The Last Great Real Estate Secret - Part 3 METHOD #3
Be alert for opportunities. Once you become aware of something like adverse possession you must program yourself to be alert for situations where your knowledge can be put into practice. Tape some reminder messages around your home or work place. Just slips of paper that read, "FREE R.E.". These notes will lodge the concept in your subconscious and help you recognize opportunities when they appear. Example:
A woman in our area was aware of a man in her neighborhood who owned a home. She also knew he had no living relatives, or at least none that he had any direct connection with. She was shocked to read in the newspaper one day that he had been killed in a South American country during a drug deal. You guessed it! She is now adverse possessing the man’s property.
Country land can also be a good target for adverse possession. This is especially true with older, undeveloped recreational projects. In many areas rural lots were sold for future retirement homes. Years passed and the owners changed their minds. Values dropped, because no development took place. Lots became impossible to sell. Taxes stopped being paid.
You may be able to put together groups of these lots through adverse possession and control valuable land with favorable zoning. Newer zoning laws may be restrictive. It could be that now land can not be subdivided, but you hold land that has already been approved and divided. This can be a very profitable situation in many areas.
Even commercial property may be abandoned – stores, warehouses, vacant lots in commercial areas. Stay alert and do not assume anything without checking. You might just stumble across a golden opportunity where you least expect it. All because you understand adverse possession.
METHOD #4
Look in the Assessor’s owner index under the letter "u" and see if there are any "unknown owner" listings. When we checked Alameda County in California we found 28 parcels listed with unknown owners. In some listings there was an address where the tax bill was being sent. It would be worth checking those to see if the owner really was at that address. Others were candidates for adverse possession.
Yes, the opportunity for free real estate is every where. It is invisible to except those of us that know how to look for it. Pick one method and get started!
Part 5 - Part 8
What Could Go Wrong?
Right now I bet your are thinking, Wait a minute. What if I start adverse possession on a property and the owner shows up?" Fair question. Let us think about that.
Most often the houses you find for adverse possession are in areas where you would not buy investment property. You probably would never live there.
But remember we are not talking about buying. We are talking about free real estate, or almost free. We say "almost", because even though there is no purchase price you will have to spend some money to make these houses fit to rent.
Since these are usually low-end rental houses you are going to spend as little as possible in fix-up. Plumbing must work; there must be hot water and a source of heat. Windows must be glassed; rooms clean and painted, vinyl flooring covering or carpet glued to floors. The house and yard must be clean, safe and livable. Remember that all of these things can be done at minimal cost.
When the house is clean and ready you can rent quickly. You can do this because you have no monthly mortgage payments. That means you can set the rent a little below the market rate for the area. This will bring you more tenants to choose from, quicker. You can then choose from the very best people who are shopping for housing in that price range and in that area.
This is something that many real estate investors do not understand. When you set a rental rate for your property there is a certain group of people who will be interested in renting at that price. Some will be good tenants and some not so good.
If your rental rate is a little below the going rate you will get more of the better prospective tenants interested in your property. With careful screening you can rent to the very best and have people who will pay the rent on time and take good care of your property.
Those owners who try and squeeze every last dime out of the property with high rents often end up with tenants no one else will accept. That leads to big problems.
If you have done an efficient fix-up job on the property you will recoup your costs in just a few months. Why? Because you have no mortgage payments. This is your only period of risk, the time it takes to have your costs returned. Once you have the costs back in your pocket the rental income is almost pure profit. If the worst happens and the owner shows up years later, so what? You have a bag full of free money.
What happens if the owner shows up before your repair costs have been returned? You can try to work out a purchase with the owner. This may or may not be easy, but it is worth a shot. There is another angle here that you can keep in mind.
When you first target the house as a candidate for your program the property may be in violation of some city ordinance, such as "over-grown" yard or unlocked doors and windows creating a hazard to children in the area. File a complaint with the appropriate city department, so that they will come out and post a warning notice on the property. Now when you go in and clean the place up you have performed a public service. If the owner does show up at some future date and takes back the property you may have grounds to bring suit and recover your costs. Seek good legal advice on this situation.
LOOK WHO IS HERE?
We spoke recently with an investor who had begun adverse possession on a property. After a few months a man who purported to be the owner showed up and proclaimed himself. The investor bluffed him by saying the owner had lost the property because it was put up for sale by the county for back taxes. (That was true! It was put up for sale it just never got to the sale because the investor paid the taxes just before the auction.)
The alleged owner turned around and walked away. That was months ago and he has not been heard from since. Was he the real owner? Who cares, he was gone.
Look, it seldom will happen, but you may some time have to give up a property. First you will stall as long as possible and make the intruder prove he is the rightful owner. All the while you are collecting rent! You should still end up with a large profit on the project.
If you have done your search and investigative work properly you will seldom have to worry about the appearing owner. If he does show up it will be after you have been collecting years of profits.
In most cases, if you have followed the plan presented here, you will satisfy all of the adverse possession requirements and gain legal title to the property. Consult with a good attorney who specializes in real estate when it is time to file for legal title. This is mostly paperwork and you can do most of it yourself after you have seen how the attorney does it. You will, of course, keep copies of all the paperwork
Speaking of keeping paperwork, keep good records so you can prove you made an earnest effort to find an owner before you began adverse possession. Keep a log for every property that you investigate. Write down every step that you take in your attempt to find an owner. That includes every phone call, every visit to a government office – everything!
I know that all of this may seem like a lot of work right now. Once you get started you'll find that it's really a lot of fun. It's like trying to solve a puzzle with a pot of gold as the prize.
Part Six
LAST THOUGHTS
There are a couple of tricky situations that you must cope with when you begin your first adverse possession. The first is to try and get something with your name on it recorded against the property. Earlier we told of the investor who just types out a deed that transfers the property from himself to himself.
The problem in some counties with that tactic is that the Recorder will not accept such a document. You must consult a good real estate attorney in your area and see what he advises. Perhaps it will not be necessary to record anything when you begin. The best bet may be to just create and a record a Memorandum of Adverse Possession
The other problem is to establish a date that marks the beginning of your 5-year period of adverse possession.
In 1992 the California Revenue and Taxation Code (610) was amended as follows:
An individual seeking to be assessed for a property already on the tax roll must provide the assessor with ANY of the following:
1. A certified copy of a deed, judgment or other instrument creating a legal ownership interest;
2. A certified copy of any document creating a security interest in the property; or;
3. A declaration under penalty of perjury, the individual currently has possession of the property and seeks to be assessed for the property to perfect an adverse possession claim.
Number three is the ideal way to establish an interest in the property and a date for the start of the five-year period of adverse possession. California law is often used as a model when other states are drafting regulations, so your state may have the exact same provision.
We remind you, the first time you go through the process of adverse possessing a property consult an attorney who specializes in real estate. He will be able to tell you what you must do in your state to avoid problems and perfect title. It will be money well spent. After that you will be an expert and seldom need the help of an attorney.
Understand that an attorney will probably tell you that adverse possession is very difficult. He may try to discourage you. Attorneys are like that! After reading this manual you probably know more about AP then he does. No, not because you or we are smarter. It's just that he seldom, if ever, has handled a case of adverse possession. He will probably have to research any question that you ask. The same research that you have done at your county's law library. The law is on the books and it works!
You will seldom adverse possess a property that has an existing mortgage. The properties you discover have usually been abandoned for some time and if there had been a mortgage on the property the lender would have foreclosed long ago.
In case you should ever find an abandoned property with an existing mortgage you must contact the lender and arrange to bring the payments current…or get new financing and pay off the loan. Never begin collecting rent from a mortgaged property without making payments on the loan. That is called "skimming" and it is a criminal offense.
Do it!
The question you must answer now to your own satisfaction is; "Is the effort worth the reward?" Most people will find a reason to say no to that question. Most are unwilling to accept this truth - "Effort is the price of opportunity!" Their phantom fears keep them in bondage as wage slaves.
A few will see the exciting potential of adverse possession. It is fun; it can be done as a hobby. It is useful. It reclaims needed, low cost housing or other unused property. It is profitable! With no mortgage payments your cash flow quickly becomes remarkable!
As an exercise, get your calculator and figure what your income will be at the end of five years if you found and rented just one house per year at $400 per month. Then calculate your income if you found two houses each year? Three?
Is finding one, two or three houses per year a realistic goal? Others are doing it. One man found 22 pieces of property in just three years. Some was land that did not produce immediate income, but when he perfected title he was able to sell it for a generous profit.
Another thing - you have more than just cash flow at the end of the proscribed period. You can then take legal title to the property you have adverse possessed. That will add thousands to your net worth. Then every year after that you will take title to additional property. More net worth! If needed, you can put mortgages on some or all of the property and pull out large amounts of cash. Or sell the property.
Here is an example of quick income through adverse possession.
An investor in Texas telephoned us to explain that he had found a parcel of ranch land in his area that was behind in property taxes. He was not able to find an owner, so he decided the land was a prime target for adverse possession.
The land was located just outside of a Fort Worth. There was some livestock grazing on the property. The investor drove out and put up a large sign that could be read from the road that passed one side of the property. The sign read, "For Information Concerning This Land Call 000-0000." Within the week a neighboring rancher called and asked if the investor was the new owner. The investor replied that he was. The neighboring rancher said that he had been using the land for pasture for a few years and would like to continue to do so. Then he asked how much the monthly rent would be to keep his livestock on the property!
This investor had income flowing from that property within a few days from the time he marked it with a sign!
The opportunity is within your grasp. Go forth and prosper!
Part Seven
Exhibits
Exhibit #1
Property Info Sheet
(Use when scouting for property.)
Address:
(If no house # visible record numbers of adjoining properties.)
City:
House:_____ 2-units______ 3-units_____ 4-units_____ Apt_____
Color:________ Roof:______ Garage:______ Fenced:______
Description of property:
(Broken windows, collapsed porch, fire damage, etc.)
Condition of adjoining property:
(Occupied? Well cared for? Vacant?, etc.)
Exhibit #2 (Letter to property owner)
Bob Buyer
123 Bell Street
Tiptoe Town, LL 09876
000 000-0000
3/10/2009
Homer Homeowner
123 Zippy Lane
Big Deal, AZ 09876
Hello Milo,
I am contacting homeowners in this area to learn if anyone may be planning on offering their home for sale. My business is buying and renting homes and I am always looking for new properties. I am not a real estate agent.
I am experienced in buying homes quickly with purchase agreements that benefit both buyer and seller.
Do you know of anyone who is interested in selling? If so, please pass my telephone number on to them. If you will call me with their name and number I would be most grateful. I pay $100 for any tips that lead to a property I actually buy.
Sincerely,
Bob Buyer
000 000-0000 This document and accompanying materials are designed to provide authoritative information in regard to the subject matter covered in it. It is for illustration purposes only and presented with the understanding that the author and publisher are not engaged in rendering legal, accounting or other professional opinions. If legal advice or other expert assistance is required, the services of a competent professional should be sought. |
