Question:Pre-taxsale solicitation? - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on December 27, 2001 at 16:55:01:
I received the following via e-mail. Seeing no problem with privacy, I post it here.
Date: Thu, 27 Dec 2001 11:50:37 -0800
Subject: real estate question
From: “sandy man” | Block Address | Add to Address Book
hello Ronald Starr…i saw your responses on creonline as was wondering if i could get an opinion from you on roy stubblefield an his system of trying to buy tax defaulted properties cheaply by sending out loads of form letters to people who are delinquent on their property
taxes an offering them $25-$100 for a quit claim deed to their property…i am interested in trying this but am also wondering if in reality it would be a waste of time…i have bought a few tax lien certs in the past for the interest so i understand that process a bit
but have no background in trying to get the properties themself…any opinion would be greatly appreciated…thank you
I have attempted this technique perhaps a dozen or so times, here in No CA. I got very little response. I got a couple of responses before a Madera county sale. One property up in the Sierra mountains that seemed, from a limited investigation, to have no marketable value. I think I received a couple of responses another year in Madera. I have not tested the approach elsewhere.
The response has been so poor, that I don’t bother to do it anymore. Note: I have only mailed to people who were facing taxsale in a couple of weeks. I have not done mass mailings to people who are simply delinquent on the taxes.
It may well work better elsewhere. Understand that many of the properties in delinquency are going to be worthless or virtually so. Some of the owners who will respond were just letting the properties go. Many properties are not usuable–underwater, steep hillsides, small and unbuildable, toxic contaminated. In some areas the properties are usuable, but there are so many available, and the demand is so low, that they have little resale value. I have seen this in CA, UT, AZ, and NM. Apparently it is so in other places, such a Cherokee Village, AR.
Even if these latter properties are usuable, the real estate brokers close to the properties are probably going to tell you that they do not want to list the properties for sale after you have bought them. Their value is too low to bother for the small commission they can generate.
It may cost more money to advertise them for sale in local newspapers than they will sell for. Roy is touting selling on e-bay and similar internet auctions. This is pretty low cost. I suspect is may be a good way to go. However, I would worry about dissapointed buyers if I sold on this route. I know that John Beck and his family has been selling tax sale lots on e-bay and he is honest and does not like to have customers complain. If the properties are actually useable and sell for less than their market value, the successful bidder should not have too much to complain about.
It may be that after a while the e-bay auctions will gain some reputation. Either as a “big ripoff.” Or as a place to get some bargains. If the former occurs, it may be hard to resell the properties on e-bay and similar sites.
One might get some usuable, attractive properties from the technique. If so, one might well make some good profit from them. The key is to investigate before you buy. I would not send letters offering to buy the properties for some set price. I would solicit the owners to contact me if they want to sell. Then I would call local brokers and government officials to scope out the situation where the properties are located. I’d only buy the properties if I had a pretty good feeling that I could resell the properties for a good profit. And that the properties were not just “junk.”
Roy is very much a marketing person. I have never seen him provide information on the negative side about tax sales, certificates, and investing in properties. The most honest he has been is to remark that he has bid on only certain of the properties that came up for sale at a couple of TX tax sales where he bought properties. I think he gave the
reasoning for not bidding on a couple of the properties.
He used to have a lot of “success stories” on his web site and in e-newsletter of people writing that they had bought properties cheap. Usually they compared their purchase prices to the assessed values of the properties or to the seller’s earlier purchase price. I pointed out a few months ago that these don’t look like success stories to me, that I want to see actual sales of the properties for money. He seems to have changed the success stories to now include only those where the people have actually sold the properties for a profit, or traded them for something of value. I notice that there are a whole lot fewer “success stories” since he made this change.
He also never prints any letters from his customers who complain that they got stuck with unsalable properties, unusable properties, tax certificates where the cost of foreclosure made the properties too expensive to make a profit, etc. I suspect that he has gotten many letters like that. But, like many marketing people, he only shows the public what he wants to show, the positive side of tax sale and tax certificate investing.
He also makes claims to the effect that you don’t need to know anything about real estate or have a high school diploma to buy tax sale properties. You just need “common sense” he says. Well, I think that this is advertising hyperbole, myself.
I think that somebody buying tax certificates for the interest rate return or penality return could start doing it right away without much knowledge of real estate. But, for anybody thinking of buying properties through tax sales or certificates, I do not believe this. I think people need to know something about real estate investing before they go this route. Too many possible problems with tax sales properties.
This is not like buying homes sold by ordinary owner-occupants throught the local multiple listing service real estate brokers. This is buying properties with no title insurance, no disclosures, usually no communication with the sellers–although this last would not be so for the pre-sale solicitation approach.
I have a property that I own in Yavapai County, AZ, many years ago from the county after they acquired it through tax delinquency foreclosure. It is near a creek in the town of Cottonwood. I bought it for less thatn $500, without knowing better. The property is in the flood-plain. To make it usuable, according to a local real estate professional who looked at it for me, one would have to fill it with many truck-loads of dirt. I have not paid the taxes for well over 10 years. If you approached me about selling the property for $50 or $100, with you taking on the tax burden, you bet that I would feel positive about selling to you. But, being the person that I am, I would disclose to you the situation as I understand it. Many other property owners with unusuable properties–at least in their current states–might not tell you the negatives of their properties, and sell gladly for what they could get.
IN SUMMARY. I do feel that the approach could have some success. You would only want to buy properties where there is some demand and you could economically attract potential buyers. You would want to do some checking of any property before buying it. You would want to check out the local real estate market before buying the property. In fact, you should probably do so before sending solicitation letters to the tax-delinquent property owners. Yes, money might be made. But Roy’s description of how easy it all is is, in my opinion, not telling the whole story. By the way, this response is not the whole story. But a lot more of the story than Roy ever talks about.
Good Investing***********Ron Starr*************