In a nutshell, wholesaling is when an investor signs a purchase agreement with a seller and then sells or “assigns” that contract to another buyer for a fee (usually $5K —$10K, but sometimes much more).

This is typically done through an assignment clause in the original purchase contract, which allows the wholesaler to sell their rights to the contract to someone else.

Another common wholesaling method is the “double closing,” in which the investor closes on the property, briefly holds it, and immediately resells it to another buyer.

This allows the investor to conceal their profit from the end buyer. Double closings are often reserved for deals where the wholesaler stands to make a lot more money, but they're essentially a different method of accomplishing the same thing: making money from a profit without the risk of long-term ownership.

The Controversy Around Wholesaling

As this popular niche of real estate investing has evolved, wholesaling has become an increasingly controversial topic in the real estate world.

Some states have enacted laws that prohibit or restrict the practice of assigning contracts or double closing without a real estate license. Jerry Norton has done a great job explaining which states require which requirements on his YouTube channel.

The argument is that wholesalers are trying to do the same thing as licensed real estate agents—facilitating the sale of properties they don't own, but simply have under contract, and collecting a fee.

Even though the contracts used in wholesaling are legally distinct from those used by licensed agents, some states contend that they still constitute the unlicensed practice of real estate.

Those in favor of wholesaling argue that it's a legitimate investing strategy that provides a valuable service to sellers who need to sell quickly and may be unable to wait for a traditional buyer. If the wholesaler has a valid contract with the seller and isn't misrepresenting themselves, they should be free to assign that contract or resell the property.

The problem is that some wholesalers don't communicate the process well with the seller, and the seller agrees to sell the property without understanding what's happening.

Even if a wholesaler does a perfect job of documenting and communicating the process, they're still competing with licensed real estate agents. This has mobilized an army of agents to oppose the practice of wholesaling in some states.

Why This Matters for Real Estate Investors

Regardless of where you stand on the wholesaling debate, the fact is that the legal landscape is shifting.

If you're a real estate investor who relies on wholesaling as part of your strategy, it's crucial to understand the laws and regulations in your state.

It's also crucial to understand the nuance of these laws. Some states have very strangely worded rules that leave much room for different interpretations. Other states clarify that certain wholesaling forms are illegal (like assigning contracts), but others are fine (like double closings).

Whichever state you're curious about, take the time to read the law for yourself and understand precisely what is and isn't allowed in that state.

This is not a black-and-white issue; the answer isn't simply ‘yes' or ‘no' in each state. The map below is just a starting point to help guide you along the way, but you need to do your research before taking action.

Violating these laws, even unintentionally, could result in hefty fines and other penalties. In some cases, it could even jeopardize your ability to continue investing in real estate.

Click on your state for a summary of the relevant regulations and links to additional resources.

Legal Disclaimer: The laws and regulations in each state are constantly changing. We've done our best to assemble the most relevant and up-to-date information around the country, but we cannot guarantee the accuracy of this map. Always consult with a qualified legal professional in the state where your property is located to ensure you comply. Don't let a simple misunderstanding derail your real estate investing career.

Disclosures

No matter what state you're working in and regardless of which kind of wholesaling maneuver you're trying to use, it's always a good idea to communicate clearly with the seller about what you intend to do.

Wholesaling has been outlawed in certain markets because many real estate wholesalers have done a terrible job of communicating their intent and/or failing to set proper expectations with sellers from the outset.

If proper expectations are set and good communication is maintained throughout the entire process, there should be little room for misunderstandings or disappointment from sellers.

The Bottom Line

Wholesaling can be a powerful tool for real estate investors, but it has risks and challenges, even when there is no legal case against it.

As the legal environment evolves, staying informed and adapting your strategy is more important than ever.

Whether you pursue wholesaling or focus on other investing methods, remember that success in real estate requires constant learning and a willingness to pivot when necessary. Stay nimble, stay compliant, and keep growing.

The post Wholesaling Real Estate: Is It Legal In Your State? appeared first on REtipster.

The U.S. is a huge country, with plenty of wide open land. If you don’t care about nearby amenities, you can buy cheap land.

That said, the cheapest raw land tends to sit in a handful of states. Use this data to help kickstart your search for your own perfect plot of paradise. Or more accurately, the cheapest land available in the country.

Where to Buy Cheap Land: States and Counties

When you start digging into the cheapest counties in the U.S., start with the states where they cluster.

Focus on the following states and counties to find the right fit for your needs. I ranked them by the average cost per acre, as reported by LandSearch, although I also incorporated anecdotal data from other land investors to form this list. Listen to the episode below for more details on how to use LandSearch.

1. New Mexico

Average Price Per Acre: $3,337

Cheap Counties for Land:

• Luna County
• Valencia County
• Sandoval County

An old adobe church in Los Lunas, Valencia County, NM

While there’s more to New Mexico than desert, the cheapest land in New Mexico does tend to be desert land far from the larger cities.

You can find particularly cheap land near the town of Deming in Luna County, and the towns of Bosque, Belen, and Rio Communities in Valencia County. You can also check out the cheap land northwest of Albuquerque and Rio Rancho in Sandoval County.

There’s beautiful hiking and camping in the Organ Mountains outside Las Cruces, and in White Sands National Monument. I lived there briefly and can attest to it. The nearby land isn’t as cheap as some parts of New Mexico, but in general, your money goes further buying land in the Land of Enchantment than it does in most of the U.S.

2. Wyoming

Average Price Per Acre: $3,852

Cheap Counties for Land:

• Albany County
• Natrona County

Albany County Courthouse in Laramie, WY

It’s harder to find small, cheap lots of land in Wyoming than in New Mexico. Plots tend to sell in larger parcels, driving up the total purchase price. But on a per-acre basis, Wyoming offers the second cheapest land of any state.

And besides, larger parcels offer opportunities for subdividing lots for a profit.

Wyoming doesn’t boast a lot of booming metropolises. The rolling scrub-covered hills offer their own rugged beauty, however.

Check out the land near Casper in Natrona County as an easy starting point. If you want to go even more rugged and further from the beaten path, look north of Wilcox in Albany County.

3. Colorado

Average Price Per Acre: $6,464

Cheap Counties for Land:

• Pueblo County
• Costilla County
• Saguache County
• Park County

A road in Costilla County, CO

The Front Range of Colorado is notoriously expensive, as are the ski resort towns dotting the Rockies. But much of Colorado is either empty, desert, or both.

In your hunt for where to buy cheap land in Colorado, start in Pueblo County. The area surrounding Colorado City offers plenty of cheap lots.

Next, look south to Costilla County and the region to the west of San Luis. You can also find cheap land in Saguache County to the east of… well, Saguache.

Park County offers some larger lots that are cheap on a per-acre basis as well.

4. Oklahoma

Average Price Per Acre: $7,850

Cheap Counties for Land:

• Adair County
• Cherokee County
• Comanche County
• Delaware County
• Tillman County
• Harmon County

A road leading to Mt Scott, Comanche County, OK

While known for its valuable farmland, you can also buy cheap land in Oklahoma. It may or may not offer good farming, or be near any significant towns, however.

Check out the hills north of Chewey in Adair County for some low-cost options. Just north across the border in Delaware County, you can also find affordable plots.

Several of Oklahoma’s counties also rank among the cheapest home prices in the country. See the interactive map down below.

5. Mississippi

Average Price Per Acre: $8,951

Cheap Counties for Land:

• Walthall County
• Marion County
• Copiah County
• Pike County
• Coahoma County
• Jasper County

If you’re looking for forests, bayous, or open fields, you might find them at bargain prices in Mississippi.

Check around Dexter in Walthall County, or slightly to the east around Hurricane Creek in neighboring Marion County. To the west, look around Leggett and Dykes Crossing in Pike County.

For median home prices, Coahoma County ranks among the cheapest in the nation. More on that shortly.

Most of Mississippi remains affordable, however, so keep hunting until you find a quiet corner that you like.

6. Oregon

Average Price Per Acre: $9,221

Cheap Counties for Land:

• Lake County
• Klamath County

Crater Lake National Park, Klamath County, OR

Surprised to see a lower cost per acre in Oregon than West Virginia?

Most people assume Oregon is all expensive, given Portland’s outlandish property prices. But Oregon is a huge state, and some of it is downright cheap.

In particular, check out the area surrounding Christmas Valley in Lake County. You can also find cheap land lots near the Sprague River in Klamath County, surrounded by buttes.

7. West Virginia

Average Price Per Acre: $9,441

Cheap Counties for Land:

• Clay County
• Wayne County
• Monroe County
• Wyoming County

Interstate 79 is a major highway that passes through Clay County, WV

West Virginia proudly lives up to its slogan of “Wild and wonderful.”

For forests, mountains, lakes, rivers, and other outdoor recreation, the entire state offers plenty of affordable land. Try the mountains near Pedro in Monroe County in southern West Virginia for cheap land. Or look along the Elk River in central Clay County.

In the west of the state, look around in the rugged hills surrounding Wayne. Median homes in Wyoming County rank among the cheapest properties in the U.S.

Regardless of where you look, the state remains an affordable place for outdoors enthusiasts.

8. Maine

Average Price Per Acre: $9,799

Cheap Counties for Land:

• Penobscot County
• Aroostook County

Bangor, ME, county seat of Penobscot County

Another surprising entry for many, Maine offers some of the cheapest land in the Northeast.

Maine has relatively low population density, keeping it relatively affordable. Take Linneus or Amity in Aroostook County, for example—you can find excellent outdoor recreation here, at low land prices.

Or look around Hermon or Franklin in Penobscot County for similar secluded parcels. Just don’t expect any of these areas to be easy to access, or near major amenities.

Beware that you may have trouble finding small plots, like much of the cheapest land in the U.S. You can find low per-acre prices in parts of Maine, but they may come in large parcels with hefty total price tags.

9. Arkansas

Average Price Per Acre: $13,438

Cheap Counties for Land:

• Jefferson County
• Miller County
• Hot Spring County
• Izard County
• Chicot County
• Baxter County
• Fulton County

Mirror Lake, AR

Agriculture dominates the economy in much of Arkansas, including Jefferson, Miller, and Chicot Counties. But there’s more to Arkansas than just farmland.

Arkansas is rich in lakes, including 44 in Fulton County alone. Anglers will also appreciate the fishing in the Arkansas River, which runs through Jefferson County. Izard County offers great hiking at Mirror Lake Waterfall, Blanchard Springs Canyons, and Ozark Folk Center State Park.

For mountainous landscapes, try Baxter County. It too features plenty of lakes, and tourism dominates the local economy.

10. Texas

Average Price Per Acre: $14,566

Cheap Counties for Land:

• Culberson County
• Presidio County
• Hudspeth County
• El Paso County
• Hamilton County

“El Capitan,” Guadalupe Mountains National Park, TX

You may not think of Texas when you think of cheap land, given its booming cities like Dallas, Houston, and Austin. But Texas is a huge state, with plenty of rural and largely empty land. The expensive land in urban areas and oil-rich tracts skew the average per-acre price higher, but you can score great deals if you know where to buy cheap land in Texas.

Start hunting around Fort Hancock in Hudspeth County for cheap land for sale. Or look around Guadalupe Mountains National Park in Culberson County, or the colorful McKittrick Canyon.

You can buy relatively cheap land not far from the sizable city of El Paso, with its population of around 677,000. Or you can look at land near the wineries in Hamilton County for a surprising change of pace.

Mapping the Cheapest Counties by Property Sales

Raw land sells on many different platforms, and there’s little comprehensive data to compare every single county in the U.S. But the same can’t be said for residential properties.

Using data from Zillow, we mapped (nearly) every county in the country by median home prices:

While home prices and land prices don’t correlate perfectly, they’re awfully close. By mapping residential real estate prices, you get a pretty clear picture of land prices across the country.

That said, bear in mind that large parcel sales skew the total prices higher, even when the price per acre remains low. And a county with a wealthy town in it might still contain cheap land elsewhere in the county.

Mapping the Cheapest Towns in the U.S.

Likewise, mapping the cheapest towns in the country can also help you find where to buy cheap land.

As you hunt for cheap land, try searching around the most affordable towns in the U.S.:

Again, median home prices don’t perfectly match the cheapest land prices, but they offer a strong indicator. Check the surrounding counties for cheap land and you’ll often find it.

Start with the ten cheapest towns in the country, along with their median home prices:

1. Helena, AR $45,390
2. Clarksdale, MS $49,995
3. Selma, AL $70,158
4. Greenville, MS $70,369
5. Forrest City, AR $75,005
6. Middlesborough, KY $75,663
7. Kennett, MO $79,813
8. Coffeyville, KS $79,922
9. Parsons, KS $81,353
10. Danville, IL $82,160

Realistic Expectations About Counties With Cheap Land

At the risk of stating the obvious, cheap land is cheap for a reason.

My grandfather used to say, “Yeah, and if you believe that, I’ve got some swampland in Florida to sell you.” Consider that expression before buying cheap land.

That said, there’s plenty of money to be made flipping land. Or buying and holding land, for that matter. And when you buy cheap land, you can often avoid land loans altogether.

Land investing offers a simple way to earn money from real estate without leaving home, but it’s not without its risks. Before buying land, make sure you understand the highest and best use for that land, and have a plan in place to capitalize on it. For example, that could include recreational use, such as camping, hiking, hunting, and fishing. Or it could include building a house or farming.

Regardless, you need to understand the ideal uses for any land before buying it—and then you need to know how to market that land accordingly.

There’s no one perfect county for land investing in the U.S. But the data above should give you some starting points in your search for where to buy cheap land.

The post Wondering Where to Buy Cheap Land in 2024? Try These Counties and States appeared first on REtipster.

And if you're like most land investors, you probably have questions about the costs, timeline, and overall process.

You might even be worried it’s too complicated and confusing.

Don’t be confused or discouraged.

I used to feel this way, too, but after diving head-first and doing 50 subdivisions over the past five years, I've learned a lot about how it works, how to find the best opportunities, and how to avoid the biggest pitfalls in this unique niche.

In this guide, I will outline the entire process so you’re ready to complete a subdivision in a timely, predictable, and cost-effective way. Once you understand how to purchase the correct property, with proper planning and following a proven process, you'll be ready to tackle your first (or next) subdivision project head-on!

What’s So Great About Subdividing Land?

What is subdividing? At its core, this is the process of taking a piece of land and dividing it into smaller subunits.

Why subdivide land? As a land investor, this strategy allows you to convert a single (parent) parcel into two or more (child) parcels.

In a sense, subdividing land is one of only a few ways to create more real estate. We aren't adding more square footage to the earth but increasing the number of parcels, which creates more opportunities for more people to own real estate.

In other words, when we subdivide a large tract of land, it creates more usable and affordable parcels.

Once a parcel has been subdivided, you can sell these lots at a lower price than the original parcel but at a higher price per acre, and you can sell them off one at a time as the new buyers materialize. This reduces your cost basis in the original parcel faster and allows you to mitigate your risk in the overall investment quickly.

Forced Appreciation

Smaller parcels have a higher per-acre value than larger parcels because zoning regulations typically allow one building per lot.

For example, one family might live on a 4-acre property. On the other hand, if that same property is split into four 1-acre lots, that same land can provide homes for four families. Since more people can utilize the same property, the value also increases.

As mentioned above, each new lot is more affordable than the original large tract, which allows developers to acquire acreage at a lower price point and avoid excess land their buyers don’t need.

Risk Management

New lots are more affordable, which expands the buyer pool and accelerates sales cycles.

As a result, you can manage risk more effectively by recouping your cost basis stepwise.

In the above chart, the dark blue represents the cost basis of a property subdivided and sold at three-month intervals (given the expanded buyer pool).

Meanwhile, the light blue bars represent the cost basis of land repositioned and sold at 12 months (without a subdivision).

Since subdivisions can be sold incrementally, they help minimize risk by reducing exposure to market events and competition.

Types of Land Subdivision

The county you’re working in likely allows for different types of subdivisions depending on a few factors, including how many new parcels you want to create.

You’ll want to pick one of the three subdivision processes that most closely match your goals for the property:

1. Subdivision without county approval
2. Major subdivision
3. Minor subdivision

Subdivision Without County Approval

Subdivisions without county approval can save time and money. However, the drawback is that they’re only available in limited use cases. For example:

1. It may only be available in certain counties.
2. You can’t create too many new parcels (typically two to four parcels only).
3. All new parcels must meet a minimum acreage requirement (typically 10 to 36 acres).

RELATED: How Much Land Is Needed to Build?

Major Subdivision

The benefit of major subdivisions is that the developer can create hundreds of new parcels at once if the development is approved.

The drawback is that it’s usually a lengthy, costly, and riskier process compared to its alternatives.

A major subdivision is expensive from an engineering standpoint. It requires thorough environmental studies, such as a Phase I ESA, and traffic studies. It also typically requires the developer to make significant infrastructure improvements to the land, such as power, sewer, water, and roads.

In addition, it involves multiple public hearings and county board approval, which can be contentious.

Minor Subdivision

A minor subdivision is the sweet spot between a subdivision without county approval and a major subdivision.

Minor subdivisions allow subdividers to create value without the overly restrictive requirements from the municipality, without requiring lots of money for infrastructure improvements, and without significant risk.

Many counties will allow you to subdivide your property into five or fewer properties so long as each proposed parcel fits its existing zoning designation and is accessible.

Here are some examples of when county approval would not be needed:

• 160-Acre Parent Parcel: Subdivided into three (3) 40-acre parcels and two (2) 20-acre parcels. No county approval would be needed because all are over 10 acres (zoning must support 20-acre parcels).
• 40-Acre Parent Parcel: Subdivided into four (4) 10-acre parcels. No county approval would be needed since all are above 10 acres (zoning must support 10-acre parcels).

• 40-Acre Parent Parcel: Subdivided into one (1) 20-acre parcel and four (4) 5-acre parcels. County application and approval would be needed since at least one lot is under 10 acres (zoning must support 5-acre parcels).
• 5-Acre Parent Parcel: Subdivided into five (5) 1-acre parcels. County application and approval would be needed since at least one lot is under 10 acres (zoning must support 1-acre parcels).

However, there are some situations where it can get weird. I've also seen the following:

• People have taken 10-acre properties (zoned for a minimum of 4 acres) and split them into five (5) 2-acre parcels. However, folks who attempt to get a building permit for these child parcels (no longer according to their zoning designation) are unsuccessful.

How Much Does It Cost to Subdivide Land?

Three main costs are associated with subdividing your property:

• Surveying
• Applying for a minor land division permit
• Recording the new deed

Surveying costs vary widely and largely depend on the remoteness of your property.

To get started with a surveyor, you'll need to send them the APN of your parcel to get a quote for their work.

For rural properties, the cost will be higher if your property is isolated and only accessible by four-wheel drive. This is due to the time and travel expenses your surveyor will incur.

If adjoining properties have been surveyed, this can save you money because when neighboring properties have recorded documents and survey markers, it’s easier to identify your property, saving your surveyor time.

In my experience, it's generally $1,500 to $4,000 for survey costs, depending on how remote the property is and the state of surveyed properties in the area.

After the survey is complete and the surveyor has laid out the new parcels, the next step is applying to the county for your minor land division permit.

The county charges a processing fee and a per-parcel fee for the application. A common fee structure is around $100 per new property. For example:

• Two new parcels would be $200.
• Five new parcels would be $500.

In the final step, you'll need to record the new deed, which will list the new legal descriptions for each of the new parcels you created, listing you as the owner of each child parcel.

You pay the county recording fee to make your deed official. This is typically around $30.

How Much Time Does It Take to Subdivide Land?

In the markets where I work, a minor land division takes about four to six months to complete. The general workflow looks like this:

Timeline of a typical subdivision process

Here’s a step-by-step explanation of the timeline.

Survey

The first step is getting your land surveyed and receiving the plat map and legal descriptions to be included in your minor land division application.

Lead times for good surveyors are typically about six weeks out, and you should add in another two weeks for plat maps and legal descriptions. Eight weeks is a good estimate for your surveyor to complete all the fieldwork and produce the necessary documents.

Application

Next, the county development department will review your minor land division application.

The process varies from county to county, and jurisdictions with better staffing and resources can have your response back within a couple of weeks.

On the other hand, some rural counties don’t have adequate staff in the development office. In these cases, a county process can stretch to 30 days. In practice, you’ll submit your minor land division application, wait 30 days, and then have it automatically approved (since no one can review it).

County Recording

Once the county approves your request, you’ll need to record your new parcels with the county. This takes anywhere from a day to two weeks, depending on the speed of the county and if you submit documents electronically or by mail.

Cartography

Finally, you’ll want your new parcels to appear in the county’s mapping systems.

To do so, you can send your recorded documents to the cartography division of the county and let them know you have a new minor land division that’s been approved and recorded.

Alternatively, you can skip this process altogether. The county recorder sends over batches of new documents to cartography every few weeks, so at worst, there will be an extra month of lag time getting your new parcels in the mapping software.

Cartography has the most varied timelines among counties since the staffing varies widely. You can expect this to take anywhere from two weeks to many months, with four weeks being the average.

What If the Property Isn't Zoned Correctly?

If the property doesn’t have the correct zoning, there are still things you can try. Counties allow landowners to request rezoning for their properties, which involves the zoning commission's approval and may require county board hearings.

If this is the route you’re considering, factor in the additional process, timeline, costs, and risk you’ll be assuming.

Buy the Right Property

Your plans to subdivide a property should ideally begin when purchasing your land. This allows you to pick the parcel with the right zoning and property owners' association regulations to help the process go smoothly.

Zoning Considerations

When you buy land, you'll want to ensure it has the correct zoning for what you (or your future buyer) want it to be. County zoning determines what can be built on your property and how it can be used, whether it's mobile homes, temporary or permanent RV usage, tiny homes, commercial uses, or single-family residences.

For instance, you might see a 10-acre property zoned Rural-10, meaning the county has zoned it as a rural property that needs a minimum of 10 acres. If you buy this property, you wouldn’t have an opportunity to split it since none of the new parcels would meet the minimum of 10 acres.

On the other hand, if you buy a 10-acre property zoned Rural-2 (meaning it’s a rural property with a minimum of 2 acres), this zoning classification would allow you to split it into five 2-acre properties. This type of subdivision would likely be approved, given the county allows for five new parcels within their minor land division process.

Also, remember that you could just as well do something different. If it’s advantageous or based on topography, you might split the land into 2-acre and 8-acre parcels. In this case, you would technically still comply with the minimum acreage and maximum number of new parcel requirements.

Covenants, Conditions and Restrictions

If there’s a Property Owners Association or Homeowners Association for the property, make sure the Covenants, Conditions, and Restrictions (CC&Rs) allow for parcel splits.

In addition, check if the CC&Rs further restrict the number of new child parcels or the minimum size of new parcels.

Lastly, ensure you understand the additional costs for new parcels from the Property Owners Association. It’s typical for associations to charge additional fees for each new parcel to cover their administrative and accounting costs.

Find the Right Surveyor

The most important step in beginning the minor land division process is hiring the right surveyor.

Your surveyor will be your point of contact with the county, and they will act as your advocate for completing your minor land division. They will have connections with people in planning and zoning, the development department that reviews your application, and the personnel in cartography who map parcels in the county system.

Getting the right surveyor is important, especially in a rural community. Finding someone who has worked in the county for several years and has built strong ties and relationships will go a long way. Look for someone who is responsive, detail-oriented, and excels at communicating.

We recommend calling or emailing several different surveyors in your county of interest. Be sure to get on the phone to discuss their process and how minor land divisions work in the county.

You might not find the right surveyor on your first, second, or third call. If you aren't impressed with the first person you find, keep looking until you find the right person because this role matters a lot!

Evaluate your potential surveyor based on these aspects:

• Were they available on time for your phone meeting?
• Were they able to communicate all the details of the land division process?
• Were they able to answer your questions and help you understand what you need to know?
• Did you get a sense that they have deep community ties and relationships in the county?

Here are a few of the questions we typically ask:

• Can you explain the minor land division process in this county?
• How long does the process take?
• How much does it cost?
• How can we effectively work together, given that we’re not local to the area (if that’s the case for you)?
• Are there any peculiarities with certain towns in the county?
• Is there anything else I should know or mistakes I should avoid in this county?

When you've decided on the best surveyor for the job, send over the property information for a quote!

Plan Your Subdivision

To get a quote for the survey work on your subdivision, your surveyor will need at least three key pieces of information:

1. The parcel number of your property.
2. The existing recorded deed with the legal description.
3. A sketch of how you’d like to subdivide your land.

Your surveyor will use the APN number and deed to verify property ownership and look up its location.

Sketch out your plan for the subdivision by pulling up a map of your property in the county’s geographic information system (GIS). Then, do a rough sketch of what you’d like to accomplish. It needs to be well thought out, but the sketch itself doesn’t need to be fancy.

For example, here’s a real sketch we sent a surveyor to break a 40-acre parcel into five separate lots with an access easement down the middle:

When completing your sketch, consider the terrain of your property and any other land features you may need to work around to ensure all new parcels are usable.

For example, here’s a different property we split that required looking more closely at the terrain. I'll include two views using different map layers, but they’re the same property.

The first map shows the road and the seasonal creek (wash) across the property. In the second map (with a satellite imagery layer), you'll see the seasonal creek has created a small pond in the southwestern portion of the parcel.

In examining the satellite imagery, you can see an additional small wash running north to south.

In situations like this, if you don't look closely to examine the natural features of the property, it's easy to accidentally create unusable parcels.

If we had done a split like you see below, we would have significantly reduced the value of two of the child parcels. Given the locations of the road, wash, pond, and the standard setbacks, it would leave little land to build on:

Don’t do this!

Instead, we can use the existing roads and terrain to inform our split. This way, we will have usable properties with large portions of land for building.

Try something like this instead:

Since the terrain is so important when splitting parcels, use all the data you have available, including:

• Maps from the county's GIS system.
• Topographic maps with contour lines showing elevation changes.
• Flood maps.
• Google Earth views.

A tool like Land ID can be very useful for identifying and planning around these kinds of land features.

It's important to put some effort into producing an effective plan for your surveyor. It’s well worth the time to ensure valuable parcels.

Survey Field Work, Plat Map, and Legal Descriptions

Once you have a logical subdivision plan laid out, your surveyor will begin their fieldwork by finding the corners of your property with the following:

• The legal description of your property.
• Existing surveys on record.
• Specialized surveying tools and GPS equipment.

Once the surveyor finds each corner, they’ll look for existing markers in these locations. These could be geodetic survey marks (metal disks with stamped legends on their faces), rebar pounded into the ground, or pins knocked into rocks. If they can’t find them, they’ll add new markers and annotate them on your plat map.

Next, they’ll use your sketch to place markers on the proposed corners of your subdivision. Surveyors use these new locations to produce the documents you submit to the county in your application.

Your surveyor will then head back to their office and work on producing two documents. The first is a plat map of your property showing:

• Existing property boundaries
• Existing property markers
• Existing easements and fences
• Proposed subdivision boundaries
• Proposed subdivision markers
• Proposed acreage for each parcel

It will also include new easements to ensure all properties remain legally accessible.

The result will be a plat map like this:

For the second document, your surveyor will produce new legal descriptions for each proposed parcel.

For example, your parent parcel might have started with a legal description like this:

The Southeast Quarter of the Northeast Quarter of Section 15, Township 24 North, Range 10 West of the Gila and Salt River Base and Meridian.

EXCEPT all mineral rights of every kind; and EXCEPT a 30 foot strip around the perimeter of the above described Parcel as and for public right of way.

And when you finish the subdivision, you could end up with five new legal descriptions, each of which looks something like this:

Lot A

A portion of Unit 1 Unrecorded also being the Southeast quarter of the Northeast quarter, Section 15, Township 24 North, Range 10 West of the Gila and Salt River Base and Meridian, described as follows:

COMMENCING at the Northeast corner of said Section, a GLO brass cap stamped 1912 from which the East ¼ corner, a GLO Brass cap stamped ¼ S14/15 1912.

Thence along the East line of Said Section 15, a 5/8” rebar with Aluminum Cap LS 5570;

Thence along the North Lline of said Parcel, 660.18 feet the POINT OF BEGINNING a ½” rebar with cap LS 53890;

Thence, South 1320.69 feet a ½” rebar with cap LS 53890.

Thence along the South line of said Parcel, 660.43 feet a 5/8” rebar with Aluminum Cap LS 5570;

Thence along the West line of said Parcel, 1320.19 feet a 5/8” rebar with Aluminum Cap LS 5570;

Thence along the North line of said Parcel, 660.18 feet to the POINT OF BEGINNING.

Said described parcel contains 871895 square feet (20.02 acres), more or less, subject to any and all easements, reservations, restrictions and conveyances of record.

Minor land divisions commonly follow a naming convention that adds a letter to the end of existing parcel numbers. So, if you start with parcel 123-45-678, your surveyor will prepare five new legal descriptions for parcels 123-45-678A through 123-45-678E.

Land Division Application With the County

Once your plat map and legal descriptions are satisfactory, ask your surveyor to begin the county’s minor land division application.

Your surveyor will complete the application package, which typically requires the following:

1. Application fee.
2. Legal description of the existing parcel.
3. Legal descriptions of the proposed parcels, including access and utility easements.
4. Documentation demonstrating legal access to the parcels.
5. Statement from the surveyor attesting that there is physical access to the properties.
6. Proposed plat map.

After they receive the application, the county will approve or deny your request.

If they deny your request, you can typically appeal the decision within 30 days.

If they approve your application, you will be awarded a minor land division permit.

Congratulations! You’re almost there, but you don’t have your new properties until you record the new deed.

Recording Your New Parcels

Once approved, your surveyor will record the plat map and minor land division permit on your behalf.

You’ll record a deed from yourself to yourself, referencing the existing legal description and new legal descriptions.

In most states, you’ll also be exempted from certain filing fees since you’re not selling the properties. If that’s the case in your jurisdiction, you’ll also include the exemption verbiage in the deed.

Once this document is recorded, it's official! Your subdivision is complete!

Final Steps

An optional last step is to send your recorded deed directly to the county’s cartography department. Doing this will speed up getting your new parcels into the county’s mapping system by a few weeks.

Once this is updated, people will see the new parcels when looking up property in the county GIS (and third-party data systems that pull from the county’s mapping software).

Congratulations, you made it! You now have all the knowledge you need to buy the right land, plan your subdivision, and follow the process to its successful completion.

Chuck Dreison serves as the Manager of Meridian Real Estate Income Fund. His knowledge of the land industry is derived from successfully completing over 200 transactions through the full real estate asset lifecycle, including acquisition, development, repositioning, and disposition. He holds a bachelor’s degree from James Madison University and a master’s degree from California State University, Los Angeles. In addition to his role as Manager of the Fund, Chuck, a former Marine, regularly mentors fellow military veterans in the real estate sector. He can be reached through www.meridianrei.com.

The post The Ultimate Guide to Minor Land Subdivisions appeared first on REtipster.

Interest rates are more than two and a half times higher than at the start of 2022. Cap rates have risen, inflation remains defiantly high, insurance premiums have skyrocketed, and occupancy rates are declining.

That sets the stage for falling property prices and rents in a paralyzed housing market. Home sales have plummeted as 93% of homebuyers and 95% of sellers regret their transactions this year.

But where are property prices declining, and by how much? Where are rents falling? And how should real estate investors respond to today’s market uncertainty?

I'm glad you asked because I love interactive maps, and we can pick through several.

Cities With Falling Property Prices

First, it’s worth noting that most U.S. cities have not seen declining real estate prices over the past year. So don’t panic just yet.

Still, a sizable number have seen home values decline, either annually or quarterly. And both numbers rose in the third quarter of 2023 after slimming in the second quarter.

Year-Over-Year Price Declines

Of the roughly 900 cities Zillow tracks, 244 experienced a drop in home prices over the last year. While still a minority, that still amounts to around 27% of U.S. cities.

You can view all 244 of them below, along with their median home prices and the annual drop in value:

That marks a rise from the 200 cities that saw annual price declines at the end of the second quarter.

Quarterly Home Price Declines

Over the third quarter, 153 cities saw home values decline:

While a jump from the 95 cities that lost value in the second quarter, it still marks an improvement over the first quarter, when 224 cities saw quarterly price declines.

Cities With Falling Rents

Real estate prices do drop sometimes, such as during most recessions. But rents rarely dip, even during recessions, as some homeowners become renters and add to rental demand.

That makes it extra scary when you see rents fall, as we’ve seen in the following markets:

Fully 78 of the top 350 cities experienced declining rents over the third quarter. But annually, the numbers don’t look as stark, with only 14 cities seeing rent declines:

The worst of those annual rent declines—Austin, TX—was only 2.79%. Hardly cataclysmic.

Still, you have to wonder if the last quarter’s data represents a broader trend, and we’ll see more rents fall in the coming months.

Should Investors Fear Falling Property Prices and Rents?

As an eight-year-old going rock climbing for the first time, I asked the instructor, “Are rock climbers not afraid of heights?”

He replied, “Climbers have a respect for heights.”

Should you lock yourself in your basement and stop investing in real estate when markets get tumultuous? No. As Warren Buffett famously said, “Be fearful when others are greedy and greedy when others are fearful.”

Watch out for the hidden bear.

At the same time, you need to have respect for the turmoil in today’s markets. You need to bring caution and conservative underwriting to investments at all times, especially when markets are as uncertain as they are right now.

Some of the best bargains come when everyone else is terrified of real estate. Look no further than the stretch from 2009 to 2013. I bet you wish you could buy properties today for what they went for then. But at the time, most people had nothing positive to say about real estate.

How to Invest in Tempestuous Times

All investments in all markets come with risk. You can’t avoid it entirely, but you can take steps to mitigate and manage risk.

As you explore investing in this market, whether in flips, rentals, real estate syndications, crowdfunding, or alternative investments like land, keep the following tips in mind.

Review Local Market Fundamentals

Just because a city has been good to your real estate investments for the last five years doesn’t mean it’s a good market for investing in a world beset by falling property prices and rents.

What’s the population growth rate in that city (a.k.a., demand)? What’s the job growth rate (a.k.a., a predictor of future demand)? At what rate are new housing units being built (a.k.a., supply)? What’s the occupancy rate in that city?

In other words, will there be a housing shortage or oversupply two years from now?

Only invest in markets where you feel confident—based on hard data—that there’s a housing shortage and it’s not going away any time soon.

RELATED: The American Dream Dilemma: The Unaffordability of Homeownership

Play the Long Game

Remember the stat from the introduction: 95% of home sellers this year regret selling.

It’s a bad market for selling right now. It might remain a bad market for sellers for a while. That means you should prepare for holding properties long-term, at least five years.

Play it like a game of 4D chess. No, seriously.

In turn, that means properties you buy today need to cashflow well. Selling may not be easy or profitable for years, so keep income front-of-mind as you evaluate deals.

Beware of Spiking Expenses

I’ve heard countless horror stories of insurance premiums leaping by 100% or more over the last year or two. That can crush your cash flow.

Nor are they the only expense shooting through the roof. Property taxes have exploded post-pandemic as counties reassess values. Labor costs for repairs and maintenance have risen sharply. And continued high inflation keeps driving up material costs.

That makes forecasting cash flow tricky. Imagine buying in a market where rents are declining, but all your expenses keep jumping. Within a year, a property could become cashflow-negative.

Now do you get why I stressed rechecking your market’s fundamentals? As you play the long game, use extra caution.

Use Leverage Carefully

Even in the best of times, leverage is a double-edged sword. And this is certainly not the best of times for borrowing.

If you don’t want to get cut, again, use extra caution when approaching loans. Get more comfortable with creative financing options, such as assumable loans, seller financing, wraparound mortgages, private loans from friends and family, and more.

Better yet, buy in cash.

Avoid traditional mortgages and portfolio loans if you can.

Real estate investors who can buy in cash or negotiate low-interest loans privately can find plenty of opportunities to make money in a challenging market. Investors who rely on more traditional financing will have a harder time finding deals that cash flow well.

As a parting (and terrifying) visual, here’s how interest rates have changed since late 2021:

Is the End Nigh for Real Estate Investors?

Of course not. When the market is bleak, you can often find the best deals.

If you know where to find and fund them.

With declining property prices and rents, investors have less competition from homebuyers, with so many of them either locked in their current homes or unable to afford high-interest mortgages. For that matter, they have less competition from other investors, many of whom don’t know how to use creative financing. Again, that creates opportunity.

But today’s market also has some very real dangers. Proceed with caution, stay conservative, and above all, don’t make any assumptions about where interest or cap rates are headed over the next few years.

Happy Halloween!

The post Where Should Investors Be Scared of Falling Property Prices and Rents? appeared first on REtipster.

In my experience of owning hundreds of lots all over the country, this has never presented any serious problems for me, but every property is different.

If you have any concerns about someone wandering onto your property and causing damage or hurting themselves, there is something you can do to protect yourself.

What Is Trespassing Exactly?

In broad terms, trespassing is when someone enters or stays on your property without your consent, but each state has its own specification.

In fact, each state has variations on many things with regard to trespassing, so get educated about the state specifics you need to be aware of (more on that below).

Why Post No Trespassing Signs?

There are at least two reasons to do this:

1. Protect Yourself Against Liability

As unlikely as it may seem, there is always a chance that someone could wander onto your property (intentionally or unintentionally), hurt themselves, and sue you for it.

If you can show evidence that you had NO TRESPASSING signs around the perimeter of your property in accordance with your state's statutes, this could work in your favor. There is a benefit to showing that a trespasser clearly walked past this kind of visible warning and entered the property at their own risk.

This isn’t the same kind of protection as an insurance policy or LLC to shield your personal assets, but it could be a helpful piece of evidence to have in your corner.

2. Legal Recourse Against Trespassers, Thieves, and Vandals

The consequences of trespassing onto someone’s property vary from state to state and depend on what kind of trespassing is done.

For example, breaking into someone’s home or habitation is different than wandering into a school, hospital, or railroad that is off-limits to the public. The consequences can be considered a felony or misdemeanor, it may include fines or jail time, and the penalty may be more severe if significant damage is done to the property.

Posting these signs is a way to make sure you have the highest possible recourse against a trespasser.

For instance, if someone goes onto your land and steals something of value, without a sign, the trespasser could just be charged with theft. However, with a sign, they could be charged with theft, PLUS trespassing, PLUS burglary.

It's also important to note that in some states, a trespasser can essentially claim ignorance that they were trespassing on a property and no signs were present, since they had no way of knowing they were on private property. One way to eliminate this defense is to post signs around your property in accordance with your state statutes to make it completely obvious.

Sometimes this means posting signs at all the points of entry (paths, trails, roads, or driveways onto the property), sometimes it means posting them every 100 feet, and in some states, posting signs makes very little difference, trespassing is trespassing whether there is a posted sign or not… but in most cases, having signs posted isn’t going to hurt anything.

What Works as a NO TRESPASSING Sign? (Interactive Map)

There is no single, standard, “no trespassing” sign or set of rules that applies to all 50 states. The requirements of size, color, and wording of a sign can differ from one state to another because trespassing laws vary across the country. Because of these variations, it's a good idea to get familiar with the statutes in your state so you can make sure you're posting the right kind of signs that works in your area.

If you're looking for a quick reference on how to find the rules in your state, this interactive map can help you find the relevant information in your state quickly.

Legal Disclaimer: This map is not a substitute for legal advice. This information can be impacted by regional legislation and other unique variables. Always consult with a qualified legal professional in your area before taking action.

When Can You Use Paint?

Several states have a purple paint law (and in some states, the paint can be orange, yellow, or red), specifying the color of paint that serves as a no trespassing symbol against hunting, fishing, or trapping while letting you know you are on private property. Because property owners often have a hard time keeping posted signs posted or undamaged, using paint marks, in addition to or instead of signage, can be an effective way to mark property in the same way. This tends to be most cost-effective and permanent, requiring very little maintenance.

Although the laws in these purple paint states are similar, there are some variations by state.

For example, in Pennsylvania, purple paint on trees or posts is a lawful posting method in all but two counties. The law requires that vertical purple lines must be at least 8 inches long and 1 inch wide. The bottom of the mark must not be less than 3 feet or more than 5 feet from the ground. And painted marks must not be more than 100 feet apart.

In Montana, the paint needs to be fluorescent orange.

Every state is different and the laws throughout the country are constantly changing, so be sure to understand the current laws in your area before you start painting trees and posts on your property.

Pro Tips When Posting No Trespassing Signs

If you're going to take the step of posting signs or paint on your property in accordance with your state's laws, there are some important things to keep in mind.

Get a Survey

It’s not a bad idea to get a survey before you put these up, so you don’t make the mistake of posting these on your neighbor’s property instead of your own.

Keep the Signs Up

Once these signs are up, you don’t need to make another visit to the property to take them down after the property is sold. Chances are, the new property owner will want them up too. And if not, they can take them down.

Use Signs That Are Sized Correctly

Make sure the sign is big enough to comply with your state’s statutes. Every state has different minimum measurements (and most signs you’ll find at your local store or on Amazon will work in most states).

Post Signs in the Correct Places

Make sure your signs are posted by all the natural entry points (especially the big, obvious ones, like roads or paths), so a trespasser can’t miss them. A good rule of thumb in most states is to post them 100 feet apart from one another.

Space Your Signs Correctly

Don’t post multiple signs right next to each other. It can become an eyesore and there are rules against this in some states.

Make Sure Your Signs Are Worded Correctly

Make sure your signs say the right thing to comply with your state’s rules. Similar to the size requirements, most generic signs are made to apply to most states, but it’s worth double-checking.

Post Them Permanently

Make sure it’s nailed up in a permanent fashion so the weather or a person would have a hard time taking it down.

Remember that in several states, you can use purple paint on a post or tree. Unlike a sign, paint is much less likely to be removed by a person or weather. Not all states allow this though, and some states use other paint colors.

The post NO TRESPASSING: When, Why and Where to Post Signs (or Purple Paint) On Your Property appeared first on REtipster.

Uncle Sam has every intention of taking a big cut of your profits.

Especially when you have to make a quarterly estimated tax payment, it becomes harder to ignore how much is being pried out of your hands each year.

To add insult to injury, most land investors also have to pay state income taxes in the state(s) where their properties are located. This may require additional multi-state tax filings each year, which can be a lot more work and money that you won't have the privilege of spending.

The more money you make, the more you'll feel the pinch.

States With No Income Tax

While it's certainly not the only factor to consider when deciding where to grow your land investing business, it's worth noting that there are a handful of states in the U.S. that don't require you to pay state income taxes on the profits you make.

That's right! Some states will allow you to keep a lot of tax dollars that other states would require you to pay just for doing business in their jurisdiction.

It's also worth noting that while many states do require you to pay income taxes, some of them require a substantially smaller percentage of your profits than others do (so even though you'll still have to go through the motions of filing a state tax return, a lower state income tax rate could still save you gobs of money in the end).

Map Source: TaxFoundation.org

At the time of this writing, there are 9 states that have no income tax at all:

• Alaska
• Florida
• Nevada
• South Dakota
• Texas
• Washington
• Wyoming
• Tennessee
• New Hampshire*

*Note that New Hampshire has a limited income tax on individuals, taxing only dividend and interest income, not earned income.

Individual vs. Corporate Income Tax

It's important to note that there is a difference between “Individual Income Tax” and “Corporate Income Tax”.

If you're buying and selling your properties in your personal name, or if you're using a single-member LLC filing as a disregarded entity and not as a corporation (which means the LLC income simply flows through to you personally), you'll be paying your taxes based on your state's individual income tax rate.

If however, you're buying and selling your properties in the name of a more complex corporate entity (like a C-Corporation), then you'll have to pay Corporate Income Taxes based on the Corporate Income Tax Rates listed here…

Map Source: TaxFoundation.org

Of course, I can't speak directly to your situation (you'll need to talk with your CPA to verify how your taxes work), but most of the real estate investors I know pay their income taxes based on the Individual Income Tax Rate because they either buy and sell properties in a disregarded entity single-member LLC or in their personal names.

RELATED: How to Start Your Own LLC or Corporation (It's Easier Than You Think!)

What's the Catch?

While it's great to work in a state with no income tax, this single factor usually isn't painting the full picture of what your tax liability will be in that state.

Most states without an income tax will employ other taxes or have higher taxes in other areas to generate this lost revenue.

• Washington has higher gasoline taxes and higher state and local sales tax.
• Nevada has a gross receipts tax that other states don't have.
• Texas has higher property taxes.
• Florida imposes a corporate income tax.
• Tennessee has high sales taxes and the highest beer tax.
• New Hampshire has taxes on interest and dividend income.
• Alaska has many localities that impose sales taxes.

If you're doing business in these states remotely, then some of these taxes may still not apply to you (for example, high sales taxes and beer tax still won't apply to you as a real estate investor if you aren't actively selling products or buying beer there. Likewise, the higher gasoline tax in Washington won't affect you if you aren't buying your gas in Washington).

As always, you'll have to look at your unique situation to assess how a state's taxes will impact you.

How Much Does State Income Tax Matter?

It's also worth noting that a state's income taxes are absolutely not the most important factor to weigh when choosing a market to work in.

Case in point, California may have the highest income tax rate in the country, but there are still some amazing deals and vast opportunities to be found there. Opportunities that arguably don't exist in any other state.

Similarly, I wouldn't go out of my way to seek out deals in New Hampshire simply because there is no income tax there. If there are plenty of other desirable factors about that market, then sure! But the decision doesn't boil down to the tax situation. It's just one of many things to consider when making this decision.

RELATED: Finding Your Best Market for Land Investing

RELATED: How to Find the Perfect Market for Flipping Vacant Land

The post TAX HACKS: The 9 States With No Income Tax (and The Hidden Catch In Each) appeared first on REtipster.

After navigating through my first few deals and asking a lot of questions of various attorneys and title companies in my area, I finally felt like I understood what I was doing (what documents I needed to use, what language should be included, what I needed to do if my borrowers stopped paying, etc.).

But when I started doing deals in a new state, I was surprised that many things I had learned in state #1 didn't apply in state #2. There was a new set of rules about what documents I needed to use and how the foreclosure process would work if my borrower defaulted on their payments.

One of the big differences I saw was what type of loan instrument I needed to use.

Another big variation was how the foreclosure process worked. Some states were known as judicial foreclosure states, while others were known as non-judicial foreclosure states.

Judicial Foreclosure and Non-Judicial Foreclosure: What's the Difference?

Non-judicial foreclosure is a process that allows the lender to foreclose on the property without involving the courts. When a borrower misses their payments, the lender's first step is to issue a notice of default, so the borrower is fully aware that they need to make their payment if they want to keep their property. At the same time, this notice is also recorded as a public notice of the borrower's past due status.

When this notice of default is issued, it effectively starts a time clock for the borrower to pay as agreed in order to avoid legal recourse from the lender. If the stated deadline in the notice of default passes and the borrower has not cured the default, the lender can proceed with a court action to foreclose on the property (in a judicial foreclosure state) or their trustee can sell the property at auction (in the case of a deed of trust in a non-judicial foreclosure state).

In a judicial foreclosure, the foreclosure is processed through the court system, which means there will be judicial oversight of the process, additional costs involved, and sometimes a longer period of time to get the job done. The defaulting borrower also has an opportunity to raise any defenses they may have without having to file their own court case.

Why Does It Matter?

If you're financing a real estate transaction (whether you're the owner offering seller financing, a hard money lender, a conventional lender, or otherwise), you'll probably take that property as collateral to protect yourself if that borrower ever stops paying.

But when it comes time to foreclose on that property so you can recoup your losses, the process in a non-judicial foreclosure state can look very different from a judicial foreclosure state. Non-judicial foreclosures are typically more straightforward and allow the lender to manage the process in-house, whereas judicial foreclosures involve more red tape, time, and legal costs.

If you want to know which states will make foreclosure easy and which states will make it harder, a big component of this hinges on whether the state allows for a non-judicial foreclosure.

State-by-State Map: Which States Are Judicial vs. Non-Judicial?

As I spent many hours doing state-by-state research throughout the U.S., I aimed to find no less than three external sources that all agreed about how each state's foreclosure process worked.

One interesting thing is that every state that allows lenders to use a non-judicial foreclosure process, it also allows a judicial foreclosure if the lender's loan documents don't include the “power of sale” clause giving them the right to pursue a non-judicial foreclosure.

The states to watch out for are the judicial foreclosure states, which force any foreclosure to go through the court system.

Legal Disclaimer: The information on this map was pulled from several sources, both online and offline. If you want to explore the sources we used, each one will be linked within each state. This map isn’t intended to be the authoritative answer on how each state works, but simply the most educated assessment we could make based on the information we were able to gather. If you have evidence to show that our assessment is incorrect in any particular state, feel free to contact us and point out any sources to support your claim.

Sources

As I mentioned above, we referenced A LOT of other sources to support and verify the statements above. In most cases, every source of information we could find agreed with one another. However, a few seemed to have some contradictions (New York, Wisconsin, and Vermont were a few such examples). As always, this list isn't intended to be a definitive or authoritative source of information, it just represents the answers we found for each state. Always do your own research and seek legal counsel for your own situation before you take action.

Here's the full list of sources we used for each state.

• ALABAMA is a non-judicial foreclosure state. While judicial foreclosures are also allowed, they are rarely used. Sources: RealtyTrac, The Norris Group
• ALASKA is a non-judicial foreclosure state. Judicial foreclosures are also available in Alaska when a mortgage needs to be foreclosed on, but most foreclosures are done non-judicially through a deed of trust with a power of sale clause included. Sources: RealtyTrac, The Norris Group
• ARIZONA allows both non-judicial and judicial foreclosures. Non-judicial is the most common, except when there is no power of sale clause in the loan instrument. Judicial foreclosures are available, but not used often. Sources: ForeclosureLaw.org, RealtyTrac, Folk Hess PLLC, Practical Law, AZLawHelp.org
• ARKANSAS foreclosures can happen through either a judicial or non-judicial foreclosure process. Non-judicial foreclosures are more common and judicial foreclosures can happen when the power of sale clause wasn't included in the original loan instrument. Sources: ForeclosureLaw.org, The Norris Group
• CALIFORNIA is a non-judicial foreclosure state. However, judicial foreclosure is allowed if the lender requests it. Sources: California Courts, The ABCs of California Foreclosure Law, The Norris Group, RealtyTrac
• COLORADO allows both non-judicial and judicial foreclosures. Non-judicial foreclosures are the most common. Judicial foreclosures are available, but not used often. Sources: Nolo, AllLaw, Lawyers.com
• CONNECTICUT is a judicial foreclosure state. The judicial foreclosure process is implemented by either strict foreclosure or a decree of sale foreclosure. Sources: Nolo, RealtyTrac, ForeclosureLaw.org, The Norris Group
• DELAWARE is a judicial foreclosure state. Lenders must go through a court proceeding to foreclose on the borrower. Sources: ForeclosureLaw.org, The Norris Group, RealtyTrac
• FLORIDA is a judicial foreclosure state. The lender is required to file a court action and record a notice of a pending lawsuit against the borrower. Sources: The Florida Senate, PropertyShark, ForeclosureLaw.org, Kelley, Fulton & Kaplan
• GEORGIA allows both non-judicial and judicial foreclosures. Non-judicial is the most common and judicial foreclosures can happen in cases where the power of sale clause wasn't included in the original loan instrument. Sources: The Norris Group, ForeclosureLaw.org, law.georgia.gov
• HAWAII allows both non-judicial and judicial foreclosures. For many years, foreclosures in Hawaii were more commonly handled non-judicially, but after Hawaii implemented a mortgage foreclosure dispute resolution program as part of the non-judicial foreclosure process, lenders regularly began opting for the judicial foreclosure process to avoid participating in it. Sources: AllLaw, Nolo, Hawaii State Judiciary
• IDAHO allows both non-judicial and judicial foreclosures. Non-judicial is the most common, except when there is no power of sale clause in the loan instrument. Sources: The Norris Group, RealtyTrac, Foreclosure.com, LawInfo
• ILLINOIS is a judicial foreclosure state. The judicial foreclosure process can be implemented through a strict foreclosure, consent foreclosure, or a normal judicial foreclosure process. Sources: Illinois General Assembly, The Norris Group, RealtyTrac
• INDIANA is a judicial foreclosure state. Sources: AllLaw, Nolo, ForeclosureLaw.org
• IOWA is primarily a judicial foreclosure state. There is also a non-judicial voluntary foreclosure available, if the lender and borrower can agree on it, the borrower can transfer the deed to the lender and the lender can subsequently waive their right to sue the borrower for a deficiency judgment. Sources: Lawyers.com, The Norris Group, Nolo, legis.iowa.gov
• KANSAS is a judicial foreclosure state. Sources: RealtyTrac, The Norris Group, ForeclosureLaw.org
• KENTUCKY is a judicial foreclosure state. Sources: Foreclosure.com, The Norris Group, LawFirms
• LOUISIANA is a judicial foreclosure state. Sources: Nolo, RealtyTrac, ForeclosureLaw.org
• MAINE is a judicial foreclosure state. Sources: Maine Department of Professional and Financial Regulation, State of Main Judicial Branch, ForeclosureLaw.org
• MARYLAND foreclosures can happen through either a judicial or non-judicial process. Sources: Maryland Department of Labor, Nolo, ForeclosureLaw.org
• MASSACHUSETTS allows both non-judicial and judicial foreclosures. Non-judicial is the most common and judicial foreclosures can happen in cases where the power of sale clause wasn't included in the original loan instrument. Sources: Foreclosure.com, MAlegistlature.gov, ForeclosureLaw.org
• MICHIGAN is a non-judicial foreclosure state. However, judicial foreclosure is allowed if the lender requests it. Sources: Michigan.gov, MichiganLegalHelp.org, MIforeclosure.mplp.org
• MINNESOTA allows both non-judicial and judicial foreclosures. Sources: Minnesota Judicial Courts, Minnesota Legislature
• MISSISSIPPI allows both non-judicial and judicial foreclosures. Sources: Mississippi Legislature, AllLaw, ForeclosureLaw.org
• MISSOURI allows both non-judicial and judicial foreclosures. Sources: house.mo.gov, AllLaw, ForeclosureLaw.org
• MONTANA is a non-judicial foreclosure state. Sources: Montana Legislature, The Norris Group, RealtyTrac, ForeclosureLaw.org
• NEBRASKA allows both non-judicial and judicial foreclosures. Sources: Nolo, Steffens Law Offices, RealtyTrac
• NEW HAMPSHIRE foreclosures can happen judicially or non-judicially, depending on the loan documentation. Sources: Nolo, ForeclosureLaw.org, New Hampshire Legal Aid
• NEW JERSEY is a judicial foreclosure state. Sources: RealtyTrac, The Norris Group, ForeclosureLaw.org
• NEW MEXICO is a judicial foreclosure state. While New Mexico does technically have a non-judicial foreclosure process, it is rarely used on residential properties. Sources: LawInfo, RealtyTrac, Foreclosure.com
• NEW YORK is a judicial foreclosure state. Sources: NYCBar, Rosenberg, Musso & Weiner LLP, Nolo
• NORTH CAROLINA allows both non-judicial and judicial foreclosures. Sources: RealtyTrac, ForeclosureLaw.org, The Norris Group
• NORTH DAKOTA is a judicial foreclosure state. Sources: North Dakota Century Code t32c19, The Norris Group, RealtyTrac
• NEVADA allows both non-judicial and judicial foreclosures. Non-judicial is the most common, except when there is no power of sale clause in the loan instrument. Sources: PropertyRadar, The Norris Group, ForeclosureLaw.org, RealtyTrac, Foreclosure.com
• OHIO is a judicial foreclosure state. Sources: Cope Law Offices, LLC, ForeclosureLaw.org, RealtyTrac
• OKLAHOMA allows both non-judicial and judicial foreclosures. Sources: Oklahoma Bankruptcy Law, The Goodling Law Firm P.C., ForeclosureLaw.org
• OREGON allows both non-judicial and judicial foreclosures. Non-judicial foreclosure is more common. Judicial foreclosures are available when there is no power of sale clause in the loan instrument. Sources: PropertyRadar, RealtyTrac, The Norris Group
• PENNSYLVANIA is a judicial foreclosure state. Sources: Nolo, ForeclosureLaw.org, RealtyTrac
• RHODE ISLAND allows both non-judicial and judicial foreclosures. Non-judicial foreclosures are the most common. Sources: Nolo, The Norris Group, ForeclosureLaw.org
• SOUTH CAROLINA is a judicial foreclosure state. Sources: Dermott Law Firm, Crawford & Von Keller, LLC, RealtyTrac
• SOUTH DAKOTA allows both non-judicial and judicial foreclosures. Sources: ForeclosureLaw.org, RealtyTrac, The Norris Group
• TENNESSEE allows both non-judicial and judicial foreclosures. Non-judicial foreclosures are the most common. Sources: Foreclosure.com, NexusHomebuyers, Nolo
• TEXAS allows both non-judicial and judicial foreclosures. Non-judicial foreclosures are more common, but judicial foreclosures can be done if the power of sale clause wasn't included in the original loan instrument. Sources: The Lane Law Firm, ForeclosureLaw.org, RealtyTrac, The Norris Group
• UTAH allows both non-judicial and judicial foreclosures. Non-judicial foreclosures are more common, but judicial foreclosures can be done when the power of sale clause wasn't included in the original loan instrument. Sources: UTCourts.gov, Foreclosure.com, RealtyTrac
• VERMONT foreclosures can happen judicially or by strict foreclosure. Sources: Vermont General Assembly, Nolo, ForeclosureLaw.org
• VIRGINIA allows lenders to pursue either a non-judicial or judicial foreclosure. Sources: Shenandoah Legal Services, P.C., ForeclosureLaw.org, RealtyTrac
• WASHINGTON allows both non-judicial and judicial foreclosures. Sources: Washington State Department of Commerce, RealtyTrac, The Norris Group
• WEST VIRGINIA is a non-judicial foreclosure state. While judicial foreclosures are also allowed, they are rarely used. Sources: AllLaw, ForeclosureLaw.org, RealtyTrac
• WISCONSIN is a judicial foreclosure state. Sources: UpCounsel, Nolo, Foreclosure.com
• WYOMING allows both non-judicial and judicial foreclosures. Sources: RealtyTrac, ForeclosureLaw.org, Foreclosure.com
• WASHINGTON D.C. allows both non-judicial and judicial foreclosures. Sources: Nolo, Ticor Title, ForeclosureLaw.org

The post The Full List of All Judicial and Non-Judicial Foreclosure States in the U.S. appeared first on REtipster.

The problem is, there aren’t many guides, videos, or clear instructions on the internet about how to do it and how much legitimate opportunity there is. In this blog post, I will try my best to change that.

What Is a Tax Deed Auction?

First things first: what is a tax deed auction? Secondly, how does it work?

In the U.S., everyone who owns real estate needs to pay property taxes. These taxes are due in regular intervals each year, and if a property owner fails to pay their taxes, the county will eventually seize the property in tax foreclosure.

How long will the county wait before seizing the property? It depends on the state. Some states may wait a year. Others may wait two years. Others may wait five years, but it will happen eventually.

Not long after the county takes possession of each property, its objective is to re-sell the property at a public tax auction, which is open to any real estate investor. The purpose of this auction is to allow the county to recoup the tax revenue they’ve lost.

In tax deed states, each property starts with a minimum bid amount, usually based on past-due property taxes, plus some administrative fees. This minimum bid amount is typically far below the property’s actual market value, and this is where the opportunity lies.

Tax Deed State vs. Tax Lien State

Not every state handles its tax sales the same way.

A little less than half of the states in the U.S. are tax deed states. A little less than the other half are tax lien states. And a few states, like Florida, are BOTH tax deed and tax lien states.

So what does this mean?

While both kinds of states allow the sale of tax delinquency, there are subtle differences between the two. In general, both types sell to investors via a public auction. However, in a tax deed state, the investor is bidding for the title—hence ownership—of the property, while in a tax lien state, the investor is bidding for a rate of return.

Here’s a handy map to know which states are tax deed states, which are tax lien states, or hybrids.

Disclaimer: The map above represents the information I could find and interpret through many hours of research. While I believe the information is fairly reliable (I did include links within each state so that you can see my sources), I cannot guarantee its complete accuracy. Many states change their laws and statutes from year to year, so before diving into the pursuit of tax deeds or tax liens in any particular state, verify the information above before you get too far along.

Michigan—where I live (and where I attempted to find properties to buy)—is a tax deed state.

My findings from this process will apply largely to tax deed states. Some overlap may also apply to tax lien states, but for the most part, tax lien sales follow a different process altogether.

What Time of Year Is the Tax Deed Sale?

If you want to buy properties at a tax deed sale, the first step is to understand what time of year the auction is held. In Michigan, tax deed auctions usually happen between September and October… which is about six months after properties are foreclosed on from the previous year of tax delinquencies.

Expect Fierce Competition at Tax Deed Sales

Because of the way these auctions are designed, the minimum bid amount is somewhat immaterial. Because these auctions are open to public bidding and many other investors do show up and bid on the properties, it’s rare that a property will actually sell for its minimum bid amount (and if it does, it’s probably not a great property in the first place). In some cases, a property may end up selling well above its market value.

Conversely, you can also find some properties with very little competition. These are the situations where you have the potential of finding amazing deals, as you have the potential to buy properties at a very low price.

These are few and far between, though. Many investors are drawn to tax deed auctions because of the opportunity to buy properties sold far below their market value than they would be otherwise. You can expect fierce competition, but I’ll show you how it works to get your foot in the door.

Tax Deed Auction Due Diligence

In 2020, most tax deed auctions are happening online thanks to COVID-19. In years past, you would have to attend these events and bid in person, but since in-person gatherings largely haven’t been happening in 2020, these auctions generally won’t happen unless they occur online. Now, you can simply log into the appropriate website where these auctions are being held.

In Michigan, as of 2020, these auctions are being hosted at tax-sale.info. Each state will have a different website for their tax sales (and sometimes an individual county will have its own website), but for the sake of simplicity, let’s use Michigan’s website as an example—the general principle is the same anyway.

To start, you have to register on the website. In most cases, you’ll need to supply them with your credit card number (or another ready source of funds), so they can hold a certain amount of cash ready for when you’re bidding. In our example, it’s $1,000—this money isn’t going to be spent on anything just yet, but there is a “hold” placed on these funds, so they’re ready to go if you win any of these properties.

The website will also ask for your titling information, so they can immediately deed these properties to the correct owner if you happen to win one. By default, you’ll get the deed for the property on the day you win it at auction. You can refer to the auction website’s FAQ section for more information about this.

Do Your Research Before Bidding

Before you begin bidding, it’s essential to research the properties you want to bid on. You can download the lists of the properties going up for auction beforehand and filter all the properties that make sense to you.

Since there are several types of real property in these auctions, the kind of information you’ll need to collect from your research varies too. For example, when I want to buy vacant land, I would look for its size, road access, special features, and problems—this last item is important, as many properties that end up in a tax deed auction have issues in them (these problems may be the whole reason they fell into tax foreclosure in the first place). This gives me an idea of whether somebody can find the property useful, so I can quickly flip it for a profit.

This part is pretty tedious and time-consuming—it can take a few hours, and if I’m looking at houses, it can take even longer. In my case, I have an assistant who does the legwork by compiling all the information I need—the type of property, county, minimum bid, and so on—so I can zero in on the properties I have a shot at.

A third-party service like DataTree can help immensely when gathering information for these properties. There might be some discrepancies with the information (such as area or size) that DataTree collects versus what the county knows, so it’s a good idea to cross-reference either figure to come up with a more precise one.

Look at the SEV (State Equalized Value)

Apart from the minimum bid amount, the auction website also lists a figure called the SEV, which stands for “state equalized value.” In layman’s terms, this number is approximately 50% of what the county thinks the property is worth.

Depending on your state, they may or may not use 100% of the SEV as the benchmark. In Michigan, for example, the state only figures 50% of the SEV, even when it’s displaying the full price. They usually arrive at this number by an educated guess, typically by running comps.

Remember, though, the state is not an appraiser, so don’t take this figure at face value. But in the absence of any other information, this number can suffice for now.

A Step-by-Step Process to Bidding

In general, the tax deed auction website will list a county where a property is being auctioned, but at times it will feature two or more counties. You can find the type of property you want for the counties in the auction (such as a house or land) and do the appropriate research.

At this point, you can strike out some of the properties you encounter. For example, you don’t need to list properties with a lot more problems than you’re ready to address or those with missing information. In general, you should try to find the properties whose SEVs (or actual market value) far exceed their minimum bid price.

If you win one of these properties at auction, you’ll essentially get a quit claim deed from the county… which is interesting. By definition, a quit claim deed doesn’t offer any guarantees that you’re getting a clear title to the property (it’s basically the worst type of deed you can get from a seller).

But on the same coin, a tax deed sale clears any lien or ownership on the property. So, in a way, buying a property at a tax deed sale simultaneously eliminates any other owners or lienholders of record (with a few exceptions).

In the eyes of most title insurers, a tax deed sale will require a quiet title action to clear the title properly. It’s an added step (and cost) you’ll want to keep in mind as you buy one of these properties.

1. Let’s Bid!

As for your maximum bid, you should look at each property and understand how much you’re willing to pay for it before the auction starts. There’s some guesswork involved in this, especially when trying to estimate how much the property is worth.

In Michigan, you can bid either before or during the auction itself. However, watching prices and bidding go up in real-time allows you to react quickly. You can see how high a specific property is going up in value and how much competition you have, and maybe even have an idea of your competitors’ behavior regarding a given property.

On the other hand, if you’ve already decided on your maximum bid, you can simply bid that amount and be done with it—and if someone else outbids you, you can move on to the next property on your list.

When placing a bid this way, keep in mind that once the auction starts, your bid amount will be locked in and you’ll be committed to paying that amount if you win. Make sure you can shell out that much money if your bid wins because you cannot take it back once the auction starts.

2. When the Auction Begins

When you bid on a property before the auction starts, there will generally be a page on the website where your active bids are ongoing, the status of your bid (whether anyone else has outbid you), and some details about the property itself.

If you're familiar with how auctions work on eBay, the bidding and live auction processes at a tax deed auction are relatively similar.

It works because the “current high bid” is always an increment (in this case, a hundred dollars) more than the previous bidder. For example, if the current high bid is at $7,000 and I bid $10,000, it doesn’t mean that the new high bid is $10,000—it will be $7,100.

In Michigan, you're allowed to bid up to 30 days before the auction date, and your bid won't get locked in until the action starts (so if you want to back out, you have that option).

On tax-sale.info, which handles most county auctions throughout the state of Michigan, each county (or sometimes, groups of counties) will hold its auctions on different days throughout late September and early October. So even if you win nothing in one particular auction, you'll still have a chance to bid at the other auctions later in the month.

3. Responding to Competing Bids (or Not)

When you're focusing on only the best properties at a tax deed auction, there will be A LOT of competition. If you're only planning to make the minimum bid amount, don't expect to walk away with any tax deed when the auction is over because you will be outbid almost every time.

Depending on the website, the live bids may be refreshed in real time, or you might need to refresh the page to see the current high bid manually. In any case, bidding at these auctions also means recognizing which properties are worth adjusting your bids for. Some properties are worth fighting for, but many are not.

One strategy is to look at the property's assessed value, which is usually a percentage of the property's estimated market value (according to the county assessor, anyway).

In Michigan, the assessed is 50% of the total market value, so if the competing bids are getting close to (or exceeding) the total market value, most investors will abandon their bidding because there simply isn't enough value in the deal to justify their investment.

The goal is to be the winning bidder on a deeply discounted property worth far more than the winning bid amount. This kind of excessive value is what every tax deed investor is looking for.

When I'm looking specifically for vacant land properties, I usually peg the maximum bid price at 30% of the total market value, which is far below the assessed value.

Again, if you're going to participate in a tax deed auction, it's a good idea to go into it with a maximum amount in mind—a ceiling number that you absolutely will not exceed under any circumstances.

If your maximum value has been outbid by a competitor (which happens almost all the time), it's important NOT to get carried away in the emotion that auctions are famous for. This is how people start making dumb financial decisions that come back to haunt them. Avoiding these when you have a pre-defined maximum bid amount in mind for each property is much easier.

Assessing the Accuracy of the Total Market Value

On Michigan’s tax deed auction website, the information for the property includes the assessed value and the total market value of the property.

You don’t need to take this as gospel truth, however. You can cross-reference it with other tools, like Zillow, and run comps on similar properties in the area. You will most likely find that the property's total market value is different (usually less) than the one you see on Zillow, so you can use this information to increase your bid or let it go.

4. After the Auction

When the auction is finished (they typically begin at 10:00 am and finish at 7:00 pm the same day), all bids are locked and closed, and you will no longer be able to modify your bids.

If you lost a bid on a property, you would see how much it has sold for, including how many people viewed it (note that the number of views doesn’t mean unique views or how many have bid on it—it’s just how many times that property was loaded into a browser).

On the other hand, if you are the winning bidder, you'll be expected to fork over the money immediately in exchange for a tax deed from the county.

Analyzing the List of Properties

Before we jump into the results of our bid, the question most of you ask is: how do I know which properties are worth bidding on in the first place? How do I qualify which ones I should pursue?

The process is pretty straightforward, as I'll show you below (and in the video above).

Obtaining the List of Properties

Again, the process may vary depending on whether the state is a tax deed state or a tax lien state. In my case, Michigan’s tax deed sale website offers all the information I need. I can simply download a spreadsheet that lists all properties that will go on auction and base my decisions from there.

Unfortunately, some states don’t offer this information out of the gate. The first thing to do is to find the tax deed auction website. If the state’s website doesn’t have the interactive feature just to download the list, it can be requested through email or in person a few days before the auction begins.

A spreadsheet will either come in an XLS or CSV format. Microsoft Excel can open both, but XLS is its native file type.

RELATED: Everything You Need to Know About Getting Your County's Delinquent Tax List

What’s on the List?

The list gives me some important data that can guide my bidding decisions. In Michigan, our list usually includes the lot number (which is not the same thing as the property's APN). This is how I can find each listed property and get more information about each.

Another important data that comes with this list is the minimum bid amount for each property, which is the lowest amount I can buy, assuming there’s no competition. This figure usually represents the amount of delinquent taxes that the property owes the county, plus some additional fees. In effect, a tax deed sale is just the county's best effort to recoup its lost tax revenue.

In a perfect world, if there were no competition at these auctions, it would be very easy to gain A LOT of free equity on these properties. Unfortunately, there is usually a lot of competition at a tax deed auction, especially for the best properties on the list. This is another consideration when it comes to bidding at tax deed auctions (which we’ll cover in another post).

Another important factor is SEV. In Michigan, the SEV is 50% of the property’s fair market value. This may be helpful in the absence of other references.

Some lists also note the current tax for each property. If I do win the property, this amount represents what I should pay in annual taxes. This figure is not future-proof, as it’s only current up to the most recent year.

Some lists also include notes and/or comments, which are often made by a county assessor or employee who took the time to visit the property in person.

How to Filter the List

Some lists include a lot of properties. Looking at each of them will take me hours—something I don’t have. There’s absolutely nothing wrong with doing this, but I’d rather save myself some time and instead filter out what I don’t need. That way, what’s left are those properties that interest me.

One way to do it is to look at the spread of the property’s value.

1. Filter by Spread

This is pretty easy to do; simply subtract the property’s minimum bid amount from its market value. For example, a property with a SEV of $25,000 (i.e., $50,000 market value) and a minimum bid amount of $5,000 will have a spread of $45,000.

Again, the market value in Michigan is 2x that of the SEV. In the example above, you can see that I just multiplied the $25,000 value by 2 and subtracted $5,000 from it, which brings me to a $45,000 result.

Doing this per property is time-consuming. Fortunately, in any spreadsheet, I can use formulas to save time, so I can just do one formula and then copy it to the entire column or row, and I don’t have to calculate it every time manually.

Remember that the spread calculated this way is the maximum possible free real estate equity I gain when I win that property. Of course, this is subject to bids from other investors, so the more they bid, the more opportunity I lose.

I can sort the properties by their potential profit margin with the spread calculated. I can then set a minimum threshold, for example, $5,000. I can eliminate any property whose spread is below the threshold value.

A caveat: this doesn’t catch everything that I want it to. For example, I might miss out on properties with a lot of story behind it. I might also overlook those with no apparent value but may be situated in an area with a lot of growth. In any case, this method will only show the most obvious opportunities and save me time.

2. Filter by Type

The objective is NOT to bid on every type of property on the list. In my case, I'm only looking for vacant land properties, so I can just filter the list down to the property types that I want to buy and ignore the others.

In the case of vacant land, one trick is filtering the data by addresses because many vacant lots don’t have numbered addresses yet. I can also simply head to the comments or notes section and look for comments indicating the property type.

The problem is that not all lists will have comments on each property. And even in lists where they do, some properties have blank spaces where comments should be.

What I do next is to head to the tax deed auction website and search by lot number. The website offers general information about the property, including a picture or two. In many cases, this won’t tell me much, so I can simply use third-party software like DataTree or PropStream to dig up more information about this particular property.

RELATED: The Fastest Way to Research Any Property in the U.S.

Queries in DataTree aren’t free, but they offer deeper insight into that property. The market value of a property in DataTree will also be different from the county-assessed values. Inconsistencies with these figures can tell how that parcel has evolved; for example, an empty lot may surprisingly present a huge market value. This happens because its value when it had a house or some structure on it in the past was carried over to its current appraisal.

DataTree is also useful for finding out what the immediate area of the property looks like. It has several filters, such as flood zones, to see whether the property I want is in a place that makes sense for an investment. For example, do I want to buy a parcel in an area with many restrictions (such as in condo associations, where the only thing I can build on is a condo)?

Determining Max Bids and Due Diligence

Doing due diligence on any property in a tax deed auction is similar to how I approach every property for sale. DataTree can help greatly in this regard, as I can easily find the most relevant information I look for in any parcel.

A few relevant things you can look at DataTree’s property detail report include:

• Acreage.
• Property tax.
• What the immediate area looks like (is it in a flood zone/wetlands/swamp, does it have road access, what kind of properties are built around it, etc.).
• Previous sale price (which it has sold for in real terms versus its market value that’s theoretical).

If any glaring issue jumps out, take note of these issues and pit them against the profit-making potential of that particular property. Just keep in mind that other investors have also seen those, so there’s always that risk of competition.

What’s Your Ceiling?

Finally, placing a max bid value is another way to save time when finding the property worth bidding on. I do a percentage-based ceiling (such as 30% beyond the minimum bid amount) per property, but others just set a flat amount.

Whatever the case, this lets me save some time trying to outbid the competition for a single property; if they make a bid over my ceiling, I simply move on to the next item on my list.

The After-Auction Report

When all's said and done, auctions close either after a certain amount of time or a certain number of bids. When the auction is over, there’s nothing else to do but to find which of my bids have won.

Unfortunately, the short (and disappointing) answer was that I didn’t win anything. There were a couple of factors why this happened, as I'm going to explain below.

Loads of Competition

The more desirable a property is, the more competition there will be from other investors you also want to best properties up for grabs.

While I look at the spread to find those that can give me the biggest possible profit margin, I don’t solely rely on it. I also look at other considerations, such as road access and the general state of its location, to determine whether a property is “worthy” of my bid.

But you can be sure that other investors will do the same, so the more appealing a property is—using a combination of spread and environmental factors—the more likely you will encounter competition.

And as competition grows, so does a property’s bid amount. Would I bid more than I should just to outbid the competition? The answer is no, which brings us to the second point.

Money-Making Potential

As a rule of thumb, I rarely bid over 30% of a property’s market value when buying. And tax deed auctions are no different.

The reason is that if I can eventually sell a property at 100% of its market value, I would still get about 70% remaining off it. But as with an auction where bid amounts get higher and higher as competition intensifies, the winning bid amount is often far too close to the property’s actual market value, making the margins way too thin to make money from it.

In some cases, some properties sell for even beyond their market value!

Of course, the 10-30% rule I set for myself is just a super-conservative rule of thumb. When bidding at a tax deed auction, you can set your ceiling for whatever you want, but it also comes down to intention. For example, if you want to use the property for yourself (or develop it), it probably makes sense to bid just a wee bit higher than you’re used to when you’re flipping land.

But if you want to maximize your profit margin and guarantee that you’ll make money on the re-sell without doing anything to the property, a low ceiling is more advantageous.

So, Where Does That Leave Us? A.K.A., My Takeaways

If you’re someone like me trying to get a property at 10-30% of its market value, all of the auctions I attended proved to be an uphill battle. It’s hard to stick to this kind of ceiling and come out with something to show for it.

Unless:

1. You bid for more than your ceiling (or don’t set one at all).
2. You find a property that nobody is interested in.

Of course, if your goal is to flip a property for an immediate profit without making any alterations, both of these exceptions would be pretty foolish, in my opinion.

The first is generally up to anyone bidding in a tax deed auction, but the second is tricky. Most of the time, investors—me included—shy away from properties with obvious problems or just aren’t that valuable. And there’s something to be said for these properties, as some remain unsold at auction.

But are they THAT bad?

In my experience, unsold properties—i.e., properties that nobody wants—fall into two categories:

1. Those with serious usability problems.
2. Those whose value isn’t apparent at the time it was auctioned.

The first one is pretty self-explanatory. Examples are land situated smack dab in the middle of a wetland area, on a cliff, or those without road access.

The second one is a bit more nuanced. I’ve found that the more rural or remote a property gets, its value (not necessarily its market value, but its demand within the auction) decreases. A possible reason for this is that these properties are a long way from where most buyers are.

In my case, I wouldn’t have time to sell such a remote parcel of land to a buyer who won’t likely go out of their way unless they want a plot of land in that area. It’s not impossible, but not likely either.

With that in mind, is a tax deed auction even worth it? Here’s what I learned.

Is It Worth Your Time?

If you’ve spent time on REtipster.com (the blog, podcast, or YouTube channel), you know that my business model revolves mostly around land investing. In a nutshell, I try to find vacant land or land running behind on their taxes, then make a low offer to their owners.

How low of an offer? As I’ve mentioned, this is anywhere from 10% of the property’s assessed market value or up to 30% if I feel that a certain parcel of land has a lot of potential.

But in a tax deed auction, this is extremely challenging. The inherent nature of auctions makes it difficult to stay within your ceiling (which is 30% for me) because of the sheer amount of competition. Sure, I could always buy land no one wants and probably resell it eventually, but I won’t get the big numbers I would get from a top-tier property that everybody is bidding on.

Do It Creatively

There are a lot of opportunities here, but make no mistake—“opportunity” doesn’t mean a deal.

The first thing to do when you start at an auction is to manage your expectations. It’s certainly in the realm of possibility to win huge at a tax deed auction, but there will be FAR more strikeouts than home runs.

Instead, you can get creative by using other ways to have a competitive advantage. For example, you might have knowledge or insight about a property that others may not have, which would make a less valuable investment to others who don’t know or see what you do.

The assessor’s estimate of a property’s market value is an educated guess but not the gospel truth; if you know the best uses for the property and are confident that you can maximize it, a higher bid may be justified.

Not All Places Are Made Equal

As I pointed out, I’m using the state of Michigan as an example because this is where I live. Like every state, it has unique quirks that make competition for tax deeds more intense or less fierce. Some underlying factors may make tax deed auctions easier or more complicated in other areas.

I’m not saying that definitively; there may be some overlap across states in how tax deed auctions work. A few things may change here and there, but the basic idea of why tax deed auctions are held, how biddings are made, and the taxes and miscellaneous fees that you have to pay are similar in procedure, just different in amounts.

More importantly, the real estate market in every state varies at a certain point. Michigan, for example, is on an upward trend right now, which makes property values start high due to demand. This means that the competition I’ve shown you may not necessarily reflect the intensity in other areas, although competition will never be truly absent.

So… What’s Next?

Even though I knew it would be a long shot, it was still a big disappointment for me not to win anything from all the bids I made.

At the same time, it’s not the end of the world.

The main idea here is that, as investors, we shouldn’t be buying properties just because we can afford to outbid other investors. In hindsight, when I look at the final selling prices, none of the properties at these auctions were terrific deals that I regretted not getting.

I think one of the biggest potential pitfalls here is emotional buying. It’s easy to get sucked into a vortex of a bidding war. I keep thinking to myself,

“What if I add a hundred more bucks? Maybe I’ll get it!”

This is a dangerous and slippery slope. I’m not one for gambling, but I imagine the feeling is similar because your imagination can run wild during the bidding process. Plus, there’s probably a huge “high” when you win (or a feeling of disappointment when you don't), depending on whether the property was a great or terrible deal.

What you can do is try and stick to your ceiling no matter what. Remind yourself that every extra dollar you bid beyond your maximum will eat into your profit margin because that’s the reality, after all.

Finally, I won’t say there’s no opportunity for a tax deed auction. My situation was sort of self-limiting, to be honest, due to the way my business model works. But that may not be the case for everyone. As long as you know which properties are worth your time and money and you can stick to your maximum offer, you may find some diamonds among the rough.

But if you’re like me and just want to get the competition out of the way, you can simply find highly motivated sellers before the county forecloses on their property and auctions. I’ve written many guides about it on REtipster.com, along with an explanation of how I do my business that I think you’ll find useful.

The post My Experience at a Tax Deed Auction: Is There Any Opportunity Here? appeared first on REtipster.

Our ability to find accurate, reliable data enables us to make educated decisions and pursue the right investment opportunities.

Some of the most important data we need are the comparable sale prices (comps) for the properties we're evaluating.

This data helps us determine a realistic value for each property, and it's a core component of how we formulate an appropriate offer price when we're buying and a listing price when we're selling.

But there's a problem—this “sold price data” is not available to the general public in some states.

These states are known as non-disclosure states, and if you're working in one of these geographic areas, there will be some barriers between you and the information you need.

The Full List of Non-Disclosure States

Below is a map that displays all of the non-disclosure states in the U.S.

When looking at this map, it's important to understand that “non-disclosure” means slightly different things in different states.

It's ultimately a question of whether the price must be disclosed to the local assessor in any way, and if it is required, who can see that information (is it limited to only the local assessment officials, or can the general public see it as well)?

For ease of understanding, the map uses a color-coding system:

• Green represents “full disclosure” states, where the sale prices of properties are openly reported and accessible to everyone.
• Red denotes “non-disclosure” states, where no reliable public sources are available to obtain sale prices for all properties.
• Orange indicates states that fall in between, with limited disclosure. In these states, making an educated guess about property values is possible based on the partial information disclosed to the public.

In terms of accessibility:

• Information is easiest to obtain in green states.
• Orange states present some challenges in accessing information, but it’s not impossible.
• Red states make it most difficult to access information.

Disclaimer: The information on this map was pulled from several online and offline sources. If you want to explore the sources we used, each source will be linked within each state. This map isn’t intended to be the authoritative answer on how each state works, but simply the most educated assessment we could make based on the information we were able to gather. If you have evidence that our assessment is incorrect in any particular state, feel free to contact me and point out any sources to support your claim.

Perhaps the most notable source we found on this subject was the PTAPP Survey from IAOO, which seeks to review and clarify disclosure practices throughout the United States and Canada. Their most recent survey was done in 2017 and published in 2018, but these laws can change from year to year.

Classifying each state in this regard is quite complicated because there are varying degrees and definitions of what “non-disclosure” means.

According to Zillow (which relies on this data for their Zestimates), in some states, the sales prices aren't available because the information doesn't need to be submitted to the municipality. In other states, the sale prices are submitted to the local assessor, but the information is not shared with the public.

In other states, reporting the sale price on the deed is optional. If the price is reported, the number is available to the public. If the sale price isn't reported, the public won't see it.

It's also worth noting that the disclosure of a property's sale price is separate from the disclosure of any mortgages or deeds of trust on the property. In Texas, for example, Craig Smyser explains that,

“Sales prices are not listed in any publicly recorded documents nor is the sales prices shared with a governmental agency…If a mortgage is utilized in the purchase, the amount of the mortgage is publicly available in both the warranty deed and the deed of trust.”

The existence and amount of financing aren't always directly correlated to the property's sale price, but it could be used to make some assumptions about a property's value in some cases.

How the MLS Can Help

In the states where property sale prices are not available in the public records, the only way to get your hands on accurate sold comps is through the Multiple Listing Service (MLS).

The MLS is a database that holds information on properties that are for sale and properties that have been sold within a state. Most states have different regions with different MLS databases, and anyone who wants to see this information in their region’s MLS has to pay an annual fee and hold a state-specific real estate license.

If a real estate investor needs to access several different MLS databases to obtain the sold comps within a particular state (if they are an out-of-state land flipper, for example), this can get very expensive and impractical. Many investors don’t want the added responsibility and liability of holding a real estate license.

Non-disclosure states can present a serious obstacle for real estate investors without a license, so it’s important to know which states are non-disclosure states and which ones are not, and perhaps more importantly, how to get the information you need in a non-disclosure state.

3 Ways to Find Sale Prices in a Non-Disclosure State

Even though it may be challenging to find past sale prices in a non-disclosure state, that doesn't mean it's a bad state to invest in.

If a real estate investor decides to work in a non-disclosure state and, for one reason or another, doesn't want to deal with the ongoing costs and responsibilities of maintaining their real estate license, they could explore any of the three options below.

1. Work With Someone Who Has MLS Access

The simplest way to access the MLS without becoming licensed is to establish a relationship with someone who is.

Working with a licensed real estate agent can provide a number of benefits for investors. They can conduct due diligence, walk-through properties on their client's behalf, and understand an investor’s criteria and find deals that are a great match for them.

Since they have access to the price properties have sold for, they can also pull a list of comparables, which can be very helpful as an investor is determining how much they can offer for a property, based on how much similar properties have sold for in the area.

There are two drawbacks to this approach. To keep the agent motivated to help, an investor will usually need to pay them a commission on the properties they assist with. Additionally, if a real estate investor needs to access several MLS databases to cover several regions within a state, they may have to establish a connection with more than one agent.

RELATED: Should Real Estate Investors Get Their Real Estate License?

2. Use An Estimated Sold Price

An alternative approach is to use an estimated sold price.

Say three single-family residences could be used as comps for a property an investor is considering as an investment.

• Property one is 2,000 sq ft and is listed for $65,000
• Property two is 1,750 sq ft and is listed for $58,000
• Property three is 1,700 sq ft and is listed for $52,000

If these were sold properties, you can take the average square footage and divide it by the average price to get the average price per square foot:

Average Square Footage / Average Price = Average Price Per Square Foot

To determine a property’s market value, meanwhile, multiply the average price per square foot by the square footage:

Average Price Per Square Foot * Square Footage of Subject Property = Market Value

Disclaimer: For simplicity’s sake, this example doesn’t account for a lot of factors typically involved with analyzing a deal. For a more in-depth overview of how to run comps, check out this video.

If sold prices are unavailable, you can run the same kind of analysis using active LIST prices, meaning the prices people ask for in the ads that promote their properties for sale. Then, you can factor in a discount to estimate a sold price. The discount percentage may vary depending on what’s typical in the market, but 20-25% is common.

Using the same properties as the example above, it would look like this:

• The average square footage is 1,817.
• The average asking price is $58,333.33.
• The average price per square foot is $32.11.
• The discount percentage is 25% ($8.03) less than the average price per square foot.
• $32.11-$8.03 is $24.08 as a discounted price per square foot.
• $24.08 multiplied by the square footage size of our subject property (1,800) is $43,348.62.
• $43,348.62 is, therefore, the market value.

Click Here to Get the Spreadsheet

3. Look at the Assessed Value

Another way to estimate sold prices in a non-disclosure state is to look at the property's assessed value.

The assessed value is the local tax assessor’s opinion of what the property is worth. This number also plays a role in determining each property's annual tax bill.

Even though a property's assessed value is an easy means of valuation, it’s not always an accurate representation of market value. In some markets, these values are just flat-out wrong! When using this number to find the market value of a property, be aware that even though this gives some basis for the property’s value, it probably isn't telling the full story.

Summary

Real estate investors who work in non-disclosure states face a bigger set of challenges in determining property values and offer prices because of the barriers to finding recent sales comps.

This doesn’t mean, however, that comparable data is completely unavailable or that an investor should not do business in a non-disclosure state. All it means is that they need to use some alternatives and be more resourceful at understanding property values in their area.

Sources

1. Dornfest, A. S., Rearich, J., Brydon, T. D., & Almy, R. (2019). State and Provincial property tax policies and administrative practices (PTAPP): 2017 findings and report. Journal of Property Tax Assessment & Administration, 16(1), 43-130. Retrieved from https://researchexchange.iaao.org/jptaa/vol16/iss1/3

The post A Map of Every Non-Disclosure State in the U.S. – And How Real Estate Investors Can Deal With Them appeared first on REtipster.

REtipster has recently partnered up with some industry lease documentation experts to compile a special package of leases and other related documents for each state in the United States.

If you're managing your rental properties in-house, or if you're getting into the rental property business and you need a basic set of documents that pertain to the unique issues at work in your state, you can get the documents for your state by simply clicking below.

LEGAL DISCLAIMER: These templates are offered for informational purposes only with the understanding that neither the publisher nor the author is engaged in rendering legal, tax or other professional services. This document should be modified as the particular facts and needs require, and an experienced real estate attorney should always review it before use.

DISCOUNT: When you sign up as a REtipster Email Subscriber, you'll get an instant $20 off Discount Code for this item (no pressure of course – just want to make sure you're aware).

What you get:

Regardless of which state you're working in, this is what you'll get with each package…

Lease Package Instructions

• A brief description of each form in the package, and what it should be used for.

Lease Agreement

• A state-specific lease template, tailored to the state you choose.

Statement of Condition Report

• This form should be provided to the tenant. The tenant should go through the unit and completely fill-in the report. The tenant must return this to you within ten days or sooner. Make sure you sign and return one copy to the tenant and keep one for yourself.

Pet Agreement

• Perfect to attach to any Lease where pets are permitted. Be as detailed as you can with respect to the description of the pets and any regulations.

Smoking Policy

• Use this addendum to establish a smoking policy in your rental unit.

Military Addendum

• This is a must when you rent to anyone in the armed services.

Co-Signor Agreement

Roommate Addendum

• A must have when there are non-related renters over the age of 18 on the Lease.

Parking Addendum

• A great way to spell out parking rules for your specific situation.

Early Lease Termination Addendum

• AKA “Break-clause” –A great way to prevent eviction or abandonment.

Custom Terms Agreement

• Every rental is different. Use this handy tool to provide your own text to create your own terms and conditions for the lease.

EPA Guide to Mold

• Information Guide regarding mold and moisture in a home.

Mold Addendum

• This is a great addendum for any property, especially those in high-humid weather conditions. In some states, it may be a must!

EPA Lead Paint Brochure

• This brochure must be provided to the renters of any property built prior to 1978.

Lead Paint Disclosure

• Was your property built prior to 1978? If so, this addendum is required!

EPA Radon Guide for Tenants

• This information guide regarding radon is provided by the EPA.

Radon Disclosure

• Some states require Radon testing and certification. This is used in those states.

Bedbug Control for Tenants by EPA

• Information guide for your renters for bed bug control and prevention.

Bedbug Addendum

HUD Section 8 Information Packet

HUD Section 8 Tenancy Addendum

RELATED: The Beginner's Guide to Buying Rental Properties (A Case Study)

If you're working in the rental property business, we hope you'll find these templates helpful!

The post State-by-State Lease Agreement Packages appeared first on REtipster.