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By Arnie Abramson
Texas has a thriving economy, population growth and an incredible rental market. It also has a tax sale structure that is very, very investor friendly, which makes it very attractive to tax lien and tax deed investors alike. But sometimes people don’t profit as much as they could (or may even lose money) because they don’t understand all the nuances of investing in Texas tax deeds.
Texas is a tax deed state and when you buy a property at the auction it is a judicially caused foreclosure and you get a deed to the property. You buy the property – not the tax lien.
The auction bidding starts with the amount owed for taxes plus administrative charges, and the price of the property is bid up from there. The winning bidder gets the property but the former owner has the right to buy it back, or redeem it. The redemption period is either 6 months or 2 years, depending on whether or not the property is a homestead, mineral lease or has an agricultural exemption. But, regardless of the duration of the redemption period, it is unlikely that a title policy can be obtained prior to 2 years.
If the previous owner or lien holder does redeem the property, they must pay the investor their costs plus 25% if they redeem in the first year, and 50% if in the second year. This is a penalty, not an annualized interest rate and it is not prorated, meaning that if they redeem it the month after you buy it you get the entire 25% profit.
Therefore, it is best to buy the properties and rent them out at least until the 2 year period is over. While this is what we do for our clients, and their returns are almost always in double digits, there is one BIG CATCH!
Until you buy the property and are the owner, you are not allowed to disturb the occupants of the house and it is deemed trespassing if you do (Remember, this is Texas-you do not want to trespass). What this is means is, THERE ARE SEVERAL UNKNOWNS ABOUT THE PROPERTY UPON WHICH YOU MAY WANT TO BID!
IS IT OCCUPIED OR VACANT? It is very easy to be fooled when the neighbors park a car in the driveway, cut the lawn, and maintain the outside appearance. I started buying tax sale properties in Texas in 1992 and I have been fooled by neighbors that do not want to “advertise” a vacant house on their block.
WHAT IS THE CONDITION OF THE INSIDE OF THE HOUSE? This may be the most important unknown of all. From the outside, you may not know whether it needs $1,000 worth of work or $30,000, or even more. Remember, you are advised not to knock on the door and ask to see the inside of the house.
WHAT WILL IT RENT FOR? MLS, Zillow, etc. are not always accurate. Remember, you do not know when it was last refreshed, rehabbed or even if everything works. Many investors do not list their houses for rent on MLS so they are not always so accurate either.
WHAT WILL BE YOUR TOTAL OUT OF POCKET COST? How would you know if you do not know how much rehab is necessary?
WHAT WILL BE YOUR CASH FLOW AND ROI? Let’s see, if you do not know how much it will cost you nor what the rent will be, it might be pretty tough to know how much cash flow you will have and what your return will be.
Let me summarize with a question. WHEN WAS THE LAST TIME YOU BOUGHT A HOUSE WITHOUT YOU OR ANYONE YOU KNOW SEEING THE INSIDE?
The correct answer usually is NEVER!
So, we now know some of the unknowns that can burn you, how are they overcome?
SIMPLE. GET SOMEONE ELSE TO BUY THEM FIRST SO YOU CAN TURN THOSE UNKNOWNS INTO KNOWNS!
THATS EXACTLY WHAT WE DO FOR YOU !
In fact, that is so simple we call it the TEXAS 2-STEP FOR TAX SALES !
STEP 1. WE BUY THE PROPERTY
STEP 2. WE OFFER IT TO OUR INVESTORS AFTER IT HAS BEEN INSPECTED, REHABBED AND RENTED.
Guess what? You then know that it is occupied, rented, what your total out of pocket cost will be and what your cash flow and return is.
It is completely TURN-KEY! We do all the work for our ”priority members”.
Other programs offered or to be offered starting in January are:
All day workshop teaching about and how to purchase tax dees in Texas.
Learn and Earn program that pays you while you learn.
Sharevestor for smaller investments to partner with us.
List of services to do what investors want to outsource.
Before becoming a Texas real estate investor in 1991, Arnie Abramson had successful careers as a financial planner and Vice-President of Marketing for a national real estate management company that marketed public Real Estate Limited Partnerships. He began buying houses at Sheriff Sales in 1992 and has been an investor, landlord, mentor, educator, speaker and property manager for over twenty years.
Arnie is a national speaker on Texas tax deed sales and is the Texas provider for tax deed purchases for several of the national tax lien gurus seen on the Internet. He is past president of the Texas Real Estate Investors Association (TxREIA), on the Advisory Board of several REIAs and was a co-founder of the REI EXPO.
His company, Texas Tax Sales Resource Group LLC, HAS THE ONLY COMPLETELY TURN-KEY PROGRAM THAT COVERS THE ENTIRE STATE OF TEXAS. This includes the research, due diligence, previewing, bidding, inspecting, rehabbing, renting and management of the properties purchased at the Texas tax sales.
Arnie was a speaker at the recent Lone Star Real Estate Expo in Texas and will be participating in future Realty 411 Expos in the near future.