Tax Deeds & Creating Perceived Value

Creating Perceived Value
If you end up with any property type from a tax lien certificate that did not get redeemed or a tax deed property you bought, you might need to help potential buyers, investors, partners, or lenders see the value in the property. It may not be inherent, so you might have to help them visualize the potential.

How do you accomplish this? First of all, the better you understand the local market conditions the better you will be able position this property and add value. We went into great detail in a previous lesson about market research and all of the different elements to consider when you are evaluating a tax lien, those same factors come into play again when you take possession of the property.

Location
Location is an important factor from a value standpoint. After all, we are sure you have heard the phrase describe that real estate value is dictated by “Location, Location, Location”. For instance, if you have a parcel of raw or improved land that is zoned commercial and you find out that the nearby military base is going to expand to house 300 additional people at that base, you might consider positioning this parcel as a great location for a storage unit complex or multi unit apartment complex. We hope you can see how this knowledge can actually put more money in your pocket in the long run. You might know that there are grants offered to developers who build a green complex or that satisfy a certain housing need, so you might present the idea to developers on a parcel of land that you now own. You might see that the government offers a grant for planting trees, subletting to farmers, preserving it as open space. You might do some research and find that there is redevelopment funds being put back into this area, new roads planned to come through here, or a large employer moving into that area. The city might be offering money for low income housing to be built in that particular area, etc.

Appreciation
Once you have a grasp on the market conditions and cycles, you might be able to use speculation or past appreciation trends to help sell this properties potential to a new buyer. After all, who would want to miss out on a once in a lifetime opportunity? You are giving them the opportunity to get in on a property early and reap the benefits of appreciation in the future. People love to get insider tips or information that can help them make money in the end. It helps you make money in the end too, so now it is a win- win relationship.

What are the needs of the area?
You might be able to identify from your market research that the area has specific needs that are not being met right now. However, you might obtain a property that can be used or modified in some way to satisfy those needs. You might find that there is not enough senior housing in the area or section 8 housing being offered. You might find that a non -profit is looking for a parcel of land to build a care facility for domestic violence victims. It might be that the city is looking for land to put in a park or a new criminal justice facility. In essence, you are a match maker who matches up the needs of others with the right properties, so you can walk away with a profit and they with a need fulfilled.

Improvements or Conversions
If you are looking to add value to a property, you might ask yourself the following questions:
• What improvements need to be made? What could be added to the property to improve the value? What is currently on the property and what helps/hurts the property?
In some cases some improvements can be liabilities, instead of assets. For instance an old obsolete building that has no functional purpose in this current market, could be a liability due to the costs to demolish it and build something in that place. However, if it still had a good structure that could be gutted and modified to meet today’s needs, now you have an asset. In many cases, people will pay us top dollar for our creativity and the potential we see in properties that no one else may want. In fact, you might go as far as to petition for the zoning to be changed on a property, so it is more desirable to your buyers, investors, partners, lenders, etc. It could be as simple as bringing utilities into the general area where you have a few parcels of raw land. In their current state, they may not seem to have any potential, but after they have utilities to them they might have a lot of added value. Also, it may not be cost effective to do this if you had one parcel in this area, because you thought ahead and saw the potential you will profit greatly.

Likewise, you might find that a conversion of some sort might be what the property needs to add value or cashflow potential. You might ask yourself: What modifications could be done to the structure to improve it or its cash flow? (Hotel to apartment, apartment to condos, warehouse to studio apartments, etc.) What zoning or code changes are occurring? How could these changes affect the properties profit potential?

If nothing else, keep in mind that perception is reality for the people we are going to market these properties to, so it is up to us to help them paint the best possible perception possible. Once you have them bought into the vision, they will offer you their undivided attention. It will be shortly after that you can put money in your pocket from this deal.

Splitting or Dividing the Asset
You might acquire a property that can be divided up and sold in separate chunks for more than you could have sold it as a whole. You might need to rezone or petition for new boundaries and lot plots to be approved, but if it is a minimal expense in comparison to your profit potential, it is almost a no brainer. Also, you might have the rights to the minerals or water or even an easement that is associated with the property. These rights might be worth more sold separately than if they were sold with the property.