Property Acquisition Investment for tax lien: what to look for

When looking for a property which has a lien you want one that is likely to be allowed to go for foreclosure. So look for the following:

Properties that have been abandoned by the owner or its owned by someone who is living out of the country. 

Properties that has several years of unpaid taxes (more than 5) and the ownership is free and clear of other liens. 

Properties where the owner has passed away, has file for  bankruptcy  or the owner is a minor or active member of the military  are more difficult to foreclose.

This information its not hard to find and  could avoid you a lot of headaches. The owner of a property its public information and you can find it by searching in the country assessor's office. You could also go to the county recorder and find out if the owner has file for bankruptcy

Criteria when considering a property acquisition investment strategy on tax lien

You have to consider the following points:

1. Chances of the owner paying the lien
2. How long you are happy to wait to forclourse the property
3. Other property taxes that will have to be pay in the future
4. How likely are you to foreclose the property
5. Does the property stand in a good area with potential growth? 
6. Does the property need repairing?
7. How much is the property worth.

Criteria for interest rate investment strategy on tax lien

You have to consider the following points:

• What would be the rate of return
• what is the level of risk you would be happy with
• How much money are you planning to risk
• Time you are happy to hold the lien for

Different strategies for Tax lien

There are 2 tax lien strategy. You could decide you are happy earning interest at a stated rate or if the lien never gets paid by the home owner then you can foreclose the property. It is important to decide which of this options you want to go for as you will have to proceed in different ways. 

Say for instance you will be happy with accruing interest. This is a great investment for a short or mid term when your main goal is to get cash flow and you have cash sitting around waiting to do some other investment. 

If you would like to go for the property you have to consider that this is going to be a long term investment, you would have to consider that the property will need to be foreclose and  check out the area as it could be in a zone with good appreciation potential and its depreciation and leverage potential.

Tax Lien Investment strategy

Here is a summary of how a tax lien occurs:

1. 1. A landlord does not pay taxes due on the property
2. The government puts a non consensual lien (which is a form of security interest granted to secure the payment of a debt) over the property for back taxes
3.  This lien is offered for sale at an auction or at a fixed interest rate 
4. If the lien is sold at an auction there could be multiple investors bidding on the interest rate of this lien
5. The interest will be accrued until the landlord or any other lien holder pays the back taxes. 
6. If the lien is not paid then the investor who purchased the lien can foreclose against the property and therefore own the property for the price of the back taxes. 

1031 Exchange: how does it work

The government wants to incentive the type of real estate investment in the long term. That is why it has created some of the tax benefits that you can profit from.
One of them is that you are allowed to write off the cost of the property over some time thought annual depredation deductions and this could be use to offset other income that you have earned.
When its time to sell your property the best way to make the most of the tax benefit its to profit from the 1031 exchange. When you sell your property and buy a new investment property you can roll the gain from the previous property to the new one without paying the tax until some time in the future. Note that all exchange have to be like kind. For instance it wont be the same if you are selling a property in the US and buying another overseas. The IRS must approve to do this exchange.
The property has to be hold for one year or more and be for investment purposes in order to be eligible to use the 1031 exchange.
There is also the rule of 45 days identification period in which (from the sale of the old property) you have to come up with a list of properties you are interested in buying and replace the property within 180 days. Although this might be quite challenging the IRS doesn't accept any extensions.
Other rules include to use a qualified intermediary and follow the title holding requirements as well as buy a property or real estate of equal or higher value and reinvest all cash.

Property types and how are they taxed

There are 4 types of property types:

1. Property development - is taxed as ordinary income
2. Short term property (fix and flip) - is taxed as short term capital gains
3. Personal Residence - it could qualify for a gain exclusion depending on the marital status
4. Investment property -  you can profit from some tax benefits.

Property Management

Nothing is more important in the success of your investment in real estate than the Property Management. Real Estate vales are based on performance so make sure to do some due diligence in this regards when it comes to choosing your property management.
There are 3 key general areas in which a property manager should know in how to improved the value of your property. These are the income (that is generated by the rent, the occupancy and other revenue opportunities) the expenses and systems.
It is common for a property management to skip the step of running a criminal background check. This mistake can be a quite costy one, a bad tenant not only will increase the cost of eviction an court but also will increase your vacancy rates and maintenance of the property.  The credit checks are always paid for by the potential renter so there is no excuse to skip such a key step.
While you have little control in the expenses of your property you can find out if your management company has a better purchasing power when it comes to insurance premiums. They will also have good leads for accountants and other related professionals.

So how do you choose a good properly manager?

Here are some tips:

Verify every information you get, get a client list and get in touch with existing clients to see what they say about the company.
Ask other professional in the industry if they know the property management company you are intending to use and what is their opinion on them.
Find a management company that understand your type of property. They can be specialise in different type of properties such as commercial or apartment. It will pay off to get a company that understands the type of asset that you hold and knows how to manage it.
This is not an area where you can save.  Make sure that you get what you pay for and you understand and are clearly explained all the fees upfront.
Make sure that your property management has a very good accountant as part of their team so they understand not only what is going on with your property's operations side but also with the financial part of it.


Here are a couple of good web pages where you can learn more about property managers:
www.irem.org
www. naahq.org

Tips for asset protetion

Always double check what they advise you. Usually there is a commission involve, so do your own due diligence and don't believe everything they suggest. Pay for good advise, its going to be very well worth it.  Shop around for a good lawyer don't just go with the fist one that sounds professional.

Property Criteria and Analysis

1. More cash flow from your property is an important factor in the building value.
2. In order to know the vale of your property follow this formula:  NOI (net operating income= the income after expenses) / Market cap rate.
3. Cash on Cash Return is how long does it take for the property to produce what you have invested. Is good to keep this as your main criteria and cap rate to compare one property with others. 
4. Gross Rent Multiplier (GRM) = Sale Price / Potential Gross Income   or   Sale Price = Gross Rent Multiplier x Potential Gross Income   is another way you could work out the relative price of the property. Note that the GRM can be deceiving as from property to property it may be much different the vacancy rate and taxes, this system of comparing and selecting investment properties only when the expenses are uniform across properties.
5. Observe the trends of what people are doing is the key to find new opportunities.
6. Check the demoghraphics of the area you are willing to buy a property. see  http://www.freedemographics.com/
7. Watch out for up coming trends. 

How to improve your chances of renting your place

First impressions do count. So when looking at a property either to buy or to put in the market to rent/sell you have the know that the property can stand out from the rest and improve the chances to get a higher demand.

Consider looking at the following factors:

Is the property in a good location?. As the popular says go, in real estate is all about location, location location!
Does it have a good curb appeal? Make sure that the garden and the front yard its well kept and clean. Does it have nice plants and flowers around that highlights the property?.
Is it easy to access? Remember that with a growing baby boomer population the property has to be ADA  (American with disabilities act)
Can you help with the views? People pay a lot of money for the vies. Specially if its water views. Make sure that you do all possible to highlight the potential view by chopping branches and putting plants in strategic places.
Highlight some feature of the house. Make sure that the house has some wow factor to it. This will make it stand out from the rest. Remember that when they are house hunting after looking at so many properties eventually they all becomes a blur, so you make sure your property has a nice feature  to remember it by.
Anything that makes the house safer is an extra selling point. Gates, alarms, safe, etc  Families with kids would be happier to pay more rent for a safer place.
Make the house show neutral features and colours, remember that the red walls its not everyone taste, you have to make sure to appeal a broaden audience of potential buyer or renters by making them seeing him/herself living there.  In order to achieve this try to depersonalize the house, any personal objects like trophies, and pictures should be removed as well as try to uncluttered the house a much as possible. Needless to say the house should be spotless and well decorated with nice healthy looking plants.  It's crucial that that feeling that the person get from the house is a positive one.
High quality finishes without going over budget its always something that can make a difference in the outcome of an open home.

Demographics that favor your investment

• Are there more female than males?  (females tend to nest)
• Are there more singles or married people? It there are more single it would be better to buy an apartment.
• Are there more middle age or youngsters or older people? This can affect how many people can afford to buy a place.
• Stability and profitability of major companies in the area
• Are there more professionals in the area?

Other factors to consider::

- There are approx 75 million in the baby boomer population.

- Last year there was a 13 percent of the USA population over 65 years of age

-The current average life expectancy in America is approx 78 years.

So Americans are not only getting older but they living longer, important factor to consider when buying real estate as you be looking in the long term.

What is a HUD?

A HUD is a settlement statement document.

The first page you have a summery of the buyers transaction (on the left side) and the sellers (on the right) There are a contract purchase price settlement charges, earnest, taxes, security, rent and prorated.

On the second page you have the itemised brake down of the 1st page.
The buyers pay all the closing cost which are title insurance fee, wire express fee, document preparation fees etc.

Things you should look out for when you are hunting for a house

Make sure you take your notepad and write what you think about the following:

In terms of area:
Overall impression of the suburb
General condition of the buildings
Quality and condition of the cars
Area landscapes
Traffic paters
Quality of business of the area

In terms of building:
Location within area
Lighting
Parking
Ease of access
General condition
Curb conditions
Fits what you are looking for
General condition



Make sure you drive around in different times of the days to notice the difference.

Tip: find out what projects are underway on the area by contacting the city officials and staff.

Transfering your title to your entity:

Once you have formed an asset protection entity its time to transfer the title of the property to the LLC.
You have tho make sure that you:

- Sign and approve the operating agreement.
- Sing the minutes of the 1st meeting
- Issue a membership certificate
- Notify your insurance that your property its under your LLC and not your individual name. This is quite important as in the case of a claim this can be an reason for not paying our. 

What is probate and how can you avoid it?

Probate is the process in which the estate of a deceased person gets resolved. In this process it gets probed that the testator's will is genuine and decides the executor as the personal representative of the estate. It gets interpreted what the decease person wanted to do with his state.
Probate usually takes several months and it can be quite expensive.

Some of the ways to avoid probate in the US are the following:

 -  Execute a living trust.
-  Set up a POD or paid on death designations on bank accounts
- Set up of a TOD transfer on death on brokerage accounts.
- Placing the property in joint tenancies (the person that survives inhalers the other party estate). A life estate deed could be executed and a testator can add a named beneficiary to it.

Note that avoiding probate does not eliminate the estate taxes.
  

Asset Protection in real estate

Asset protection on your real estate its one of the key factors to be able to sleep sound at night. In a country like the US where most of the lawsuits in the world are filed its paramount that your property its well protected in the case something doesn't go as planned.

Here are some key points:

= Insurance: don't t be fooled to believe that with this you are cover, this is just one single step to get your real estate protected. Make sure you are always cover against natural disaster, you don't want to wait until a flood comes to realise that floods was one of the exclusions in your policy.
= Don't do joint tenancies. In the case one of the persons in the tenancies gets suits you might loose everything too..
= Never use a C corporation (you will pay more taxes)
= Only youse a LLC (or TIC Tenancy in common with both parties protected by a LLC)
= Get a living trust (for provate avoidance) and the LLC (for asset protection)