All Forum Posts by: Dave Versch

Hi @Brian Eastman ,

Thanks for the quick response. You mentioned that if I "do this on a regular basis" that I might be exposed to UBIT. I'm not sure what you mean by "this". Do you mean flipping on a regular basis, or flipping with a partner on a regular basis? And why would it constitute unrelated business income if it's all going back into the SD IRA?

Thanks.

Hi. I currently do all my real estate investing through my Self-Directed IRA LLC. Consequently, I don't need to report my income since it all goes back into the IRA. Up until now, I've been investing on my own, but I'm considering partnering with someone on a flip. Initially my thought was that we would form a new LLC for the duration of the flip, and that my Self-Directed IRA LLC would own 50% of it, and he (or his entity) would own the other 50%.

My question is, how would this effect my tax situation, if at all, and what extra filing would I need to do with the IRS? Also, assuming that we dissolve the LLC after we flip the property, who does the filing, and is it done at that time or in April with the rest of my tax return(s)? Obviously I'm a little confused about this. Any experienced guidance would be greatly appreciated.

Thanks,

Dave

Hi.  Quick simple question for anyone who might know.  I know that once you purchase a tax lien certificate in NJ on a residential property, there's a 2-year period before you can foreclose.  Does this hold true for commercial/industrial properties as well?

Thanks,

Dave

If the owner doesn't pay, you can foreclose on the lot.  If you don't think the lot is worth owning (or foreclosing on), then you should not invest in the lien. 

You shouldn't invest in something just because you can.  You need to do research and know what you're investing in.  Otherwise you run the very real risk of losing your entire investment.

Thanks, Dave

Thanks Jerry.

Hi Jerry,

I don't even know enough to know which counties I'm interested in.  I'm more interested in the process I guess at this point.  For example, in NJ we bid down from 18% through 0%, then bid a premium after that (which almost always happens for any property worth bidding on).  Does it work the same way in AZ?

I've also read that it's better to wait till after the auctions and then get the properties that have been struck to the state for 16%.  Hard to imagine there'd be anything worth getting at that point, but maybe it's different there...

Thanks.

Hi all,

I've been doing NJ tax liens for some time, but have never ventured past my state boundaries in that respect.  Can anyone familiar with both NJ and AZ tax liens and their respective auction processes give me an idea of the key differences between the two?

Thanks,

Dave

Hi Leah,

With regard to tax liens... 

In theory, purchasing a tax lien is making a loan to a property owner so that they can pay their property tax up to date and avoid being foreclosed by the municipality for non-payment of property tax.  Those who don't understand the process (including many property owners) will not necessarily see it that way, but there is no direct interaction with the property owner; it's all done through the municipality.  In many (most?) states, an auction is held and the interest rate is bid down from whatever the state's maximum interest rate is for tax liens.  I know that in NJ where I live, it's 18%.  In practice, you usually end up paying a premium to purchase a tax lien certificate.  This happens when the rate has been bid down past 0%.  In cases like this, you will pay over and above the face value of the initial certificate, sometimes by tens of thousands of dollars, so that you obtain the right to purchase subsequent quarterly tax payments (known as "subs") at a fixed rate of 18% (in NJ).  So, depending on how the numbers look for a given property, you decide how much of a premium (if any) you want to bid.  If the certificate is not redeemed by the property owner within two years of the initial tax sale, the certificate holder has the right to initiate foreclosure proceedings.

Despite what you may read on the internet from those selling "get rich quick with tax liens" schemes, you are by no means guaranteed a win.  There are many things that can go wrong.  A declaration of bankruptcy by a property owner can delay foreclosure or redemption, and tie up your money for years.  An IRS lien (although rare) can take precedence, so that you yourself (the lien holder) are foreclosed upon and lose your investment.  The property may be end up being worth less than the outlay to keep up with the tax payments or the cost of foreclosure.  As with any real estate investment, due diligence is the key.  Do your homework, and know exactly what it is you're investing your hard-earned money in.  All that being said, tax liens CAN be a low cost entry point into real estate, but be very careful.

Thanks,

Dave

@Kristen Sinclair - Just a couple of points:

• A vacant lot is much less likely to be redeemed than an improved lot, especially if there's no mortgage on it, as is usually the case with vacant lots.  (That's because when a property is mortgaged, if the owner doesn't redeem the tax certificate, the mortgage company usually will.  Otherwise they also lose out on their investment should you foreclose.)  
• If these lots had any value at all, I'd think that the owners would've managed to come up with the $40 per year tax payment in order to hang on to them.  That right there tells me all I need to know about these lots.

Thanks Brian.