Back Taxes on a Property Explained (CFFL 449)
Jack Butala: Jack Butala with Jill DeWit.
Jill DeWit: Hi!
Jack Butala: Welcome to our show today. In this episode, Jill and I talk about, back taxes ... On our property. We'll explain it. Before we get into it though let's take a question posted by one of our members on the landinvestors.com online community. It's free.
Jill DeWit: Okay, Erin asked, "I recently sold my first terms deal and things went awry ... "
I like that!
"During contract time. The terms were 99 dollars down and 84 dollars a month for 60 months."
Jack Butala: Nice, though.
Jill DeWit: "My buyer paid the down payment and the doc/closing fee, and signed up with an auto-pay with moonclerk."
So far so good.
"However, when it came time to sign the contract she ultimately backed out because ... "
Jack Butala: Because, colon ...
Jill DeWit: "Once I factored the county property taxes in, the monthly payment actually came out to be 124 dollars. She feels like I mislead her - "
Jack Butala: She might be right.
Jill DeWit: "My question is, do you incorporate monthly taxes into your advertised monthly payment? On one hand I want to make sure tax liability is managed and fulfilled by my buyers, but on the other hand I don't want killing my deals and looking like I'm profiting from collecting taxes, 'cause I'm not.
Jack Butala: This is timely too.
Jill DeWit: "Thoughts on mitigation? Anything you've learned in handling things?"
Jack Butala: No, Erin this is a very well-written and intelligent question and it comes up all the time and we're gonna answer it once and for all, for you. Like everything Jill and I have made this mistake and we learned from it. Hopefully you can learn from this answer. Build the taxes into your price that you're quoting, if you have to, keep the payment the same but extend the months, the term of the loan from 60 to like 65, 65 months or whatever it ends up being. One of the things I love about this business and what I can't stand about the planet is all the tacked on end stuff that goes on. If you go to buy a gallon of milk, there's a service fee now, and a tax, and a state tax, and a local tax. I just hate that stuff. So when you say 99 down and 84 a month, make sure at the end, that's the contract they're signing.
Jill DeWit: I feel the same way.
Jack Butala: When we buy property, we stipulate that right up front. We're gonna pay 4000 dollars for this property, and then we're not going to prorate taxes and escrow and then it ends up being 3000. You're gonna get a check for four, zero, zero, zero that's what I say when I actually talk to the seller. And they appreciate that. So build in the taxes, and pay them yourself. Don't expect the buyer to pay them, and just build it in the deal.
Jill DeWit: I agree and I would feel the same way she did, you know clearly on a budget and she's buying it for 84 dollars a month, and now that extra 40 bucks just wrecked, it's not much to us, but for her it wrecked her world. And wrecked the deal, and I don't agree. So as far as mitigation, I wouldn't do that. I would either A: Come back with what Jack just said, "How about this, we'll do the 84 dollars a month, I'll make it 65 months," whatever it is, "and we'll work it that way so taxes are paid for." Or B: Gosh, if it really doesn't work out then we're just gonna refund it, let her go on her merry way.
Jack Butala: Yeah that's an option, it's true. I hate to say it, if you want a customer for life, just say, "You know what? Buyer, you're right.