If you always wanted to own a theater with its own place on the National Register of Historic Places, a tax certificate sale probably isn’t the way to go about getting it. In fact, on the rare occasions these types of properties end up on the docket, they are usually pulled from the register before they ever go up for bid. A prime example is the Indiana Theater in Vigo County, Indiana, which was actually permitted to go up for sale via a tax certificate sale last year but did not garner any bids and was not purchased. The whole story of what happened and why is a good learning opportunity for investors interested in tax liens and tax certificates.
The following year, Vigo County opted to pull the Indiana Theater from the local county tax certificate sale at the last minute, fearing new development in the area might create unwelcome interest in the property. The reason given was simple: The venue is too close to a convention center to risk having a development in that place that did not fit with the county’s vision for the area.
“I would imagine the commissioners were a little concerned about the prospect of some entity [acquiring the theater] that doesn’t recognize the historical value of that building and what it means to the community,” explained country attorney Michael Wright in a public statement. Wright added he believes the pending proximity of the theater to a new convention center would likely have incentivized the mortgage-holder on the property, Old National Bank, to pay the tax debt rather than allow “collateral for its loan [to] go away through a tax sale.” The county attorney emphasized that Vigo County fully expects to be paid the property taxes owed “at some point” and wants to make sure the building’s “future use…is in conformance with what is hoped to happen downtown.”
At the time the theater was pulled from the sale, Indiana Theater LLC owed more than $120,000 in back taxes. It was assessed at a value of $931,400 in 2017 but the lien did not sell when it was put up for purchase that year. This is likely due to the complicated responsibilities that come with owning a registered historic property and the LLC’s current registered agent‘s ongoing attempts to get that appraised value lowered. In 2017, he was able to reduce the assessment to $385,000. He hopes to do the same for the 2018 assessment, which came in at an excess of $1 million.
What This Historic Theater Demonstrates About Tax Lien and Tax Certificate Investing
While you might not necessarily want the headache of owning a piece of real estate with its own spot on the National Historic Register (most investors do not), the Indiana Theater can certainly show every investor some significant, positive things about tax certificate investing. For starters, if the building had been allowed to go to the sale, it could conceivably (other interested parties aside for the moment) have sold for about a tenth of its assessed value and less than a third of the revised assessment. That is one impressive deal.
Secondly, the theater was pulled from the auction because of its proximity to a new development. In this case, investors with an eye to get a great deal on a valuable piece of land (leaving aside the issue of the building sitting on it for the moment) could have done very well for themselves if they had been able to purchase the property at auction. The presence of a convention center in the area could create a situation where there is increased need for mixed-use development, retail areas, entertainment, and dining. Convention centers tend to jump-start developing neighborhoods and serve as “anchors” against erosion of property values in the future. They also cultivate small businesses and tend to bring in new populations of employees who wish to live and work in the area. Clearly, the convention center is something for local investors to watch even if they are unable or uninterested in snapping up the theater property.
What Makes Indiana Theater Special?
So why was the theater pulled from the auction? Most likely the county attorney’s version of the rationale is relatively spin-free. Given that the theater has some potential for tourist appeal, it is highly likely the county felt getting $120,000 in back taxes was outweighed by the potential for a meaningful development on the property later. Indiana Theater opened in 1922 and was the first of a series of theaters designed by John Eberson, an architect who became well-known for his “movie palaces.” The theater not only is capable of hosting traditional shows but also was used as an entertainment and event venue until it began to decline under its current ownership.
As Wright pointed out, the city is confident the taxes will be paid, so apparently it was worthwhile to wait a little bit longer rather than risk losing the building and potential associated revenue to a less “tourist-y” development.
How Real Estate Investors Can Leverage This Indiana Theater Lesson
For the real estate investor looking to use tax lien and tax certificate investing strategies to “get ahead” of the curve in various markets around the country, the Indiana Theater is not so much a lost opportunity as a learning opportunity. Historic properties do not tend to be good investments because there are many constraints on your ability to improve them, modify them, or modernize them. These constraints may limit the amount of value you can add to the property and dramatically elongate your renovation timeline.
However, the fact that the city was willing to wait on its taxesindicates someone “in the know” has a pretty good idea about what the convention center could mean for that area. Instead of looking into buying the theater, most savvy investors are probably looking into gaining control of other properties in proximity to the future convention center. A great way to do this for relatively low overhead is through that tax certificate sale from which Indiana Theater so narrowly escaped. In Indiana, investors who purchase tax certificates then must hold their lien for 120 days. In that window, the owner of record can reimburse the investor for their purchase, associated expenses, and an additional 10 percent to redeem the deed. If they fail in this, then the investor can take control of the property. Either scenario stands to be positive and profitable for the investor.
At PIP Group, we work closely with real estate investors to identify the types of tax deeds and tax liens that will best suit their goals. Many of our clients prefer to focus on redeemed liens, which may return more than 24% annually in some states. Others use tax liens and tax deeds as a route to building up their portfolios and focus mainly on properties that we have identified as best fitting their specific requirements for flipping, renting, or other passive income strategies. If you just have a dream to own a property with its own spot on the National Historic Register, we can help you identify ways to gain access to one via tax sales as well – although, as we mentioned, these properties are hardly “dreams” for most investors! No matter your real estate investing goals, tax liens and tax deeds offer incredible potential, and PIP Group can help you leverage that potential to optimal effect.