How Tax Lien Investing Can Earn High Interest or Property | Zhanna Kelley

Zhanna Kelley (00:00)

So this is like another pathway you can go where yes, you have to be very diligent. You have to keep paying taxes on a quarterly basis with an affidavit that’s notarized and have to file it. It’s a little complicated. You have to be really like on top of your game in terms of paperwork. But again, if you can win a property for five, ten, fifteen thousand dollars that’s worth two hundred, three hundred thousand dollars, I think it’s worth it personally. So as long as you do your research.

Issa Hanna (01:55)

Welcome back to another episode of the Real Estate Pros show. I’m your host, Issa Hanna, and today we have Zhanna Kelley here to share her knowledge with us. Zhanna, welcome to the show.

Zhanna Kelley (02:03)

Thank you very much for having me.

Issa Hanna (02:04)

I’m super excited to have you. You are gonna bring a wealth of knowledge and like a hands-on type of knowledge to our game because you you’re not afraid to get your hands dirty, you told me in our pre-conversation. But for our viewers at home, can you kind of break down what facet of real estate you’re in and then kind of what your day-to-days kind of look like?

Zhanna Kelley (02:26)

Yeah, so I start off as a residential real estate broker, I have a real estate license in New York and that’s because my mother did real estate for about thirty years in New York. But at the same time I got interested in becoming a landlord and buying residential property to rent. So the first property I bought was actually for thirty three thousand back in twenty fifteen. And that’s kind of what hooked me to being a landlord, doing residential property. In terms of right now I have twenty eight properties. In terms of my day to day, for the most part,

there is no I have no property management company. If any tenant has an issue, they go straight to me. Any payments go straight to me. So yes, first a month, of course, I’m tracking payments and following up with tenants about payments they owe me. And then the rest of the time if something’s broken, I need to figure out who to send. Sometimes it’s myself, sometimes it’s my husband, sometimes it’s a repair person, sometimes we need a whole contractor. So part of it is of course coordinating those things and then accounting for it because as I said earlier, I am a CPA, so

I keep my books in line as well. So yes, much of the day is fielding tenants, revenues and expenses and the rest of the day is my CPA practice.

Issa Hanna (03:31)

I love that. Being a CPA, it gives you such a leg up, a numbers person. Real estate, when you speculate, when you underwrite, it’s all about the numbers, right? If it doesn’t make dollars, it doesn’t make sense. And the way you come to that conclusion is you calculate the numbers. So having that CPA background, super, important and definitely can give you a leg up. And then being a real estate broker, closing transactions for clients, being familiar with how

the the renters markets, the renters’ minds works, how buyers’ minds work, gives you such a leg up when you’re investing on your own ’cause you can think like the person that’s gonna rent your property. You can think like the person that you’re gonna flip the property to. So I just wanted to highlight that about you and then, having a parenting game. You grew up you grew up with the phone calls and the contracts and the and the crazy deal stuff happening. So

Zhanna Kelley (04:21)

And back then whenever my mother talked about it, I was kind of annoyed. I like, this close for this amount, that close for this amount, and then this deal got withdrawn. I like, I’m not interested in any of this. And then only later, like as I become an adult, I’m like, wow, this is really fascinating, like to know buildings, no comps, no sales for rentals, for sales comps. It’s a fascinating business and it’s just so multifaceted because it’s not just being a real estate broker agent, buyer side, seller side, it’s not being just a landlord.

Or flipper. There’s so many interesting things to do in real estate. As I mentioned earlier during our conversation, there’s speculations on tax deeds, tax liens, buying into REITs, doing flips, buying commercial properties. I mean, like if you really go into real estate, there it’s multifaceted. You don’t have to just be like an agent necessarily, like with enough capital, enough drive, you could do all sorts of things.

Issa Hanna (05:11)

Yeah, that agent you can get in as an agent, as a broker, that’s your tree trunk, right? There’s gonna be so many branches that you can branch off with. With the more knowledge you get, the more capital you get, like you said. That it it’s unbelievable. And I say this on a lot of the sh a lot of my shows. Real estate, one of the only industries that you can get into, you start with zero and end up with like legacy wealth, generational wealth. Amazing.

And I wanted to lean into the tax investing. You’ve got some tax investing, you do some deed work, these distress properties, right? The maybe title issues, these kind of stuff. Can you break down to our viewers why or what kind of a massive discount they can get on learning how to go after these type of properties?

Zhanna Kelley (06:43)

Okay, let me split it between tax lien and tax deed. So some states are tax lien, some states are tax deed. I only function personally, I live in New York, but I do this in New Jersey and Florida, so I can’t speak to every single state. But I can tell you that New Jersey is a tax lien state. So what does that mean? You don’t pay your property taxes for two years, the county they need to be paid. Those taxes are paying for goods and services for the county. So once a year they post online, like these are the deeds you can buy, basically the liens you could buy.

You go online, you place bids, and you can win that payment. You pay property tax on behalf of someone else. Then you continue to pay property tax for two more years on behalf of that person. If that person fails to pay you back, normally with interest or statutory interest, depending on like how you bought it. In New Jersey it’s pretty high, it’s like 17%. Then you can actually foreclose on that property based on the tax deed. And the great thing about it is if you foreclose on that tax lien.

You actually it wipes out any underlying debt. So if there is a mortgage, it’s wiped out. If there’s HOA dues, it’s wiped out. There’s only like a few kind of county DEP type of very like large liens that potentially still remain. But for the most part, it’s wiped out and you’re the owner of the property. So oftentimes when I participate in that first of all I do in counties that I’m familiar with, I try to do research about the person who hasn’t paid because if there’s like a small non payment, $500, most likely they’re gonna redeem that tax lien. They’re gonna make that payment.

So you can make a couple of bucks in interest, but you’re not gonna win the property. I often look for owners that are deceased and oftentimes they have no family, in which case there’s no clear line of succession to that property, and you could become the owner. I saw statistics, it’s something like maybe three to five percent of all tax liens result in a foreclosure. The rest of the time, you’re just making interest essentially. And the interest is like very high compared to interest you can get on a CD, essentially. So I do see like when I go to these live auctions.

Like I want to want to put Passaic, New Jersey, people come, institutional investors, and they’re just buying them like left and right simply because they know in 95% of cases they’re gonna get their money back with interest and it’s very high interest. And the worst case scenario, they’re gonna get the property. I mean, there are still some cases. I see a very famous tax lien guy where you get a property that you certainly do not want. And so you gotta be very careful. Don’t just like invest in anything. You really have to drive around, look at the property physically.

Know the neighborhood, do research online. So that’s tax liens. Now tax deed would be like Florida. The prices are much higher because when you win that auction, you actually win that deed. Most of the time what happens is it’s like usually like they owe taxes, but they could have a mortgage as well. And unfortunately with that it’s a little more complicated in what remains or doesn’t remain after that closing. So yes, large counties like Miami-Dade County for instance

they have like thousands of this and they do like several times a year because oftentimes people don’t pay. I remember I once won a storage unit that way, like in my building. So that was nice. But I usually don’t do too much in deed because I haven’t done all the permanently in Florida and you really have to be there all the time to do this type of thing. And you need more money. But tax liens in the counties I’m familiar with, I do all the time because it happens usually once a year in the fall, which is after tax season. So I can go online, I can see what’s available.

And the thing is it could be paid off like any moment till the till the tax lien. And it’s all blind bidding. So for instance, let’s say a property’s for sale, a tax lien for five thousand dollars. You have to put how much you want to pay for it. So you could put basically five thousand or five thousand five hundred and so on and so forth. You don’t know what anyone bids. So essentially it’s a blind auction. So of course you have an incentive to bid more. And let’s say you bid seven thousand and win it. That two thousand difference is actually like a premium that you don’t get absolutely any interest on.

Is just to win that deed. And actually the interest is zero. It starts at like I think 14% and then you bid it down, then you start with the premium. And then it’s a very complicated process. I suggest whoever’s interested to look it up online and look it up in your particular state in your particular county. But it’s fascinating. I’ve also seen live auctions where it’s literally first you bid down from 14% down to zero and then you bid up the premium. And I’ve seen like one person walk away with like 30, 40 properties through institutional investors.

So this is like another pathway you can go where yes, you have to be very diligent. You have to keep paying taxes on a quarterly basis with an affidavit that’s notarized and have to file it. It’s a little complicated. You have to be really like on top of your game in terms of paperwork. But again, if you can win a property for five, ten, fifteen thousand dollars that’s worth two hundred, three hundred thousand dollars, I think it’s worth it personally. So as long as you do your research.

Issa Hanna (11:12)

One hundred percent. I mean, you’re gonna put that work in when when that end reward is so great. You get such good deals and then even if you don’t win the properties, like you said with the with the with the liens and not the deeds, you get so much interest. It’s way better than putting it in a CD. It’s definitely a way to make yourself wealthy. And if you guys don’t know it, the

less interest you pay and the more interest you collect on your money, the more wealthy you’ll be over the years without you even noticing. So that’s right. Amazing, Zhanna. Amazing information you just gave us. I wanna get a story from you. I wanna shift a little bit our focus and get something I get from all my investors, right? And you do your own work, so I’m sure you have the you have one, just like I do.

The real estate nightmare, the tenant nightmares, something like that. Can you give me one that just sticks out in your mind?

Zhanna Kelley (12:05)

I have had about well in the eleven years I’ve been doing this, maybe three evictions. One of them actually was someone I should never have taken as a tenant, but I’m a big animal person, I have a dog, and so I like to take tenants with animals. And so in fact whenever I do my rentals, I always allow animals because for me honestly they make less mess than kids, so animals are preferable to me anyway. And in this case the guy had a dog and he really needed a place. It was like, this dog really needs a place, so I took this tenant.

And it was very bad call on my part because unfortunately in this area he was a druggy, he stopped paying his rent. I had to drag him to court. He tried all sorts of means of delaying court, but thankfully in state of New Jersey, it’s fairly landlord friendly. So I was able to get him out in about three months, but the problem is not so much even the lost rent as it was the kind of mess he created in my house. It was like a brand new renovated one bedroom apartment with brand new carpeting.

And he just let this poor dog like pee all over the place. He never walked it. And when we had to renovate and got him out eventually, we had to remove the carpet, the undercarpet, we have to treat the floor because the whole thing smelled so badly. Like it was a really I should never have taken him, but again, I have the soft heart for animals. So there was a few cases that yeah, we have to unfortunately evict claiming. But what’s interesting is a lot of my friends who are not in real estate but who want to get into it.

They always see those nightmare cases online or on the news about, yes, there are these crazy tenants who, don’t leave your place and they leave a mess. But, if you pick them right from the beginning and have a methodology, there is a way to kind of wean them out and lower your chances. And it is fairly rare. And the second thing is you must pick a state that’s landlord friendly. Like I live in New York, I live in the Bronx. I would never invest in New York, honestly. It is way too heavy on the tenant side and

I think everyone sees the news about what’s going on here. And second of all, the return of investment is very low and the cost of participating is very high. So it’s like, why would I invest somewhere when it takes a lot of money? I can’t evict someone. And on top of that, the return of investment is like worse than a CD. Like why even take that risk? The reason people take that risk is because there’s huge capital appreciation in New York sometimes. And so some people do. Some people have a lot of money to invest and they prefer that. But yeah, choose a state that’s landlord friendly and due diligence.

About the tenants. So credit and income matter a lot. And that’s why a lot of these regulations in New York are trying to target those two things, as maybe other people here, Investor Fuel have said before.

Issa Hanna (15:08)

One hundred percent. Credit and income matter a lot. If they’re making barely, a thousand dollars more than what the rent is, chances are these people are not gonna be able to afford the rent. If they have an eviction on their record, chances are that they’re they don’t care about getting evicted again. So

you gotta weed out that way. And nowadays, guys, there’s so many different apps that you can use

to do this for you and you don’t have to pay anything for it. The prospective tenants will pay to get themselves screened. You’ll get a credit report. You’ll get all that good stuff. Literally with no charge to you. So like Zhanna said, do your due diligence, you guys, because it could really save you a lot of time. And then like she said, when she had to if when the guy finally did leave, she had to go in and redo so much stuff, and

I’m sure the landlords that watch this and you and everybody, animal pee smell is hard to get out of the unit. You gotta do a lot of work. It’s not just replace the carpet and you gotta treat the floors like she said. You gotta do so much. So

Zhanna Kelley (16:08)

Yeah, it will surprise me how people are willing to live. Like I could tell you another story. Some where I invest, I’m also head of the HOA. And oftentimes we foreclose in the HOA for unpaid dues. And oftentimes we acquire real estate that’s very difficult to offload because dues are very low in the totem pole in terms of foreclosure. So that means mortgages remain, taxes remain, etcetera. So you have the place, but it’s laden with so much debt that it’s like unworthy, so to speak.

And one time we foreclosed in this one apartment. I mean, it stunk like you couldn’t go in there for five seconds honestly. You would throw up basically. And this lady was living there with like four cats, no plumbing, because the water was turned off. She was like, sorry to be crude. She was like going to the bathroom in the kitchen in a bucket. And now we own this place. So we evicted her, but what are you gonna do? So yeah, you gotta be willing to, be hands on and know that stuff will happen, but you’ll get through it type of thing.

Issa Hanna (17:03)

Exactly. You never lose, you always learn. And that’s why I always ask about the real estate nightmare, because you do learn your lesson when you go through that. And the smart young people, they know to watch other people and learn from their mistakes so they don’t make those same mistakes or get a mentor that can actually guide you through. So

Zhanna Kelley (17:21)

For sure.

Issa Hanna (17:22)

But enough about that. Let’s look at let’s look into the future, right? I look you up five years down the line.

What am I gonna see you doing, Zhanna? More of this, or where are you gonna be at?

Zhanna Kelley (17:32)

Well, in my five year outlook, I hope to increase the number of rentals I have from twenty eight to hopefully forty, five, and ideally consolidate them from like rentals in individual buildings to one building that I can fully control. If you ask my husband, we will retire, put it into dividend stock and move to Florida. So depending on who you ask. But honestly, I love the real estate game very much. Like even if it wasn’t the money, it just

enjoyable to me. So yes, I would love to own more, have more tenants, have more properties and more appreciation because honestly the appreciation I’ve seen in real estate you couldn’t get like in a regular market. And I almost really don’t invest in the market at all. Like I just prefer things that I can have see control. Like that’s how I look at it. I could tell you that the first thing I ever bought increased in twice in value between 2015 and 2020 and increased twice in value between 2020 and 2026.

So in some markets the rate could be very high. And also it’s helping offset very high inflation, that we see all around. I feel like that’s another reason that it’s been increasing. And another thing I want to point out is a lot of people want to invest in popular areas. So like New York, I do invest in Miami, big cities. Often the return is not in the big cities, it’s actually in small little rural areas that like you don’t even hear about. And some if you ask New Yorkers, they’re like, well, who’s gonna live there?

People live everywhere and people need a place to live. And I even see among my clients who invest, they invest in rural Ohio, Illinois, out in Kentucky, and they live in New York, basically. That’s a little too distant for me. I wouldn’t want to invest in something that’s that far away for me to control. But they make, ten, twelve percent return investment, they could buy a house for a hundred fifty thousand dollars. So if you’re just getting in the game and you don’t have a lot of capital, that’s a great way to go. Because the rent versus the price is really good.

Issa Hanna (19:19)

Definitely. I I’m from Cleveland, Ohio. I own a rental portfolio in Cleveland, Ohio. They’ve like you said, quadrupled in the last eleven years in value. Yep. And the rent market’s good and there’s so many out of state landlords you would never believe. Cleveland’s usually the butt of a joke, you’re going to Cleveland or are you from but when you actually look up the amount of

big city investors and the amount of big time investors that invest in that kind of market, you’d be flabbergasted. So Zhanna, you’re like I said, you’re bringing that hands-on knowledge to the game to our investors. I think our young guys are gonna get so much from this episode. But I wanted to ask you, I wanted to get your advice for the next generation coming up, right? We’ve been in the game, we’ve established what we’ve established.

We would like to see the next generation establish themselves. Yes. One of the most important things in our business is relationships, your network, growing knowing people and growing your network. So for the person starting out, what would be the one piece of advice you tell on establishing that first relationship?

Zhanna Kelley (20:24)

In terms of like mentors and things like that.

Issa Hanna (20:27)

Mentor, it could be a mentor, it could be somebody you might want to do business, maybe a client, maybe an investor, somebody you meet, you gotta know people to shake and move a little bit.

Zhanna Kelley (20:38)

Well, of course, first of course there’s always family and friends, but if you don’t have any of those who are in the business, there are like groups in the cities, like for instance, I’m part of BNI, which is Business Network International. We meet every Tuesday at six. Used to be in person, now it’s on the internet, and that’s a great way to meet people. So BNI has like one person from every single category. So I’m the CPA of that BNI, for example. Another way I recently found is these little network called like for instance Entrepreneur Club,

where every twice a month you go to dinner with five different entrepreneurs and you can meet them and you can bounce the ideas off of them. I’m not saying they’re all real estate investors or different types of entrepreneurs. That’s a great way to meet them. If you want to be in real estate, you don’t necessarily need it, but you could get a real estate license simply just to take the course and understand real estate a little bit. Oftentimes if you go to real estate office or real estate license, you have no experience and many of them don’t want to hire you because they don’t want to invest in the training, but you never know, you have some good ones.

Sometimes it’s good to start off, maybe as a real estate agent, just so you understand rentals, like that will help you for the future. And then there’s the financial side of maybe getting enough money for your first down payment to do your first loan. So, that’s kind of working and elbow grease, so to speak. I could tell you that my first property was from a year’s worth of my CPA practice at that time.

Issa Hanna (21:52)

I love that. Like I said, ground up hands-on advice are giving everybody. The real, the real advice. Stuff that’s practical that they’re gonna be able to use every day. That’s why I love it. I love what you’re bringing to this show. We’re running out of time, but I didn’t wanna I didn’t wanna get off without giving you the floor. If people wanted to get a hold of you, maybe an investor

is watching this in New York and they wanted to use your CPA services because you’re a fellow landlord and you understand every single advantage you can get, where could they reach you?

Zhanna Kelley (22:24)

Yes, my website is called taxology.me and I could post later maybe in the link. So I am a CPA, I do prepare taxes, I do tax advising. Yes, my specialty is of course real estate, so I understand a lot of things about real estate such as, cost segregation study and conservation studies. I don’t do them personally myself. I don’t like short term rentals, but we can discuss that. I also do taxes for just regular people, self-employed W-2, you name it. And yeah, if you’re interested in just

knowing where to invest from that point of view, nothing to do with my CPA practice, reach out to me as well. I’m happy to refer you like in places that I feel are good places to invest, high return investment, and places that I can at least give you a connection to people you’ll need. Because when you’re an investor in an area, you’re gonna need a plumber, electrician, a handyman, you’re gonna need to know who the tax collector office is, you’re gonna need to know the HOA. I have that all established. So yes, I will later on post my website.

Issa Hanna (23:18)

I love that. And guys, yeah, we will post her website in the description. Make sure to contact Zhanna for any CPA needs. And then what a nice lady she is. She’s willing to share her network. She’s willing to connect you. She’s willing to give you more information. All you gotta do is contact her. Why would you not contact her? This is somebody that has so much so much knowledge and she’s not on this show for no reason. 28 rentals, flips, a CPA.

Tax advisory, just everything. You’ve brought to the show, Zhanna.

Notary services as well. So make sure you guys contact her and Zhanna, it was it was a true honor to have you on the show today. You brought such a light to the show. Thank you so much.

Zhanna Kelley (23:57)

Thank you very much. I really appreciate questions.

Issa Hanna (23:59)

I appreciated having you and to the viewers at home. If you enjoyed my conversation and want to see more like it, make sure to hit like and subscribe. I talk to people every day that can bring us different knowledge on every aspect of the real estate industry. Until next time, The Real Estate Pros are out.