Unorthodox Profits From Tax Liens

Sometimes to make money in real estate you have to go against the flow.  One of the unorthodox and advanced strategies I employ involves bidding on tax liens that most people won’t understand.

What I mean by this is there are many types of parcels that get auctioned off that are not residential or commercial structures, and as long as you have a solid exit plan in hand, then these can be very profitable. These properties could include cell towers, billboards, access roads, community parks and other types of easements.  Here are some examples.

I recently won an auction on a full operating cell phone tower, and a full sized billboard. While they eventually got redeemed, the return was guaranteed.  I have also acquired neighborhood parks, complete with basketball courts that the community association simply forgot about and never paid the taxes.

Most people would say “Why would you want to buy a tax lien on a cell tower?  What are you going to do, start your own cell phone company if they don't redeem?”  Actually, while that does sound like a challenge, I’m purchasing the tax lien on the tower knowing that the cell phone company will definitely redeem it.  The tower is normally worth hundreds of thousands of dollars in technology.  Plus they need it to continue to provide service to their clients.  I know beyond a shadow of a doubt they are going to redeem the certificate and I’m going to make a profit.  I just diary the redemption date in my system and wait for my profits to show up.

These types of unorthodox parcels can always be sold back to the previous owner or another tax lien investor if they don’t get redeemed, but it’s rare it goes that far. Condo clubhouses, gun clubs, youth clubs or community pools are some of the weirder liens I have seen come up for auction. The secret is to buy a property that you know the owner cannot do without.  Owning a parking lot to an abandoned shopping mall is worthless, but if that same parking lot belongs to a large chain store then you know your investment is going to pay off.

Another tactic that experienced investors can use is actually investing in small parcels that are “out lots” or what are referred to as “postage stamp” lots. The idea here is that the small parcel is adjacent to a larger more valuable piece that needs the small lot for either additional space or for a billboard or other type of advertising.

One of my favorite “finds” at a tax sale is a property that is surrounded by parcels that have been bought up by a development company.  I just know I have a built in purchaser for this parcel.  I mean, the last thing these developers want is to spend tens of millions of dollars building this gorgeous development of single family homes with pools and community parks and a clubhouse, and have my lot with a single-wide trailer sitting on it right there in the middle of their development.  Yes, they will pay me a premium for my lot.

 

Daniel Doran is a 20+ year veteran in the real estate industry. He is a previous owner of a law firm, mortgage and title company. Daniel has also written several books on mortgage modification, short sales and real estate investing. He currently specializes in Commercial Finance and Real Estate Development and is a graduate of Manhattanville College and Brooklyn Law School. You can contact Dan at Buildings By Owner.