omissions, or hidden liabilities.  What will happen is that the corporation, partnership, or LLC will take the hit.  Now why did I say that ‘generally’ you will not be liable?  I said that because if you do not maintain the entity using the proper formalities you will lose that protection.  In a landmark business law case the courts determined that to “preserve equity and prevent injustice” it could “pierce the corporate veil” and hold the shareholders or owner(s) liable for the acts and/or omissions of the corporation if proper formalities were not met.

a

If you go to any real estate investing seminar and they tell you, “Just do a deal or two then worry about forming your company”, please run out the door!  It will only take one bad deal to make you liable thereby risking everything you own.  Before you attempt a deal you should find an attorney to help you determine which form of business entity will serve you:

 Corporation – C-corp or S-corp.; 

    Limited Liability Company (LLC) (Taxed under Subchapter K or S)

 Limited Partnership (LP); 

You should then have the entity up for you and teach you how to maintain its formal status in the eyes of the law.  I have helped individuals with the matter and I can tell you that you must have an attorney who will listen to your needs and spend time educating you.  The reason I think education is important is that if you don’t maintain the entity correctly its the protective shield will not exist in the eyes of the law.   It will be as if you never incorporated at all.  What good will the slick corporate minute book and fancy company logo be if the attorney did not teach you how to keep the entity separate from your personal dealings?  Unless your attorney takes the time to teach you how to maintain your entity status it will be worthless.   

To learn more about business entities, tax choices and avoiding risk, please listen to our free AUDIO SEMINAR! (no downloads required!)

I want to wish you the best of luck in your endeavors and email me if you ever need help!

If you plan to invest in Texas please see: Texas Houses for Pennies™

 If you plan to invest in tax lien certificates states, please see: The Attorney’s Step-by-Step Guide to Investing in Tax Lien Certificates 

                 ______________________________________

Information contained within this article was not intended to be, nor should it be taken by the reader as legal, financial or tax advice. The above article was written for educational purposes only.  If the services of a Texas attorney are desired please contact Mr. Barazandeh or seek the services of another attorney.

Real Estate Investors minimize the risks and increase the rewards

 

Real Estate investment is a cutthroat market which can pay handsome rewards provided you have accurate information, quality data and are able to work diligently enough to make sure you have left no bases uncovered.

 

Surprises in real estate cost money and a seasoned real estate investor puts in due diligence in his work to make sure that the element of surprise is taken out of his real estate investment decisions.

 

There are two barriers most new real estate investors must overcome.  The first is time!  Time and timing always work against you because there is never enough in order to do what you need to do which means that in order to do it and do it right you need to be creative with how you spend your time and really strict with your time management. The second barrier is not having a marketing program that will fit into your busy lifestyle… an effective marketing program that uncovers motivated sellers, but takes just minutes a week to execute.

 

As a seasoned real estate investor who has been involved in the market long enough to see it through several different cycles of boom and bust I am often asked in the courses I run what is it that those who attend them get as a result.

 

Potential real estate investors who take our courses benefit from:

• A personalized service
• In-depth market expertise
• Real knowledge of your target market
• Detailed analysis of the real estate scene

 

Using my own experience and expertise and having learnt from mistakes I made the hard way I make sure that the material you go through and the information I give you is the kind of thing I would have loved to have had myself when I was starting out in my real estate career, before I made my first million dollars. I know for a fact that had I had that kind of information I would have made my money much faster and would have been able to spend more time enjoying the things I love doing.

 

My courses cover everything from how to leverage multi-family dwellings in order to make your dream of financial independence come true to how to put together a real estate investment Syndicate in order to close deals with other people’s money and still make money of your own.

 

In my courses there are no surprises. No mix ups. No losses. You learn the best way to risk-assess and risk-manage your real estate investment strategy and then you learn how as a real estate investor you can minimize the risks involved and maximize the rewards. 

 

With minimum to zero risk there is no loss. Just gain.

 

 

David Lindahl, also known as the “Apartment King” has been successfully investing in single-family homes and apartments for the last eight years. He is the author of four popular, money making home study courses “Apartment House Riches”, “How To Estimate And Renovate House For Huge Profits” “Managing For Maximum Profits” and “The Real Estate Investors Marketing Tool Kit”. He can be reached at dave@real-estate-fortune.com and www.rementor.com.

Tax Sales, Tax Certificates, Tax Deeds: Due Diligence Matters!

By: Darius M. Barazandeh, Attorney at Law / M.B.A.

We have all heard the ‘infomercial’ and the Internet claims regarding tax foreclosed property: 

 

• “You will own the property FREE and CLEAR!”
• “All other liens and interests are WIPED OUT!”
• “You will hold the FIRST PRIORITY security interest!”
• “The Government Guarantees these properties!”
• “All liens, interests, and encumbrances are ERASED!”
• “You can do this part-time with nothing down!”
• “You don’t need to set up a company…just get out there and make a deal!”

While this can make great marketing material it is not in accord with the reality of tax foreclosure purchases.  As an attorney, I learned in law school that every rule of law has an exception. Knowing how these exceptions work will mean the difference between success and failure as a real estate investor on the grandest of scales!  I don’t make that statement lightly, rather I make it with as much of the emphasis and weight that the English language will allow. Please read it again, “Knowing how these exceptions work will mean the difference between success and failure as a real estate investor on the grandest of scales!” If you intend to be successful you must be able to separate marketing fluff from well researched and analyzed fact.   If you rely on marketing materials and hype your failure is nearly certain, however if you rely on well researched information formulated into a methodology then the keys to success in any endeavor are in your hands. 

 

 

What Does This Mean to Me and Why Should I Care?

 a

What this means is that you must forget about blanket marketing statements when dealing with tax foreclosed property.  For every statement that is contained in the bulleted list (at the top of the page) there is an exception and just like any business what you don’t know WILL hurt you.  If you have contacted me by email or purchased one of my courses you know that I absolutely believe in covering all the positive and negative aspects of investment techniques.  This does not mean focusing ONLY on the benefits or making wild claims about investment techniques.  It DOES mean thoroughly covering what could go wrong and a relentless approach to risk reduction.

 a

In the following sections we will review some of the areas that you must consider when researching and evaluating tax sale properties.  I call them due diligence areas #1 through #5.  These are not an exhaustive list but they do set out some of the areas which are typically left out of most people’s analysis.  For a complete list please review my course materials.

 

 

Due Diligence Area # 1:

What Liens Will Survive Foreclosure?

 a

One area that really upsets me is when I hear a general rule of law blindly applied to every tax foreclosure situation with reckless abandon.  Whenever you hear that the foreclosure of a tax lien ‘wipes out all over liens’ or that the property is now ‘free and clear of all other liens’ a general rule has been overstated.  The general rule can be found in the property code of every state and the UCC (Uniform Commercial Code) which covers commercial transactions.  The general rule can be stated as: The foreclosure of the superior lien will eliminate the rights of any junior interests in the realty or personal property.  This general legal rule stands for the proposition that: that when a superior lien (one that was recorded or ‘perfected’ before all others) is foreclosed (i.e., through the state’s legal foreclosure guidelines) any junior interests will lose their interest in the property.  Remember that there are exceptions to this general rule. 

 a

Let me give you an idea of some of these exceptions:

 a

1) Federal Tax Liens – Since most liens on a property will likely be liens from the state or a municipality within the state you must be aware of the possibility of a federal tax lien.  You can ask your title company to search for this, however a good title company should spot this lien pretty quickly. 

2) State Income Tax Liens – Some states which have a state income tax may give priority to any liens for unpaid state income taxes.  As the purchaser of the property or the holder of the lien you could still have these liens surviving as encumbrances on your property even after foreclosure.

3) State Sales Tax Liens – Unpaid state sales taxes can result on a lien which attaches to the property of the delinquent taxpayer.  You should contact an attorney to find out if your investment state has a sales tax lien which could survive foreclosure.

4) Mechanics Liens and Materialmen’s Liens – Work performed on the property where improvements or repairs are made can result in a mechanics lien if payment is not made by the party who contracted for these services.  You will find many different names for this type of lien, for example: mechanics liens, materialmen’s liens, artisans liens, workers liens, etc.  

a

Don’t forget to learn more about your investment state as your state could include others or exclude some of these liens. Don’t be scared off by this list, BUT glad that you are now informed about this potential risk. Since you have the knowledge you need only perform adequate research to avoid the risks in this area.

 

 

Due Diligence Area # 2:

 Are Environmental Risks Associated with the Property?

a

In some instances you can run the risk of purchasing someone else’s environmental liability.  Congress passed the ‘Superfund Act’ (42 U.S.C. 9601 et seq.) which made every landowner liable for previous environmental contamination on a property regardless of whether they caused the damage or not.  There is some good news for lienholders since Congress has given them an exception from liability if you are a lienholder not considered an ‘owner or operator’.  Court rules and interpretations have been changing regarding this issue so don’t risk it.  I want to be sure my liability is limited therefore I believe in being extra cautious when dealing with commercial properties in the tax sale setting.  If there is some question as to the area or type of business conducted on the parcel you should contact an environmental specialist and ask some preliminary questions about the area and property you are investigating.

 

If you want to steer clear of the whole issue then you should avoid commercial properties all together. The chances of environmental damage found on residential properties in zoned subdivisions is much less.  I do tell my students to avoid commercial properties unless it’s a really good deal.  Naturally if it is a good deal you can afford to do the extra research to make sure there are no environmental problems on the property.

a

 

Due Diligence Area # 3:

What About Other Fees Not Included in the Foreclosure?

a

You should always get an idea of whether there are any other fees or dues not included in the foreclosure purchase price.  I know this sounds odd but it can occur if an entity that is owed money was not included in the tax foreclosure lawsuit.  If they did not get notice or did not decide to ‘join’ themselves in the collection lawsuit then the money simply won’t be added to the opening bid amount. The purchaser of the property would still be responsible to pay for these fee amounts.

 a

Here is what I suggest that you do:

 a

 Contact the tax collection entity or authority (typically the tax assessor)

Ask them which entities they collect taxes for

Then ask which entities are outside of their collection area

Create a list of entities whose taxes are not collected by the assessor BUT may still be owed by delinquent taxpayer

Call and ask the entity the amount of back taxes, dues or fees

Add this amount to your bid analysis

 

 a

Again, by following a simple step-by-step methodology you can greatly reduce you risk and boost your success rate ten fold.  Make sure you go through this checklist of tasks with every property you consider purchasing.

a

Due Diligence Area # 4:

Bankruptcy of Delinquent Property Owner

a

You must check to see if there is a looming bankruptcy associated with the property.  I see very few tax sale products covering this issue.  This is an ABSOLUTE MUST in your analysis of any property.  You can access federal bankruptcy records through the federal bankruptcy court in your state.  Some of these records may be online.  There are generally two main possibilities that you must be wary of:

 a

1) A Bankruptcy has occurred prior to purchase – Sometimes you will find that a property is tied up in a bankruptcy administration while it is being prepared for tax sale.  You should avoid properties which are on a tax sale list which have a pending bankruptcy suit.  

a

2) A Bankruptcy has occurred during the redemption period – This scenario can be problematic as well.  Here the property has been sold to tax sale investor but while the redemption clock is ticking the delinquent property owner has declared bankruptcy.  Now a trustee has been appointed to protect the assets of the estate.  The biggest risk to the tax sale purchaser is that the trustee will attempt to argue that the tax sale purchase was a ‘fraudulent transfer’.  For such an activity to occur there must at least some dealing or scheme between the debtor and the purchaser such that an attempt is made to avoid liquidation of the estate by transferring property to a 3^rd party.  While the tax sale purchase really should not be classified as such a transfer if the trustee raises this argument it can interfere with the tolling of redemption period, your ownership rights and the final disposition of the tax sale property or lien.   Keep in mind that if the trustee wins this argument you won’t lose your initial investment, but you will lose any of the anticipated profit.  It is not an easy argument for the trustee to win but just be wary of this possibility. 

a

The best thing to do is to avoid situations where you know the property is involved or will be involved in a bankruptcy.  You should check in the owner’s district of residence for any bankruptcy filings.  Lastly, don’t be too frightened by this issue because doing your research will help you greatly reduce your risk of being affected by a bankrupt estate.

a

Due Diligence Area # 5:

Doing Deals in Your Own Name

a

This is an area that is very critical to apply and apply correctly.  If I could refuse to sell my products to someone who does not have a legal business entity from which they will make these purchases, I would do it. That means that if I find out you are buying tax sale property in your own name I will come and take my course from you!  No seriously…this is a very critical issue and I just want you to understand how much it worries and keeps me up at night knowing that some of you will ignore my advice and buy tax deeds as ‘John Jones’ instead of ‘Jones Real Estate, Corp.’

a

Why is this such a bid deal? The reason is that when you purchase a property as an individual you are now personally liable for the anything that goes wrong with the property.  This could include someone getting hurt on the property (yes, even a trespasser can sue you), environmental issues with the property, liability from ‘unknown’ liens, and a myriad of other problematic scenarios.  

a

However, when you form an entity you generally will not be personally liable for these acts, omissions, or hidden liabilities.  What will happen is that the corporation, partnership, or LLC will take the hit.  Now why did I say that ‘generally’ you will not be liable?  I said that because if you do not maintain the entity using the proper formalities you will lose that protection.  In a landmark business law case the courts determined that to “preserve equity and prevent injustice” it could “pierce the corporate veil” and hold the shareholders or owner(s) liable for the acts and/or omissions of the corporation if proper formalities were not met.

a

If you go to any real estate investing seminar and they tell you, “Just do a deal or two then worry about forming your company”, please run out the door!  It will only take one bad deal to make you liable thereby risking everything you own.  Before you attempt a deal you should find an attorney to help you determine which form of business entity will serve you:

 Corporation – C-corp or S-corp.; 

    Limited Liability Company (LLC) (Taxed under Subchapter K or S)

 Limited Partnership (LP); 

You should then have the entity up for you and teach you how to maintain its formal status in the eyes of the law.  I have helped individuals with the matter and I can tell you that you must have an attorney who will listen to your needs and spend time educating you.  The reason I think education is important is that if you don’t maintain the entity correctly its the protective shield will not exist in the eyes of the law.   It will be as if you never incorporated at all.  What good will the slick corporate minute book and fancy company logo be if the attorney did not teach you how to keep the entity separate from your personal dealings?  Unless your attorney takes the time to teach you how to maintain your entity status it will be worthless.

Dear Readers: This month I have been working with Larry and his team in his office buying and selling houses and in this article I am going to be talking about my experiences.

I started working there about a week after school finished. On my first day Larry showed me the manual about his new “Filthy Riches” program. We search for houses that are listed for $25,000 or less. We aim to buy the property at much lower than that and then sell it straight away, as is, with seller financing. This means that you hold the note and essentially become the bank. You can then either keep receiving the payments and earn a huge return on your investment or you can sell the note for cash at a discount for a huge immediate profit.

When you find a house you phone the broker and find out what work needs doing to the property. If a lot of work is required and a contractor is needed, this is not the house for you. You are looking for a property that you can fix up yourself, (that should only be paint, carpet, appliances, and maybe a broken window).

When I talk to the broker I tell them that I am an all cash buyer, I can put up a 100% deposit, I don’t need an inspection or appraisal and I can close in 10-15 days. If you like the house and you can do the work your self make a starting offer of about $4,500. Sometimes the broker is reluctant to submit this offer to the bank. It is up to you to persuade the broker that you are a serious buyer and that most banks will respond. You can always tell the broker that this is an opening bid and that you are willing to negotiate once the bank has responded. Once your offer is accepted you will get the contract from the broker. It is very important to include the following conditions which will allow you to withdraw your offer without penalty:

1.sellers agent to provide buyer + buyers approval of condition of property based on a minimum of 20 photos including each room, interior, any problem areas, mechanical systems, all sides of exterior and street view within 48 hours of acceptance.

2. Sellers agent to verify in writing that there are no existing code violations on the property.

3. Sellers agent to secure the house if needed + place sign in window and a combination lock on the door with key + provide buyer with pictures of the sign and lockbox at closing. (You will need to send the agent the sign and provide the agent with money to buy the lock box or send them a lockbox

The agent will do all of this for you free of charge.

Once you close on the property you don’t do any work on the property your buyers will be doing that. Just send the agent your “rent to own” sign and they will put it in the window for you. When someone phones you for info on the property, tell them how many bedrooms it has, how big the house is, how many bathrooms it has, and then let them know what work needs doing. If that puts them off, tell them that you are offering seller financing with just $1,000 down, that should get them interested again.

It didn’t take long before I got my first house under contract. That was a very exciting day! I got it under contract for about $5,500 in Jackson, TN. When I got the contract I put in my conditions and the agent then sent me the 20 pictures that I asked for, I looked at the interior pictures and saw that the walls in every room needed new dry wall. This is not a job that you can do by yourself, so I withdrew from that deal.

I then found a house in Kokomo IN that was listed for $24,900. My initial offer was $5,500, the bank countered at $16,000, I then countered back at $8,600 and they accepted. I received the contract and once again inserted the 3 conditions.

Now I am waiting for the photos to see if this deal goes through. I will let you know next month how it goes.

Be on the look out for Larry’s new course Filthy Riches which will teach exactly how we do this.

This has been the best summer vacation ever, working with Larry and the team has been a real education and I have loved every minute. Of course, by the time you read this I will be back in school again, just counting down to the next vacation. Happy investing.

If you have any questions please email me at  gregory@mglpropertysolutions.com

Till next month readers,

Gregory

Deals & Due Diligence
by Nancy Spivey

Deal analysis and doing your due diligence is critical to the success of real estate investors. There seems to be three kinds of investors when it comes to doing deals:

Gary Guesser

Debbie Deal Maker

Ronny Rocker

Gary Guesser does a little research, reviews some information and then decides, “Yep, this one looks like a deal.” Being like Gary is very scary. This type of investor gets into trouble –usually very quickly. Guessers take the numbers on a deal from wholesalers, agents, sellers and other and believe that the numbers are true without doing their own research or they don’t get all of the required information and just assume that the deal is a good one. Investing in this manner causes one to quickly become frustrated with investing and decide that it just doesn’t work.

Debbie Deal Maker, now she has a complete due diligence process whereby she runs all the numbers and does all the research. She knows how to properly compare comparables and determine the after repair value of a property (ARV). She also knows how to calculate all the expenses in a deal –not only the expenses to get into the deal and hold it, but also the expenses to exit the deal. Debbie knows how much profit she needs; and she knows how to calculate the amount of discount she needs on a property before she makes her offer. It doesn’t stop there –Debbie actually makes an offer. She takes the necessary actions to make the deal happen once she has done her analysis and found a good deal. Remember if you want a deal, you’ve got to make the offer.

Ronny Rocker, he does everything that Debbie does except take action. He continues to analyze and analyze a deal until he has what we call “paralysis of analysis”. It’s kind of like this quote, “Worrying is like a rocking chair, it keeps you busy but gets you nowhere.” Can you get a visual on this? It’s like Grandpa sitting on the porch rocking back and forth and contemplating. Even if he figures everything out, he’s still got to get up and take some action or he goes nowhere.

The goal of all investors should be to be a Debbie Deal Maker type. If you’re already that type, congratulations! If you are not at this place in your investing then STOP and take a look at what is getting in the way. Are you clear on your strategy for real estate investing? Is there something else that you need to learn to feel comfortable doing deals? Do you need to learn more about how to do your due diligence? Do you need a mentor or a coach to help you so that you can feel comfortable with doing deals? If there is something standing in your way, figure out what it is and take the action you need to take to move past that obstacle because guessing nor rocking will get you anywhere in this business. Don’t end up frustrated –‘Turn Your Intentions into Action!’

© 2008 Nancy Spivey

To learn more about analyzing real estate deals, visit http://dealsorduds.com.

Nancy Spivey, known as The Real Estate Investor’s Resource, is an active investor, speaker and coach. Through her training and coaching programs, she helps new and experienced investors create profitability, productivity and prosperity. Nancy serves on the board of directors for the Georgia Real Estate Investors Association, the largest investor association in the U.S.

For a free copy of the eBook, The Science of Getting Rich and a list of Resources from Nancy’s Private Rolodex, sign up for her free ezine,The REI Resource, which is loaded with free tips, resources and tools that will help you create profit, productivity and prosperity in real estate investing! http://www.transformit.net/ezine.html

Contact the Author
Nancy Spivey
Real Estate Investing
nspivey@transformit.net

The Most Important Due Diligence Area:

Five Steps to Success in Whatever You Want From Life!

By: Darius M. Barazandeh, Attorney at Law / M.B.A.

Did you know that virtually everything in your physical world started in your internal world?  The car you drive, the house you live in, the job you have, and the people you love all began as ideas, thoughts, or emotions.  All of us are the end result of our thoughts put into action.  The reason I believe this area to be the ‘most important’ is because your success or failure will depend almost entirely on your mental attitude.  There will be defeats, challenges, and failures, but your mindset will take you from failure to success in an instant. Most of us have heard of these concepts before but we may not be sure how to apply them in real life.  Let me share with you my five step plan for success in any area of life:

                   I.      Step 1 – Define what you want with absolute clarity – You must know what you want before you can go after it.  More than just wanting a goal or ideal you must want and accept the feelings, emotions, thoughts, freedom and/or obligations that will certainly accompany your goals.  Begin to think about why you want this thing, what it will mean to you and your loved ones.  

1)       What will meeting this goal look like, feel like, and how will it change your life?   

2)       Do you know what it will take to meet this objective? 

3)       What are the costs?   Many times people want something but only think about the good things that will come from its attainment.  You must be very honest about the sacrifice and hard work that will be required to attain this goal. Without question everything worthwhile will require sacrifice.

                II.      Step 2 – Commit to it with a ‘burning desire’ – Once you decide what you want you must absolutely commit to it with intense passion. You cannot just wish or merely hope for success.  There are people everywhere that have hopes, idle curiosity, or wishes.  You will never be able to make it through the difficult times of doubt, frustration, and failure if you are fueled only with hopes or wishes.  You must want the attainment of your objective with a very strong desire and be unstoppable in your pursuit.

What is a burning desire? A burning desire is one that keeps you up at night and its thoughts will make you jump out of bed in the morning.  It is a desire that drives the majority of your conscious thoughts and actions during the day. That is ‘burning desire’.  If you want to strengthen your desire and the likelihood of your success then write your goal down and speak it to yourself aloud at night before you retire and in the morning upon awakening.  When you speak of your goal you should speak as though it has already occurred.  Your mind does not know the difference between what you think and reality.  Soon your mind will find new and creative ways to make your external world align with your internal world. When you reach this point success is very near.

             III.      Step 3 – Always put action behind your desires – You must always be thinking of one thing: ACTION, ACTION, ACTION!  Napoleon Hill once said that, “Faith without deeds is dead”.  You must act because only action will take the desire from your mind and transform it into reality.  Think of all the things you must do to attain your goal and start doing them.  Do not worry if they are small things or large things just start doing something right now!

1)       Shouldn’t I call ABC title company to get more information?

2)       Do you have to re-read that section of that course collecting dust on your bookshelf? 

3)       Shouldn’t you email the author of that product you purchased to resolve your questions?

If you can get in the habit of doing five action items a day which relate to your goal you will be on your way.  Your commitment to these items must be rock solid. The momentum of performing small tasks and continually accomplishing them will build your confidence and your certainty of success.

              IV.      Step 4 –  Measure the results of your actions – We have all heard of people with a lot motivation, desire, and action but strangely they never seem to get beyond their current position in life.  The reason is that they are not reading the ‘writing on the wall.’ You must be able to step back from your actions and view the results with an unbiased eye.  You must be honest and critical in order to determine if your actions are producing the desired result.  Many times people become so focused on actions that they forget that it is not the act of doing something that is the prize, rather the result of the action is important.  Use this checklist if you have been struggling with a problem or issue and no resolution seems likely:

1)      Am I acting as effectively as I possibly can? – Ask yourself these questions: Are there other ways to accomplish what you want?   Have I tried these other ways?   What could I change about my approach to this issue?   What is the weakest link my plan or methodology?  What is really holding me back?  When you find the true barrier to your success then simply brainstorm in your mind or the mind of others to search for an additional method to reach your objective.  This method may seem very simplistic but don’t dismiss it. Remember that once we rid ourselves of the pain and worry of failure the path our goals becomes a very precise methodology. This success methodology has been proven to work throughout time.

2)      Have I tried to help others resolve their problems? – This may seem like the last thing in the world to some people especially when they are just trying to handle a complex, energy draining problem of their own.  Regardless of what you may think it has been proven to me that helping others with their challenges has led me to my own answers.  The reason, I believe is that most of the time we have the answers in our subconscious mind.  When you take the time to help others you remove yourself (hopefully) from the clatter of your own mind.  That ‘clatter’ is what keeps you from hearing the answer.  Have you ever gone to bed with a question or problem in your mind and then awoke the next morning to find the answer awaits you?  This is another example of your subconscious mind having or formulating the answer when your conscious mind stepped out of the way.

3)      Have you spoken with people who have done what you are trying to do?   Have you sought counsel from others who have been successful in this area?   Many people forget that knowledge is perhaps the most available commodity in the world today.  If we all live in the Information Age then why is it that we don’t take advantage of the great volumes of information and the tremendous minds of the successful businesspeople, coaches, investors, financial analysts, lawyers, and others?  I believe that information is not the hardest part of the equation to success.  The hardest part is consistently applying this five step process and perhaps Step 5 (detailed below).

4)      Do you honestly believe you can attain your goals? – You must believe that you can attain your desires and goals.  Are you doubtful of your ability to succeed?  What do you say to yourself about your desires?  Do you speak positive messages of success to yourself or do you engage in negative self talk? Remember your mind will not know the difference between your internal and external realities.  If you create the internal reality you desire then your external reality will change.  You must learn to speak what you want to create everyday without fail. If you follow this step soon your imaginary world will become your reality.

V.  Step 5 – Never Give Up on Your Goals No Matter the Obstacles – This is without a doubt the most important aspect of this list.  If you know your objective is right for you and you believe in it then don’t ever give up trying.  They are very few people who have risen to the dizzying heights of success without constant persistence in the face of adversity and failure.  The most interesting thing about this last step is that sometimes your persistence will lead to another goal and perhaps the real purpose for your life or the real desire in your heart.   When you stay committed to a goal you will develop personal strength. Soon that strength will begin to show in how you conduct yourself: the certainty with which you speak, the quickness of your step, and the confidence in your decisions.  As other people recognize these traits you will find even greater successes and opportunities as you go through life

Sadly, many people don’t think about continued persistence in the face of failure or adversity.  Quitting early becomes a habit and part of our comfort zone. Even worse is that sometimes we fail to realize that the greatest lesson come from each failure that we undergo.  Likewise the greatest exercise of our determination will come when we continue to persevere in our goals after failure has occurred.  This is where successful people and unsuccessful people usually differ the most: Successful people will still fail as much or more than anyone else but they have learned to transform their failures into triumphs, learn from defeat and try again.

What will you do with this information?  Will you apply it in your life and reap the rewards? I sincerely hope that you do.  Although I stated earlier that this is my formula for success it has been adapted from universal laws of achievement.  In some form or another this process has been used by every successful person in every endeavor or pursuit imaginable. It does not matter if they realized it or not the actions which brought them lifelong sustained success followed this outline to some degree.

Remember that continued persistence in the face of failure is the most important lesson from this article. To illustrate the importance of persistence consider that Thomas Edison, the inventor of the incandescent light bulb failed more than 10,000 times in his attempt to create the what would become the modern day light bulb.  When speaking of his numerous failed attempts he said, “I had to succeed because I ran out of things that did not work.” It sounds simple doesn’t it? Edison had the formula and he applied it for the benefit of billions of people:  Know what you want, want it with all the desire you can muster, measure your actions, and keep on trying until success finds you. 

I want to wish you the best of luck in your endeavors and email me if you ever need help!

You can also email me if you have any questions: taxenterprises@yahoo.com

Due Diligence

By Patrick O’Connor

Due diligence is an essential step in real estate investment. After selecting the property type and geographic location, the investor needs to ascertain he has accurate information regarding the physical asset, financial performance, tenant base and future prospects for the subject property. Due diligence helps the investor accomplish those tasks. Due diligence can provide in-depth data and insights for these areas and mitigate the risk of a real estate investment. The costs associated with due diligence are minimal compared to the costs of making an imprudent investment decision.

In addition to investors avoiding unfavorable investments, due diligence can:

Enable investors to quickly pass on potential investments which do not merit a complete analysis;

Save money and reduce the time an investor spends evaluating a possible investment by more quickly declining an investment which does not fit the investor’s criteria or that is not consistent with what was presented; and

Provide the investor with a better understanding of the benefits, costs, risks and opportunities related to an investment.

The financial costs and time expended by the investor and the opportunity cost (of not pursuing other more attractive investments) related to fully analyzing a real estate investment are substantial. Due diligence helps to reduce these costs. In most due diligence cases, the business person leading the investment effort has developed an “investment hypothesis”. Potential “investment hypotheses” include the following:

This property will generate a 7% unleveraged yield without any upgrading.

This property is 30% occupied due to poor management. By focusing on leasing, the purchaser can achieve stabilized occupancy of 90% within 12 months while leasing at $18 per square foot.

The subject class A apartment complex was built 15 years ago when the level of finish was at a lower level. The subject property currently has both a good resident profile and is in good physical condition. By spending $8,000 per unit to upgrade the level of finish with items such as granite countertops, better appliances, upgraded cabinets, the rental rates can be increased from $.90 per square foot per month to $1.05 per square foot per month.

Investors cannot save both time and money by performing an initial review of the investment hypothesis. In many cases, the investor has too many other time consuming commitments and responsibilities to personally perform an in-depth analysis or to visit the property to confirm the investment hypothesis before proceeding with an acquisition. If it is possible to eliminate investments which do not meet the investor’s criteria before negotiating the contract to purchase the property, the investor can save legal fees related to the contract, time involved in negotiating the contract, time working with the lender, the cost of third-party lender – related records and any additional due diligence the investor would perform.

Depending on the investment hypothesis, the investor’s familiarity with the submarket where the property is located and the subject property itself, the following due diligence tasks merit consideration:

Market rent analysis;
Market analysis (occupancy, absorption, construction and rental rate trends);
Financial analysis/financial modeling;
Construction cost analysis (upgrading and curing deferred maintenance);
Code compliance;
Organize procurement of third-party reports;
Evaluate options regarding the level of renovation or upgrading;
Highest and best use analysis;
Market study;
Feasibility study;
Lease audit;
Lease abstraction;
Detailed examination of the seller’s financial statements;
Comparison of seller’s financial statements with bank statements;
Obtain survey;
Interview management companies;
Interview leasing companies;
Property tax analysis and forecast.

The list of due diligence tasks which should at least be considered is daunting. However, the time and cost related to properly performing due diligence is insignificant compared to the time and cost to remedy a poor investment.

To obtain more information on O’Connor & Associates due diligence services, call us at 713-686-9955

The appraisal division of O’Connor & Associates is a national provider of commercial real estate appraisal services including feasibility studies, cost segregation, due diligence, insurance valuations, financial modeling, gift tax valuations, highest and best use analyses, casualty loss valuations and HUD map market studies.

http://www.protest-harris-county-appraisal-district-taxes.com/Articles/feasibility_study.cfm

http://www.poconnor.com/cost_segregation.asp

About The AuthorPatrick C. O’Connor has been president of O’Connor & Associates since 1983 and is a recipient of the prestigious MAI designation from the Appraisal Institute. He is also a registered senior property tax consultant in the state of Texas and has written numerous articles in state and national publications on reducing property taxes. He continues to set the standard in direction and quality of our appraisal products, adding services ranging from business valuations and business appraisals to cost segregation analysis for income tax reduction.