Beware of lien returns
Tax exile Phil Jones, the founder of Richmastery, is making a bid to get Kiwi homeowners to remortgage their homes to buy unpaid county and state tax debts in the US.
It's the latest get-rich-quick scheme from Richmastery, with Jones telling potential clients: "You really can create a money-printing machine from your computer."
But critics say Jones is selling a pipe dream that plays on New Zealand investors' ignorance of American practices.
Jones is promoting a seminar in Auckland this month which purports to show Kiwi investors how investing in tax lien certificates is a route to getting their hands on the homes of struggling US families for as little as $US300.
Tax lien certificates are a product of US local authorities. When a household fails to pay local property taxes, the local authority may recover the debt by auctioning it off to investors.
In return for stumping up unpaid property taxes (the equivalent of our rates), investors buy the right to recover the money from the delinquent taxpayers, often struggling families, as well as levying penalty interest sometimes as high as 25%.
The debt is entered as a lien against the debtors' homes, and should they not pay, the certificate holder can force the sale of homes, in some cases taking ownership of them.
In the first example given in a teaser "webinar" by Jones on the Rich-mastery website designed to sell tickets to the two-day seminar in Auckland for $US1699, Jones said one unnamed US investor spent $US329.90 on a tax lien certificate and ended up owning an unencumbered property worth $US158,000.
Jones added, "Here is a way to double the profit... Now that $158,000 is in US dollars. Go and have a look at what the exchange rate is right now between the New Zealand and the US dollar. The exchange rate right now is close to two. In other words, from the conversion rate that I have done today, a $US157,000 profit in the US would translate to $290,000 New Zealand dollars."
Of course, investors will realise that swapping one US dollar for two Kiwi dollars hasn't doubled anything.
Further examples followed of unnamed US investors who spent $US314.56 to $US846.24 and ended up owning homes. Jones's fellow presenter of the webinar American Dan Eckelman recommended those getting homes think about selling them on for "wholesale" prices to get a quick flick, raising questions about what the properties are really worth.
Jones went on to suggest investors, who could buy tax lien certificates from the proceeds of mortgaging properties in New Zealand, could then use the profits to buy more tax lien certificates, more properties or use them to pay down debt here in New Zealand.
Best of all, Jones said: "This is a credible strategy that is well-recognised in the US. This is not fly-by-night risky stuff, and [there's] especially no risk to it."
Should tax lien buyers not end up taking poor families' homes, the worst outcome they'd have was to get their money paid back with interest in the region of 16-25%.
There was no mention in the web-inar of exchange rate risk.
But while some might question the ethics of seeking to profit in that way, these families are the face of the sub-prime crisis in America and one US-based property expert is sceptical of the financial merits as well.
Kiwi expatriate Andrew Waite, who runs the Personal Real Estate Investor magazine in the US, asked: "If there is a quick 18% you can make on your money from your armchair, why would they get on a flight all the way to New Zealand? Why would they not just be doing it themselves?
"Common sense says if you could buy a house for $500, why would you tell anybody about it?"
The Sunday Star-Times put those questions to Jones. In an email response he said he had been buying tax liens himself, but he felt an obligation to bring the strategy to investors. Eckelman, who will be flying to New Zealand for the seminar, said: "The short answer is, we are!
"Many of the best known teachers are simply investors who derive joy from helping others and seeing others succeed."
Waite said the chances of ending up with a house having paid a few hundred for a tax lien certificate were remote, and in cases where it appeared possible, there would be intense competition from American investors.
He pointed to the Wikipedia entry on tax lien investing which features a long list of potential risks, including: "Some experts tout tax lien sales as a means of acquiring property at highly discounted prices. In practice, except for very rare instances, all liens of any value are redeemed well before the property can be foreclosed (especially where a mortgage is involved, as the mortgage holder is second in line to a tax lien), and where tax deed sales are used to foreclose, numerous bidders participate, thus making the chances of actual acquisition remote. For example, in one Illinois county with a population of over 500,000 the county clerk's office said only three residential properties were not redeemed in 35 years."
The Sunday Star-Times asked Richmastery to estimate the chances of someone buying a tax lien ending up with a home worth tens of thousands of dollars. It referred the question to its Eckelman's Faculty of Dane Wealth Academy.
The response said the Dane Wealth Academy taught systems that provide a "high likelihood of obtaining property at a fraction of its market value". Dane would be teaching these systems to the Kiwis who signed up to the Auckland seminar. Investors would not be buying tax liens from Richmastery.
And distance was no object, as many US investors "who live remotely from" their investment were succeeding.
In the webinar, Eckelman said: "All you'll ever have to do is walk out to your mailbox, take out the cheque after cheque after cheque."
Anyone needing their cash back could sell their lien on eBay.
Waite has doubts that distant investors from New Zealand would be able to research the liens they were buying to ensure they did not buy them on worthless property, or property where there were other creditors with legitimate demands, or which were willing to take court action to defend their interests.
He said New Zealanders had to recognise that Americans were very aggressive and they should not be surprised to be told to "belly up to the bar" in a dispute, which would be hard to do, and costly, from New Zealand.
But in his webinar teaser Jones said: "We've got nothing to hide. All the stuff you are seeing tonight is factual, real, in your face, and absolutely we are presenting it you, and absolutely, it works."
The small print of the terms and conditions for the seminar does provide several warnings.
"Testimonials included may not represent typical results," reads one line. Another seeks to limit the legal rights of recourse for those signing up, waiving the right to seek remedies through the courts, and stipulating: "Any dispute shall be resolved in Colombus, Ohio."
Sunday Star Times