November 15, 2019

You know that tax liens and tax deed investing is one of the highest-potential real estate strategies out there, but did you realize it could place you direct competition with your local government?

As more local governments realize the lucrative potential in public-private partnerships, they are starting to use property-tax debt to snap up prime properties that historically would have gone to the tax sale.

When it comes to the government, most real estate investors want to be working with the government, not in competition.

However, as more local governments realize just how lucrative a public-private development partnership can be for the community and government coffers, more and more properties are not making it to the auction block. Instead, local governments are carrying the tax-lien and foreclosure process through to completion, then developing the newly acquired government properties through public-private partnerships that bring positive publicity and plenty of money into the municipal system.

For example, in one New York county, a building formerly occupied by a major bank has been vacant and accumulating tax debt for more than five years. This month, the county foreclosed on the two parcels as part of a foreclosure proceeding over property taxes tallying more than $3.3 million. That could represent a huge opportunity to a tax-lien investor able to acquire this property at auction! However, the properties will not go to the tax sale. Instead, the county will begin accepting bids for cleanup and development of the site.

The local County Executive said in a public statement that he feels the acquisition is a “win” for all residents of the county, since now the potential of the site can be “unlocked” rather than being “held hostage.”

Developing and optimizing the use of a parcel of land definitely is a good thing. We do not dispute this! However, this particular move is representative of a larger trend of municipal governments “cherry picking” tax lien properties and keeping the best for themselves. Is this a new practice? Not at all. However, in today’s competitive real estate markets it can make it hard for individual investors to get access to the best deals.

One way to effectively “compete” with the local government (to the extent anyone can compete with the people who make the laws) is to join forces with other investors.

By combining capital in a purchasing fund, you may be able to bid more competitively or exert more influence over what goes to auction.

After all, if a county knows it could recoup its losses by selling quickly, then it might opt to do that instead of pursuing other options. Of course, you must be careful to avoid any illegal behavior, such as bid-rigging, when you team up.

We recommend going through an official fund or investment portal rather than simply trying to get together with other local investors and choreograph your moves. This way, you know you are getting the most out of your investment capital while avoiding any issues with collusion.

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About the author 

Charles Sells

Charles Sells is the founder and CEO of The PIP Group, a turnkey service provider that focuses on investments in distressed real estate assets including tax liens, tax deeds, traditional foreclosures, fix-and-flips and long-term cash flow acquisitions. He has been involved in tax lien investing for over 20 years, during which time The PIP Group has grown to become one of the largest agencies of its kind with nearly 1,000 individual and institutional investors worldwide.

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