San Francisco 100 year after the big quake...who cares...

[Henderson]

Thats why I don't own real estate here. I'm saving up for just after the next big one to pick off some property from those that didnt prepare. Foreclosures....Raw land from destroyed buildings with not enough insurance...Government grants and programs galore will be all over that with need for investors to drive that train. Toot Toot

Beau,
I know you've been getting kicked in the chops a lot lately for some of your posts. I also have a hard time believing that you would lower yourself to the level of making financial gains from other people's misfortune and tragic circumstances.

Just my $.02, and we know how much that can buy!

 

[Flatlander]

I also have a hard time believing that you would lower yourself to the level of making financial gains from other people's misfortune and tragic circumstances.

In all fairness though, it's a viable play. The problem is, risk of loss of opportunity. If it never happens, you never profit. Where the money is in the interim will be a factor in the profitability.

Personally, I'm super happy that I don't live on a fault line. I don't think I'd stay there, given the choice. But that's easy for a stubble jumper to say. Our only possible disasters are tornados and freezing rain. Or mosquitos.

 

[Rich Parsons]

You wouldn't believe some of the stuff I have seen around here Bob. On my walk I saw a house that was on Brick pylons.... I asked the owner how that could possibly be considered safe for a earthquake. He just said well it was grandfathered in and he wasnt gonna spend money to fix it if the city didnt care . I can understand that, but woo.... Any they are gonna build 3 more sets of stairs BOLTED to telegraph hill. There is a lot about this place that makes you kinda scared. Exposed gas mains, sewers that back up in the rain and just the thought of being in the middle of the transbay tunnel on the subway if that earthquake hit....

How much was the Brick Pylon house going for? Or its neighbors?

 

[MA-Caver]

Interesting follow up article... http://news.yahoo.com/s/space/20060418/sc_space/somegoodearthquakenewsfaultmellowswithage

 

[beau_safken]

How much was the Brick Pylon house going for? Or its neighbors?

It was interesting... It seemed that this house was held in a trust and has actually been bought and sold at least 3 times in the last 30 years since the trust started. Out here they base the property tax on the purchase price of the house. Therefore, by selling the trust not the house they have been able to transfer the original purchase amount of 243k'ish for tax reasons. Didn't do a comparable on the neighbors houses thou. I was mostly interested as to when they built the house so see how far back I should be thinking when I look at houses in the future for these kinds of grandfathered issues.

Sides, I'm starting to invest in tax lien certificates. I'm buying the property taxes that are owed to the county and collecting either interest on the amount of the lien(principle, bid premium in some states, and if worse comes to worse foreclose on the lien). These taxes are paid by me to help the schools run, roads be built, police to be on the street and other county services to run. I feel no remorse for helping a community when one of its occupants doesn't pay property taxes.

 

[Flatlander]

Sides, I'm starting to invest in tax lien certificates. I'm buying the property taxes that are owed to the county and collecting either interest on the amount of the lien(principle, bid premium in some states, and if worse comes to worse foreclose on the lien).

What is your ROI on these?

 

[beau_safken]

What is your ROI on these?

Depends on the state. I am currently setting up a strategy for investment in Arizona. Depending on counties the interest or penalty rate changes but it is around 16% annualized or 1.333% per month. In Arizona, you get interest for each month you hold the lien and have first right of refusal if it goes more than a year to buy the next years lien on the property. There is a 3 year redemption period in Arizona, so the owner of the property could pay anytime before that. So the amount of interest you could get could be a month if they redeem after the sale as interest is rounded up to the end of the month or you could get nothing and get to foreclose on the property and acquire it for the cost of legal fee's and the initial or subsequent tax lien amounts. Obviously there is a ton of due diligence involved to do it correctly. Arizona also has a 10 dollar fee per tax lien that covers admin fees that you dont get back and some places have a 10 dollar processing fee that you get back with the redeemtion of the house. Its a awesome vehicle if you know how to drive it. I'm just trying to get everything setup to limit my liability and make it all automated. I'll let ya know how it goes, its gonna be a work in progress for a little bit. Quarter end sucks for accountants

Also I know Georgia has a 20% FLAT interest rate and a 1 year redemption period. But the notice aspects of that state suck really bad unless you employ a lawyer if the person doesn't pay before you must give notice of the upcoming foreclosure. But thats like getting pissed about being a landlord for broken toilets at 2 am. Its all in the planning.

 

[shesulsa]

That's an interesting little investment strategy you've got goin' there .... %-}

 

[Flatlander]

What are the risks of the strategy?

 

[beau_safken]

Well im not gonna sugar coat it and tell it like a lot of people try to sell it.

You run into some issues that will more or less require that you have a form of limited liability holding the property to be safe.

Here are some that can survive a tax lien foreclosure. (FYI: A tax lien is considered a primary lien and in most cases will subjigate the remaining liens..aka the mortgage company, mechanic liens and the like. You hold the primary position...except in a few things I will list below)

1) Environmental risk: Pretty much if there is a form of contamination or environmental hazard on the property they will survive to the tax lien forclosure and they can come after you the now property owner. A little government program called the "superfund" act makes it so owners of property must themeselves pay for all environmental issues. This is of course nearly non existant if you simply stay away from commercial properties and only look for residential ones.

2) Bankruptcy issues: If the owner declares bankruptcy before or after your purchase of the tax lien, you or more on hold than anything. There is a stay put on the property and no interest can be accumulated during the bankruptcy stay. OF course you are first in line for getting back your interest before even the mortgage company so this is more a inconvienence and a holdup on your cash. But you either will get your money back with interest or be allowed to foreclose after the stay is lifted granted that the redemption period has elapsed.

3) FIDC Liens: The government will put a lien on homes that were mortgaged by banks that go insolvent to maintain the integrity of the loan. You will now lose your primary position as we live in a federalist society (Federal > State) and you can lose your interest... This doesn't happen a lot, mostly you just get back your interest in the property but the majority of the time doesn't negate the risk.

4) Easements: You could be buying a lien on property with no easement in common if you aren't near a road or has sooo many easements that it lowers the property value a lot. This is obviously easy to see if you have a plat map and did the proper title abstraction prior to the purchase of the lien.

As for other risks:

1) This isnt a CD or a savings account. Your cash is out there until the property taxes are redeemed or you can foreclose on your interest. ITs a great investment but hardly liquid in a pinch.

2) Insurance issues, Someone hurts themselves on your property after you foreclose can lead to issues. Obviously, planning is 9/10th the dollar.

Thats kinda it...but its not all that bad. I just like to focus on problems so I know what to look for. There are many get benefits....many....

 

[Flatlander]

Sounds like a good strategy - how do you enforce the collections?

 

[beau_safken]

You are paying the county for the tax lien. You NEVER SEE THE OWNER... actually in Florida that if you contact the owner at all you can be thrown in jail for a year and fined 100k.

Here is the flow simplified:
Investor see's lien on record in county

Investor contact county for updated price/availablity

Investor sends check, money order, wire depending on methods of payment to the County

County will hold all responsibility for collection of the cash and dispursement of funds to investor if the owner redeems.

a) Owner of property redeems taxes, Investor gets check from County for principle, interest and other costs depending on state laws
OR
b) Investor forecloses and gets a tax deed, quiet title judgement or other style of ownership of property

Investor now either has cash from the county or a tax deed from the county.

That help?