How to Take Care of Property Taxes When Doing the Land Business

Hey, it's Mark Penultsi, land geek with the favorite niche real estate website, thelangic.com and this topic today. If you're driving, hopefully you're in a good mood, because we're going to bring the mood down. This may be the most depressing of all the thousands of podcasts I've done, because we're going to talk about property taxes. We've got almost all the usual suspects on the round table. We've got Landon. AI Harris. Landon, how are you?

Going well, trying to recover.

I. I know, I know.

Grandparent duty is tough.

We got the other grandparent, Taria, putting in the reps. Harris. Drea. How are you?

I'm well. Good to see you recovering like Landon. How are you, Mark?

I'm. I'm good. I'm good. As Tate would say, this is why God created caffeine for the grandchildren. Kirk, we still need a nickname parrot.

I am good. Mark, how are you doing?

Good to see you. I'm good. I'm good. Kate Litchfield. I love it when you call me Big Papa. Tate, how are things?

I'm good.

Happy to be on today.

Good to see you. Okay, so we're going to talk about the least favorite topic of everyone who's in the land business, which is you got to pay property taxes. Now, that being said, you don't necessarily have to pay property taxes right away. You got some time. But at some point, you're going to get that notice. You're going to have anxiety. You want to have a system to keep it organized so that three years later, it's not going to a tax deed or tax lien auction, you're not paying all these penalties and interest or whatever, you know, they're. They're charging these days, but the cool kids are charging at those property tax treasurer offices. So, Landon, Terea, which one of you has created the property tax system for your company?

Okay, so we tag team. Really? Yes, I created the system, but Landon makes all the payments.

Interesting. I. Interesting. Okay, so that. That's interesting. Say more.

So you want me to start?

Yeah, go, go.

Okay. So we took the, oh, gosh, profit first model that we were taught initially coming in. I'll be honest, if the first year or so, we might have been a little slack on the property taxes, and then you start getting those bills, and it's like, what the. So we. We started the profit first model. We set up a separate account, and then every time we get a new property or a sale, we just increase the amount that we send over to that account. So we don't include property taxes in our passive income because we feel like it doesn't belong to us anyway. So that's automatically put over into another account. Landon manages all of the mail that comes in. And when the bills come, we already have an account that's set up that should cover the thousands and thousands and thousands of dollars that we end up owing every year.

Okay. So. But you really aren't the one paying the property taxes because if you sell it on terms, you're collecting the property taxes for your. Your borrower.

Absolutely, absolutely. So the only ones that the only along. Even if we have, if we're in a HOA county that also get put over there as well. So the only one that. That we don't are ones that we still have an inventory that we haven't sold. So we have to pay, obviously, the right. Yeah.

Unsold inventory in property taxes.

Yeah.

Right.

But yeah.

Do you do that right away? Do you let it season?

We let it season.

You do.

Okay, that's the thing. Some. There are some counties where you can feel like it's a little squirrely. Might need to pay that one off a little bit. Then there's some. I'll be honest, most. You can kind of push it out a little bit. And I'm taking it a step further. There are some properties that we purchased early that already had back taxes, maybe $1,000 in back taxes, but the property was going to sell for so much more. And so we, you know, so some of those we might pay sooner. Pay those off or pay them down, however you want to look at it before we actually start tackling the, you know, the ones that are $20 a year or something like that. So, yes, there is a priority to some of those taxes that we actually pay.

Okay. So, yeah, in that. And where is that priority created? Is that done in Airtable? Is that done in LG Pass?

So, yeah. So right now it's a spreadsheet. It started, you know, for us with just basic Excel, but I am actually now we're working to switch this all into LG Pass because LG Pass has this amazing system that you can get it all done on one sweep, but yeah, you gotta manually go through and add each one of those. So that's. That is the task at hand.

Right. And so. But you're the one doing it. You're not having your. Your VA do it.

That is correct.

Walk me through that logic.

Well, for a while it was more of being detailed and making sure that all. Everything was Correct. And everything needed to be process in order which ones get paid first, which ones don't. That's not something I would say the VA would know right off. That's all in my head, obviously. But the process moving forward once we get it all into LGPass, would be have a VA to do this. So that is down the road.

Okay. Okay, so that's on the roadmap.

Yes, yes.

The Creekside Dev roadmap. I love it.

That's correct.

Okay, so terea, what is the system then? So it go. Okay, so the money piece of it, you collect your payment, then a portion of that goes into the tax account using the Profit first system. Dear listener, if you don't know what we're talking about with the Profit first system, it's a book written by Mike Michalowitz. He's been the podcast a number of times. But basically it is profit first. You have small buckets in your bank account and then a percentage of each revenue dollar every two weeks goes into these different buckets. Operating expense, taxes, payroll. What am I forgetting? Profit.

Profit.

You said that.

Okay, yeah, yeah. Profit first. Okay, so. Okay, I digress. Go ahead.

So, yes, I don't know if the system is pretty easy. So it's just a matter of making sure that every time we have a sale that we account for that. And so that that's currently being done in a spreadsheet. Well, it's airtable now, but that's kind of being done in airtable. So every time we have a pro, a property that sells a flag goes off in airtable. And so I can go on airtable and just see every month the amount of taxes that we are collecting and how much should be put over. But then I could also go in and look at the amount that we're going to need to pay extra as well, because I can filter it based on sold property, properties currently in inventory, etc. So it's all there in an airtable where I can pretty much manage monthly, annually, you know, what needs to be paid. And then Landon, just as long as I make sure it's there, Landon makes sure that it's paid.

Yeah, yeah, yeah. Okay, great, great. I love it. It's so interesting because usually the person who pays the bills is the least emotionally affected by it, which is why I have someone else pay my bills.

Yeah.

Because, you know, I don't want. I don't want my day to get ruined by, oh, that bill.

That's why Landon gets to do it.

Well, we're feeling you Know, as always, you're feeling it. So taking that personal.

Yeah, exactly. Exactly. Kirk, what about you? What's your system?

Oh, so, well, first of all, I'm still early, so my system is not fully formed as of yet. Right. So. But what we do is we do follow the profit first model for sure, and have a standard percentage. It's like an estimated percentage for the tax bucket. So we do that sort of revenue roll up a couple times a month and then make sure to put, you know, our standard percentage in profit then next goes into the tax bucket and the next goes into opex. And then we have a land bucket as well. Right. So. And then. So I pay all my bills. When we purchase a property, we are typically paying off the taxes that are outstanding, if there are any, upon the time of that purchase. So we like to start from zero. But then thereafter, I am still a bit picky and choosy about what goes gets paid immediately versus what gets paid later. And some of it is literally like along the lines of what Landon Terry said. You know, some counties, you know, it's like they're rock solid. You're not going to have to worry if you let it go for six months or a year or 18 months or longer. Right? Not to let it go longer, honestly. But then there are others where you're like, oh, yeah, you know, sometimes they'll throw that thing, the tax deed, if it's like $2 or like two months overdue. So you're like, just make sure to pay those immediately. But part of what I am doing is building the system so that it does cause me stress, I'll be honest.

Right.

Like, every time those bills come, I'm like. And every time I have to go pay that bill, you know, a lot of wiping of the brow, a lot of sort of, you know, rocking back and forth in a corner, worrying about the money and where it's going to go. But so. So the answer to that is to have a system and to have some space and distance between that. And I'm in the process of doing that.

That now.

So one of the things my VA does is. One of my VA does is she's. She's my inventory manager. So that one of her responsibilities is to do every quarter, check the taxes on all the properties and flag anything that's high or anything that's overly outstanding. And then we go and we make sure we take that immediately.

And is she paying through LG Pass?

No, no, I'm still paying the bills, but we're working on that.

Okay. Okay. Are you paying for LG Pass? That's, like, the best feature now.

Yeah, no, I'm not yet.

Okay.

But I will be.

All right, look, you know I'm not an LG Pass Shamer. It's okay. And if you don't know what LG Pass is, it's our software to automate the LAN business. Just go to lgpass.com, but today's podcast is not sponsored by LG Pass. It's sponsored by flight school. Learn how the next 16 weeks can transform your life. Go up that mountain of land, investing quickly, safely and efficiently. Just. Just do it. And learn more. Go to landgeek.com training I know what you're thinking. Well, what about the tuition? It ain't going to cost you nothing, guaranteed. You're going to make back that money 180 days or less. Just show us you did the work. Landgeek.com training all right, Tate, Big Papa. We have a lot of tax bills. It's. It's got to be a thing. It's a system. What do you do?

I don't do anything. I'll let somebody else do it all. So when we get our tax bills, typically they come in multiple manila envelopes from the counties. Like, they're thick. Really, really thick. And we prorate the taxes. So, you know, technically the money is coming from us to pay for them, but they're paid by the borrowers, right, the people who are buying the land. I think we use LGPass. In fact. I know. I was just looking at it. We paid taxes yesterday, so we use LG Pass to manage it all. When the bills come in, we pay them. That's typically how we do it. I think there's another approach that we should look at when talking about taxes in when you buy a new property. I think there's two different schools of thought here. The first school of thought is, if you buy a new property, whether it be from a mailer or wholesale, do you get that property free and clear on taxes immediately, or do you wait? And the two different school of thoughts are, I just bought it. I want it to be free and clear. I'm paying all the taxes today. The other school of thought is, I will pay the taxes when the property sells. When the property sells, then I'm going to pay them. And I think it really comes down to a matter of cash flow management. Right? Capital preservation, whatever you want to call it. I could see an instance where both of those scenarios make sense, but really, it's a personal Situation. Right. It's a personal decision. If we have a property that gets sold and it's got back taxes owed on it, we will let our new buyer know they're not responsible for those taxes and we'll get them taken care of as soon as we can. But, but, you know, taxes, they used to really stress me out and keep me up at night and everything else, but now we have a va. They kind of manage this for us. We use LG Pass, so it's really easy to log in there, search an apn, make sure that they've been paid for which year. And so I don't know, it's just part of our sales process. Now if we make a new sale, we'll log in, we'll make sure the taxes are current and carry on with our day. Easy.

Yeah. It's such a good, good point about clean slate versus cash flow management. When you first buy a property. I, I think that there could be an issue if you don't go this clean slate route and you're starting out and you don't have confidence in your sales process because the person goes online and says, hey, there's, there's taxes owed on this. And it could be like an objection, if you will. So if I'm looking at two properties, one the taxes, there's no taxes. The other one, oh wait, there's $12 in back taxes. What's going on here? Are you paying that? Am I paying that? Are we splitting that? How is that going to handle itself? What conversation do you have with that potential prospect?

Yeah, it's an interesting one. I mean, I think whatever you choose to do, even if you pay the taxes immediately, when you buy the property, at some point in time, whether it be after it sells or when it comes back on a default, somebody is going to look it up and say, what about the taxes? It happens all the time. Like, there's no way you're going to be on top of it every single day, year, every single month. And that's okay. Like, yeah, you're going to pay a little bit of a fee or a little bit of interest on that, back on those tax bills. But it's not the end of the world. It's okay. And I just tell people all the time, like, look, you're not responsible for those. We can get them paid and make the down payment today. I'll send you a copy of the, the receipt for taxes.

That's so, it's so generous. You don't prorate it. You know, in the real, real Estate world, they prorate taxes. Course they're a much higher amount and they're making the margins we're making.

Right. But we don't feel the need to nickel and dime people. Right. Like at the end of the day, we really care about our customers. We want them to do well. We want them to get their property. And part of what makes our business model effective is the fact that we keep our monthly payments low, irresistible and affordable for everybody. So if the property taxes are, you know, $115 a year, we're going to charge you 10 bucks a month.

Right.

Easy.

Right? Yeah. And even if, let's say the, the taxes go up. Right. There's a new assessment. They're on a five year note. But at year two, the taxes go up. It depends because of the margin. I mean, you. Do you not reconfigure it and say a geek pay?

It depends on how much. If we're talking a two dollar increase. Yeah, I'm not. It's too much work. Even though it's not that much work in geek pay, it's too much if we're talking a 100% increase. Like I've had properties that went up from 150 to 300 a year. Yeah. We reach out and we say, hey, Mark, great news. That property that you're buying has increased in value. Bad news. It's going to cost you an extra six bucks a month in taxes.

Okay. Right. So Tria, Landon and Kirk are all shaking their head.

Yeah, everybody does it because, you know, few dollars we're willing to eat, but you know, 100 bucks a month? No. Or 100 bucks a year, no, thank you. We're going to get paid.

Okay. Kirk, anything else on your mind about this?

No, I love that. I think that that's exactly the right strategy and that's what we do as well. And luckily we haven't had major increases, you know, over the last few years. So that's been pretty good for us. But, you know, that is in the plan. We watch them, we check, and if we see a significant increase, then we do reach out to the buyer and. But what I like is, I like the way that they phrased it. Right. It's. It ends up being a positive thing.

Right.

The idea is always to have very positive conversations. So it looks like your property just increased in value. It's so amazing. Your taxes went up a little bit also. But guess what? The amount that the property went up in value versus your taxes, small by comparison. So awesome job, you know, awesome job for pulling the trigger. Awesome job for buying that property on owner financing at today's price and then getting it tomorrow with so much value baked in.

I love it. Tria, any final thoughts?

No. No final thoughts. I agree with Taste of Progen and I don't know if we've been phrasing it quite that way. Congratulations. You know, your property has increased in value, but like, like Kirk said, we haven't had many that have gone up that you know, drastically where we've had to reach out. And this is where, you know, the amount of money that's supposed to be in there compared to, you know, what has to go out. This is where we keep track of that. If it becomes too extreme, then we would reach out and use that coin term. Congratulations.

Yeah. Landon, anything I should ask you? I didn't ask.

No, I think, I think all of this, everything everybody said was spot on. And I mean we make such great margins on these properties. You know, when properties increase and sometimes they do, it's not such a big thing that it's, it's digging into, you know, your ROI at all. So I think, you know, what you have to look at is, you know, how much more work is this actually going to cause you? Is it worth it? And then, you know, in the end of the day, $5, $10 is for the year. It's not really changing anymore.

So yeah, we're, we're very lucky in that regard. You know, lower margin businesses that, that are listening to this, like, are you kidding me? Every dollar counts. Well, you're not making 300 to 1000%. You're not making a 72% yield minimum. I mean, it's, you know, it's insane. All right, well, I thought this was a very depressing topic, but very, very valuable for people. Very valuable. Um, but we're at that point now where we get to pick on Kirk and ask him for his tip of the week. A website, a resource, a book, something else actionable for the auto passive income listeners to go improve their businesses, improve their lives. Kirk Par. No nickname. What do you got?

Kirk? No nickname. I love it. Actually. I have this book sitting here and so I picked up this book probably a couple months ago. It's called the Art of Focus by this guy named Dan Co. He actually interesting character, right? Like, so he's a millennial. He runs a, he has a podcast, a YouTube channel, and he runs a one person business. Like that's his whole thing. And what I love about this book, the Art of Focus, is like the whole, it's It's. It's a new perspective in today's economy with the Internet and creators and all of that and entrepreneurship, really talking about how your life is the result of what you focus on. Like, literally.

I'm sorry, I was actually scrolling through my Instagram feed while you were talking. Could you say that again? But, you know, you know, I'm. Obviously, I'm joking, but I bet you there are people right now that are listening to the podcast and doing something else at the same time, and they're like, oh, wait, I need to get this book. Anyways, I. I go, go ahead.

But it's. It's true.

We get more of what we focus on.

We get more of what we focus on. And it's something that is really sort of hit home with me because, you know, in this business, like, as you start, as the business grows, you implement more systems, you have more people, you end up with more time. Right. And so what do you do with that time? Well, if you are consistently and continuously distracted, then your life starts to get sort of, like, squirrely. And I don't know, for me at least, it kind of can turn into an emotional nightmare. But if you focus and you really narrow down and cut out distractions, you get more. Any focusing on the things that are rich in life, you get more of that richness of life. And so, yeah, like, the book really resonates with me. Now. I will say that it's a. It's like his first edition, like the first book that he's written. It's not super awesomely well written, but it's still really good, if that makes any sense. You know what I mean? And you can see where he's. Where he. Where he's going with his career and where he's also going with his sort of philosophy of life. It aligns to a lot of what we talk about.

Yeah, I love that. I'm a big Cal Newport fan. He wrote Deep Focus and put it Digital minimalism or something. And I now I'm reading Slow Productivity.

Productivity. Yeah.

Yeah. And so I think it. I think it's a thing, especially with knowledge workers, because there is so much distraction. And it's like the real work, it's really hard to get it done. Like, well, like quality work is going to become a scarce thing, going to see a lot of stuff, but it's not going to be great quality. And if you can create great quality, you create a great ad. If you can create a great sales process, a great marketing process, you're differentiating yourself in the land business from 99% of the people because they literally can't focus long enough to make it great. So it's. I think it's worth the. The effort and the discipline that that involves. Well, I thought this was a great podcast. I want to thank the listeners. Remind you that the only way we're going to be able to get Kirk to come back is if you do three little favors. Follow rate Review the podcast, Send a screenshot of that review. Support the Land Geek.com I'm going to send you a signed copy of Dirt Rich. By the way, Dirt Rich too is getting closer, closer how to scale your own business. So please do that. It really helps. All right, are we ready to do this? 1, 2, 3, let's. All right, we've got one minute. I just have one quick question. I was on a guy's trip and it's kind of personal, but one of my buddies saw my other buddy in the bathroom washing his hands and he wet his hand first and then he soaped. Where my buddy soaps his hand first, then gets it wet and does it. So at a dispenser in the bathroom, not a bar, because obviously you have to wet first. But with the dispenser, do you soak first and then wet, or do you get your hands wet first and then soap? Tria, you go. So first, soap first, Landon. Wet first, wet first, Kirk.

Wet first, wet first, Tate.

Yeah, I don't care as long as you wash your hands.

All right. By the way, I'll tell you, I was a wet first guy and now I'm soap first. It's just less messy. All right, I gotta run. Thanks, everybody.

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