A Tax Sale Deal Review

Posted on April 3, 2015 by

Tom DiAgostinoAt Fortris we have several levels of Mentoring and in the past one of these levels was the Generals Club. That club has now been retired. But several years ago we opened it up to 8 investors. The concept was total immersion into the tax sale business and working through an entire deal utilizing the General’s capital while teaching them the entire process of construction management, sales, the associated legalities, and the basics on how to become a very successful real estate investor. At the end of the project we gave the General back all their investment, as well as their mentoring fee plus half the profit on the project they had been tasked with. Currently we still maintain partnership investments with five of the original eight members.

Ann S., one of our Generals, invests in the city of Baltimore which is a very tough market. Baltimore doesn’t allow any scraping of tax sale data from their site, so we needed to pull all the enhanced lists manually. The bidding process is different than any other I’ve ever seen. First the interest rate is bid down which means that you can offer to take a lower rate of interest payment to win the lien. It is also a sealed bid including a premium offer you are willing to pay, over and above the interest, added in. The county processes all the submissions and the best combination of bid and premium gets the lien. If the property does not redeem, the bid will be packaged according to the best offer combination. For example, if the lien is $5000 and the interest rate is 24%, the bidder may structure their offer to take 7% interest on the $5,000 certificate and then pay a premium of an additional $6,000 above the lien cost if the lien does not redeem. A fairly complicated structure. All the premium bids are sealed and no re-bids are possible. You only get one crack at getting it so you have to use your opportunity to make your best offer possible.

Ann S. has been very successful at being the winning bidder at between 7 and 9 percent interest and a 110% premium bid combination. Most of the certificates redeem, but occasionally she gets one that doesn’t, and she either rehabs it or wholesales it to a hard money lender who then presents it to his borrowers and Ann winds up making about $12K above her costs. This week she has one of these events.

At Fortris there are several concepts we teach. First, tax sales is a “rinse and repeat” type of business. Everything we do can be duplicated and repeated over and over again anywhere in the country. Though the “Tax Sale” business is a generic term, every state has their own rules as it pertains to tax sales and every taxing authority has the right to add a bi-law.

Just because some taxing authorities are tough like Baltimore City does not mean you cannot be successful. And there are many areas that are much simpler. You pick your market. But regardless of which market you work, success starts with training, then utilizing all of Fortris’ tools, as well as our techniques, procedures and protocols.  

In April, Baltimore will be holding this year’s auction and Ann S. will be placing bids on 100 or more properties, mostly hoping for interest but also anticipating getting one or two properties to flip or wholesale. It’s a rinse and repeat world!


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