04 Nov The 25% offer scenario in Delinquent Investing
In Tax Delinquent Investing you have to know the definitions of assessed value and real value and how it is different from each other. Each property has them. Each value in each county and state is given a value depending on a lot of different factors. The assessed value is typically only a fraction of the true market value.
So, what I usually do is make an offer of not more than 25 percent of the assessed value. Now, if I want a property badly enough, then I go as far as 25 percent of market value. I usually only do that in areas that are high growth areas, which I know the property price is going to increase. I only do that if I am missing something in my mix of properties that I would like to have one more of these properties in a certain area to have a really good sales package together for somebody. But I do not usually offer more than 25 percent of this higher value.
This is relatively set, because the higher the property value, the higher percentage I’m willing to offer. When I see that there is a difference between percentage of discount and dollars of discount. I would be willing to pay 60 or 70 percent of market value on a property that is worth $1,000,000 that I could get for $600,000. But, I would not pay $6,000 on a property that is worth $10,000. On a million dollar property, a discount of 60 percent, meaning that I only pay 60 percent of market value, translates to a lot of green dollar bills. This translates to $400,000 in potential profit.
Bottom line is the amount of money you should be willing to offer a Tax Delinquent property boils down to how much potential profit you would be getting for it when you put it in the open market. Although offering 25 percent of the assessed value is common, you still have to compare it to the market value to know if what you are offering will bear a considerable amount of profit for you.
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