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Secretly Buying Cheap as Developers Go Bust

By Dr. Steve Sjuggerud
Wednesday, February 24, 2010

I'm investing in properties at cheaper prices than I ever thought possible... 

I'm buying "secretly." These properties aren't listed on MLS, and your realtor won't show them to you. But they can be some of the best deals you'll ever see.

Most people will never see them, because they don't know where to look. They're properties sold by the government to collect back taxes.


I've already done this in Florida. Earlier this week, I went to a few county courthouses in Georgia to figure it out there, too...

"Are you the Tax Commissioner?" I asked one lady as I walked into the county courthouse.

"Yes, I am," she replied. She was holding a stack of papers about two inches high and looked to be in a hurry.

"Do you have a minute to chat?" I asked.

She looked at her pile of papers... she sized me up... and then said, "Sure."

(You might not like the South. But I sure do... Here's the busy Tax Commissioner of a county in the State of Georgia. I didn't have an appointment. She had no idea who I was. But she figured I wasn't crazy and wasn't there to waste her time. So we had a meeting in her office.)

"How do tax deeds sales work in this county?" I asked.

"We try to give people every chance possible to pay when they're behind on their property taxes," she said. "We send tons of notices, and we let them stretch things out. If they don't pay, then we let them know that we will be selling their property on the courthouse steps to recoup the back taxes due."

You can't fault the Tax Commissioner... She's doing her job, following Georgia state law. Ultimately, her county needs that property tax revenue. It has to pay for firemen, policemen, and city services. If she doesn't collect that money, the county will have to raise taxes on everyone who does pay what they owe.

Even if the property is sold on the courthouse steps, the previous owner can still get it back. But now the terms get tough... The previous owner has to pay a 20% penalty over what the new owner paid.

That 20% penalty attracts investors... like me. Let me show you how it works...

Let's say there's an empty lot worth $100,000 and the owner hasn't paid taxes. If the county sells that property, you could probably buy it for $50,000 on the courthouse steps... mostly because it was poorly advertised and it has a couple strings attached.

There are three ways the investment can work out for you. 1) The original owner buys the property back from you, including the 20% penalty. So you collect $60,000. 2) After a year, you sell it at a profit. 3) If the owner doesn't buy it back and you don't want to sell it, you just keep it. All three sound like pretty good outcomes to me.

I asked the Tax Commissioner what it looks like for upcoming auctions in her county. She said she has a large number of delinquent properties... and she has no idea how many will actually pay off their taxes in this bad economy. She also pointed out Georgia's high penalty (20%) attracts a lot of competitive bidding on the courthouse steps.

I expect the supply of delinquent properties to be huge in the next few years... and Georgia property developers went just as crazy as Florida developers did. Now those hotshot developers are upside-down, owing more than the property is worth. Somehow, somewhere, choice properties from upside-down developers will end up at fire-sale prices soon.

One of the cheapest places to look is in the sales done by your local county for back taxes due. Every county has a different system. Look for their website online or visit your county courthouse. 

I highly recommend you get familiar with the tax liens/tax deeds process in your local county. If you stay on it and watch closely, you have a legitimate chance of ending up with a property you want to own for a truly unbelievable price.

I know... I've done it... I urge you to check it out.

Good investing, 

Steve

P.S. To get going on tax lien certificates, go to Amazon and type "tax liens" in the search box. Buy the first three books (Burrell, Sausa, and Loftis) – less than $50 total. That's all you need to get started.

My True Wealth subscribers can read more about tax liens in the August 2009 issue. Scroll down to the section called "What I'm Doing with My Own Money Right This Minute."
 




Market Notes


THE GIANT "BAILOUTS AND HANDOUTS" POLICY AT WORK

Get to the mall, folks... before your neighbors get all the good stuff. That's the message from today's chart.

Last Thursday, we profiled the soaring shares of home improvement giantHome Depot (HD). Despite America's busted finances and high unemployment, shares of this "spending sensitive" stock just struck a 52-week high. You can thank the government's huge E-Z-Credit program for the uptrend. Today, we look at another spending sector exhibiting extraordinary strength. We look at Darden Restaurants.

Darden is the largest full-service restaurant company in America. Mall linchpins Red Lobster, Olive Garden, and Longhorn Steakhouse are under the Darden umbrella. The company just reported improving numbers... and its stock just shot up to a new 52-week high. Competing chains Texas Roadhouse, Panera Bread, P.F Chang's, and Cheesecake Factory sport similar price strength.

The takeaway from soaring home improvement and restaurant chains? Sure... you can be "bearish on America" all you want. And yes, these trends will end badly. But realize the government's new "bailouts and handouts" policy is the largest of its kind ever seen. Realize the trend is up right now. Anyone who's short must realize the market can stay irrational longer than you can stay solvent. 


In The Daily Crux



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