Introduction to Learning From Worst Case Scenarios with Nelson Mullins, Part 1
Brian Seidensticker, CEO of Tax Sale Resources, recently hosted a four-part podcast series with Randy Saunders and Matt Abee of the nationwide law firm Nelson Mullins. Saunders and Abee are both experts in tax sales law across multiple states. In the first podcast, they covered many of the most important things to consider when developing a successful model for sales tax investing.
Three Keys to Success
The first piece of advice from the attorneys is to recognize that each state has different statutory rules and procedures, and knowing those is essential. Even in states that border each other, the differences can be significant and substantially impact your tax lien or tax deed investment. That is all part of due diligence, which they agree is the second most vital component of tax sales investing. The time and effort put into due diligence on the front end of an investment can ensure fewer obstacles and greater profitability on the back end. Thirdly, they point out that an attorney familiar with tax sales in the jurisdiction where you intend to invest can be beneficial, especially early in the process. They can help you identify and avoid common pitfalls and entangling legal situations that often undermine profits and invite unexpected delays and liabilities. Plus, many will give you up to an hour of free consultation – which can be invaluable.
Location-Specific Due Diligence
Many investors decide to invest close to home, but that is only sometimes the best idea. Sometimes, it’s the worst strategy because where you live might not be the ideal place for the kind of tax sale investment you want to do. Side-by-side states may have dramatically different procedures and statutes. Ultimately, the return on investment is a matter of selecting the right state, wherever it may be, and the proper county within that state to take advantage of statutory mechanisms and auction practices that fit your business model. The rules for each jurisdiction can also vary considerably regarding your chances of securing the deed to a parcel, how long it takes to clear a title, and what costs may be incurred along the way. For instance, in some counties, it can take nearly a year after the redemption period ends for them to deliver the deed. When fine-tuning their business models, investors must budget for delays that tie up their cash. In some states, homeowner associations are common, and they may hold liens on a property – so those need to be researched to avoid unwanted surprises. The attorneys used the example of golfing communities where you may be subject to a joining fee that may cost tens of thousands of dollars because you became a local property owner.
Risk Mitigation for Higher Returns
Risk mitigation may play a much more significant role than focusing primarily on pursuing the most profitable returns. Properties acquired through tax sales can offer the potential for outsized value at a deeply discounted price. But you must account for and minimize the cost of having your capital tied up in an investment and performing due diligence, possible court fees, and property maintenance – including repairs, routine upkeep, insurance, and taxes. Part of your mitigation effort should be checking out the physical property in person. Is it in compliance with city codes and neighborhood regulations? What features of the property and its location add or detract from market appeal? If you plan to rent it, is there a demand for rentals in that area to sustain that business plan? Are there any issues that could make rehabbing more costly than it’s worth? Check to see if there is a mobile home on the property. If so, will you need to retire the title if you become the deed holder of the property it’s tied to?
Avoid the Worst Case Scenarios
Tax sales can offer investors many rewards, and gaining some inside knowledge from seasoned attorneys specializing in this niche market can be helpful and valuable. This is just an overview of the information and insights shared on Randy Saunders and Matt Abee's podcast. You can learn more and listen to the podcast interview by clicking here.
