Tax liens and deed attract investors with the promise of excellent returns and low risk. They are secure, government-backed investments with property as collateral; each is auctioned off by the government when property owners fail to pay property taxes.
Lien investors act as debt holders and seek favorable interest rates, while deed investors make their money on the equity split between the deed price and the property value. Most states offer either liens or deeds, but a few states, such as Georgia, hold attractions for each type of investor.
Georgia’s redeemable deeds share qualities of standard liens and deeds. This is why Lillian Villanova, tax lien and deed specialist at www.bargainsinrealestate.com, called Georgia a “hybrid state.”
“Georgia has combined the benefits of each and really kind of taken away some of the disadvantages of each,” said Darius Barazandeh, a licensed attorney in Texas and an expert in tax liens and deeds ofwww.theinformedinvestor.com. Georgia offers investors the “possibility of either getting a really good return on your money, like a lien state, or you have the possibility of just getting the property,” Barazandeh said.
Georgia allows delinquent property owners a one-year right of redemption period during which they can redeem the property by paying off their outstanding debt. If this occurs, the tax deed operates much like a tax lien, with the exception that the deed holder must issue a quit claim deed to transfer title back to the property owner.Investors in Georgia tax deeds have the security of knowing they will either receive an annual return on investment of at least 20 percent or receive the entire property for what is likely significantly less than market value.
Georgia’s deed holders are entitled to repayment along with a 20 percent penalty regardless of when during the year redemption takes place. If redemption occurs in the first month, this offers the possibility of a 240 percent annual return.
If redemption does not occur, the deed holder can foreclose on the property and become the fee simple owner. Foreclosure is the deed holder’s responsibility, and the process is complex. To ensure that foreclosure procedures are followed, Georgia tax commissioners typically advise investors to seek the expertise of a local lawyer. Joanne Musa ofwww.taxlienlady.com also advised that tax deed investors in Georgia seek an attorney specifically for the foreclosure process and for clearing the title of the property.
There are two potential investing strategies Georgia tax deed investors can take. Villanova encouraged investors interested in Georgia to “pay attention to whether they are looking for the return, meaning the 20 percent, or if they want to try and get properties for their portfolio, because the strategy would be different depending on which you want to do.”
Investors who are interested mainly in the 20 percent penalty can seek properties likely to redeem. For example, “people are very unlikely to lose their primary residence,” Villanova said. She advised that investors hoping to gain ownership of the property focus more on properties that owners are unlikely to redeem, including “out-of-state owners, vacant property, vacant land with out-of-state owners,” and other such properties.
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Whichever strategy they choose, Georgia tax deed investors sacrifice short-term liquidity and cash flow. Their money is tied up until redemption or until the right of redemption has been removed through foreclosure. During that period, the deed holder cannot take possession of, make improvements to or rent out the property. This might seem limiting, but it’s actually “an advantage in some respects because you don’t have the responsibility of the property,” Barazandeh said.
The Georgia tax deed market is ideal for investors willing to invest substantial sums for a significant length of time, since “it takes awhile before you start seeing your returns,” Musa said. Acquisition of a property through a Georgia tax deed takes a minimum of approximately one year and 45 days. In order to invest in Georgia, “you need money to invest that you don’t need to live on,” Musa said.
The main risk for a Georgia tax deed investor lies in the potential for the property value to be lower than the value of the deed. This is a real possibility; properties at tax deed sales are often low value properties. Valuable properties usually have mortgages, and mortgage lenders will pay off delinquent taxes to maintain their claim and prevent these properties from going to tax deed sales.
Properties that reach tax deed sales thus tend to be owned outright, and most outright owners with valuable property and the means to protect it will stay current on their property taxes. Owners of low value properties are less likely to consider the property worth protecting and are also less likely to have the means to keep up on taxes.
For example, some properties at tax deed sales are owned by developers and consist of awkward, unbuildable strips of land. In some cases, properties may even be underwater. Such limitations are not necessarily apparent from written descriptions of the property. For this reason, Barazandeh, Musa and Villanova stressed that viewing the property—ideally in person—is a crucial aspect of a tax deed investor’s due diligence.
This gives an advantage to local investors, since travel costs can eat into potential profits. This is why many investors consider their home state first or a state within easy travel. Georgia is a big state in close proximity to many other states, Barazandeh said, so investors in that region can easily travel there.
Although investors are allowed to drive by the property for viewing, they may not go on the property or view the inside of any buildings on the property.
Villanova said that her “personal philosophy is I won’t go over 50 cents on the dollar because I presume that the house is going to be trashed on the inside, and many times it is. And you have to allow for that, because if that property becomes yours, and you have to fix it, and you paid in effect retail, you’re upside down in that property.”
Investors should also investigate the property’s existing liens with a title search because there are “certain types of liens that may end up surviving the foreclosure and becoming your responsibility even after you bought the property,” Barazandeh said. This research does not necessarily add any cost; investors can do a title search and find existing lien information on their own through public records.
In addition to a title search and visual inspection of the property, investors should get a good sense of the property’s market value. Villanova recommended www.naco.org, a website that has information about specific counties. She said some counties provide information about population trends, local industry and growth projections.
She also recommended the U.S. Census Bureau for information on growth and growth projections of the area. “It’s amazing how much you can find out online for free,” Villanova said.
Barazandeh agreed that population changes and demographics are crucial factors to consider, adding that future developments and zoning changes in the neighborhood also play a role. He encouraged investors to seek actual realtor comparables to get the best sense of market value.
Smaller counties are usually easier for investors who are just starting out. In larger counties, Villanova said, “competition is a big issue,” and some larger Georgia counties “are starting to bundle their delinquent tax deeds and sell them off to funds of various sorts,” making it harder for smaller investors to compete.
Although they may have fewer liens available, smaller counties also have fewer investors seeking those liens, Barazandeh said. Smaller counties offer the advantage of more available and helpful staff, “because they’re not as busy and they can answer more of your questions,” Barazandeh said.
Once a deed is purchased, it is crucial for the tax deed investor to keep the property’s taxes current. In Georgia, “even though you can’t occupy that property for a year, you have to continue to pay the taxes,” Musa said. If the deed holder doesn’t pay the next year’s taxes, another tax sale investor may purchase a deed on the same property.
For information about tax deeds in major Georgia counties, visit:
Cobb County: http://www.cobbcounty.org
Dekalb County: http://www.co.dekalb.ga.us
Fulton County: http://www.co.fulton.ga.us
Gwinnett County: http://www.co.gwinnett.ga.us
