I was recently invited to a mastermind meeting that had some pretty advanced investors in the room, one of whom was in the habit of buying tax liens – these are liens counties put against properties when homeowners don’t pay their property taxes. Counties do this so they can sell the liens at auction and recoup the funds they didn’t collect from the homeowner. This is called a tax lien sale or Sheriff’s sale.
These are great opportunities. The investor who buys them told us the most she’d ever spent on a tax lien was $13K, and that she’d bought them for as little as $800.
In the state of Georgia, the homeowner has a right of redemption, which will allow them to buy the lien back for one year. If they choose to do so however, they have to pay a 20 percent penalty. In investment terms, that means these deals have a worst-case scenario of a 20 percent return on investment.
Tax liens supercede all other liens, including mortgages and even IRS liens. So best-case scenario, a year and a half after the Sheriff’s sale, you foreclose your lien and own the house. This is what the lady at the mastermind meeting had been doing successfully for years. Once she owned the house, she would then rehab it and keep it as a rental property.
As of the meeting, her challenge was that she was out of money, banks wouldn’t lend to her on these deals and she wasn’t sure how to bring private money into it. That was mainly because for the first year and half of these deals, she doesn’t own the property, just the lien. In other words, she has no real collateral to secure her lenders to.
I suggested that once she had the lien, she put it into a personal property trust and make her private lender be a beneficiary of the trust. She’d never thought of using ownership as the collateral she needed for the loan.
Next I asked her if she had any properties that were unencumbered. She did, and I suggested that if the personal property trust didn’t work, she could pledge one of those properties as collateral to her private lender and even negotiate the ability to get rehab funds to fix the tax lien house up once she owned it.
I could see the light bulb come on as she said, “I never thought of leveraging one of my paid-for properties to get funds for another deal.” She smiled and asked me how I got to be so smart.
I’m not so smart. I’ve just been blessed to hang out with and learn from a handful of the smartest and most creative real estate investors on the planet, one of whom is Peter Fortunato. By hanging out with Pete, I’ve learned that creative deal structures aren’t limited to things like lease options, subject-to deals or getting owner financing.
Those are just a few creative techniques, but what Pete taught me is that creative deal structuring is not a technique, but a mindset.
That mindset allows you to use anything available to piece together what you need in order to engineer the deal that’s in front of you. You must then apply that mindset not only to how you buy, but also how you fund and even sell each house. Mastering these three components is how you’ll become comfortable structuring creative deals.
If you would like to learn more about gaining that mindset, Pete Fortunato and Bill Cook will be teaching their “What Box” course on creative deal structuring Sept. 16th and 17th in Atlanta, Georgia. I can’t stress to you just how important learning from these guys has been to Ashley and me and our deal structuring. To sign up, call Kim Cook at 770-815-8728 or visit CashFlowREI.com.
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.