Austin Stubaus loves taxes.
The Air Force retiree has built a $100-million-a-year business buying delinquent property taxes and he’s looking to grow it to $5 million in the next few years.
“I’m not joking,” Stubaus said. “I love taxes.”
Stubaus and his business partner Erik Carlson founded their company, LienLogic in 2008. They spent the first couple of years researching tax liens in the 33 states where investors can buy them. Then they invested $1 million in a pilot project in 2009, buying the unpaid property taxes on hundreds of homes and business buildings in counties around the country.
After the pilot proved profitable, LienLogic invested $8 million in 2010. In 2011, the company invested $46 million. This year, it has an $80 million line of credit and is prepared to grow that to $100 million.
“We’ve been growing about five times a year,” Stubaus said.
And that growth is continuing. The company has 23 full time employees at its Gleneagle office and expects to top out at about 35 employees within the next few years. They primarily research market and legal conditions for investing in property tax liens.
LienLogic is investing in efficiencies, Stubaus said. Instead of storing the paper records of the company’s transactions at a third-party facility in Philadelphia, it will bring the records to its Colorado Springs location. Those papers are LienLogic’s investments.
“We’re not making sneakers here,” Stubaus said. “We’re funding counties’ debt.”
Counties in 33 states sell unpaid property taxes at auction to avoid draining the public coffers or operating at a deficit. The investors pay the taxes that the property owners didn’t. The owners who are delinquent on their taxes are charged high interest rates so that the investors who buy the taxes can make a return on them when the owner eventually pays them back.
Investors bid on the debt at auction and typically pay more than is initially owed. The trick, Stubaus admits, is not to overpay. If a homeowner pays the back taxes off quickly, the investor could be out money if he or she bid too high.
If homeowners fail to pay their delinquent taxes during a set amount of time determined by each state, usually between six months and five years, the investor can foreclose on the home and take possession of it. Tax liens are almost always superior to any other lien on a home, including a bank loan.
“It’s very rare for a homeowner to abandon a home,” Stubaus said.
But it does happen. And the inventory of real estate that LienLogic is acquiring through tax lien purchases is growing.
“We own about 890 things now,” said Stan Colbert, spokesman for LienLogic. “And they are things. Some of them have trees growing through their roofs. And some of them are gems.”
The company owns about $20 million worth of property it acquired through tax lien purchases.
“We expect that’s going to grow a lot and become a pillar of our financial performance,” Stubaus said.
With a strong rental market growing stronger throughout the country, Stubaus said he’s looking to retain those homes and rent them out.
The company recently bought the delinquent taxes on 116 homes in a 1970s neighborhood in Lake County, Ind., which includes Gary and is a mostly industrial suburb of Chicago.
“This is a good solid blue-collar neighborhood,” Stubaus said. “It’s nice. It’s safe.”
LienLogic got the deeds to 91 of those 116 properties in December and already has 46 of them occupied with renters. Stubaus said that because LienLogic was able to get the properties so cheaply through the tax lien sales, it can rent them at competitive rates and fill them quickly.
“We own enough of the homes in that neighborhood that we’re able to go in and kind of turn the whole thing around,” Stubaus said.
LienLogic is developing relationships with the assessors in communities like Lake County, Ind. and Baltimore City, Maryland where the company is the number one single investor.
There are some other areas where it’s harder to break in.
LienLogic invested $400,000 in research and curb-side inspections of thousands of properties in south Florida earlier this year.
“I couldn’t buy anything ,” Stubaus said. “There was too much competition.”
LienLogic has had good luck in smaller markets like Pueblo County, Colbert said.
“That’s two economic ripples away from Denver and it’s kind of off the radar for most investors,” he said.
Stubaus got interested in property tax liens when his apartment investments began failing in the early 2000s.
“The market just tanked in 2002,” he said. “I went from making $350,000 a year to losing $350,000 a year.”
The property tax investments began as a business experiment.
“Once we realized we were experts last year, we pulled the trigger,” Stubaus said.
And now the business is poised for growth. Stubaus said he became interested in property taxes because of changing market conditions, but began working toward investing in them on a large scale before the real estate market tanked and property owners started taking longer to pay their back taxes.
“We’re not where we are because of the current market,” Stubaus said. “But we got here a lot easier because of it.”