Transcript:
Welcome to the Tax Sale Podcast, where tax sale investing is made easy.
I’m Casey Denman, a tax sale veteran, expert, and trainer, author of the tax sale playbook, founder of the tax sale academy and your host here on the tax sale podcast.
Thanks for joining me on today’s podcast, and as always, at the conclusion of this podcast, if you’re looking to learn more about investing in tax defaulted real estate head to taxsaleacademy.com. That’s taxsaleacademy.com.
Today I want to talk about those with deep pockets. Most investors listening to this don’t have what I describe as deep pockets. Truthfully, most individual investors, regardless of how many tens of millions they’re worth, don’t really even have the kind of deep pockets I am talking about.
Let me tell you a quick story. I can vividly remember registering for a tax lien sale many years ago. This was a sale that required you to give them your check in advance. They did this to insure you paid all the while insuring you didn’t surpass the amount of your budget.
I don’t remember the exact amount, but I took around $20,000 to this auction. After you handed over your check, they wrote down the amount you gave them on the back of your bidder card. It was rather odd, but the way they operated nonetheless – perhaps so you didn’t forget how much you gave them. I wasn’t too embarrassed since my, in quote “number” seemed to be higher than those sitting around me.
About mid way through the first day of the auction, I realized that there was a fairly young, but professional well-dressed lady that was buying a substantial number of liens. I have no idea what she spent that first day or even the entire auction, but it was enough to catch my attention.
Since this was a multiday auction with thousands of liens to be sold, I arrived early the next day and sat in the row behind her so I could learn more about her system and where she was from. About ten minutes into the auction I saw her bidder card, with her deposit amount written on the back. It simply said, the more than sign 1m. Short, for more than one million dollars. Then I realized that she actually had a second bidder card that also said more than 1m.
I attempted to make conversation with her, altho she didn’t reveal many details and kept to herself. It became apparent that she wasn’t just some rich woman, but instead she was simply an employee of a company that was investing institutional capital. While I’ll never know who she was investing for, I can only imagine that it was one big players in this business, perhaps a large bank or REIT.
And you’re going to run into that. Even on a local scale, there are investors who operate investment funds that operate similar to REITs. They pool money together, usually tens of millions of dollars, buy properties, operate on hairline margins and make money with the overall portfolio which makes it very difficult for small investors.
So, how exactly do you avoid these guys? How can you beat them at their own game?
There are a number of different ways, but I want to share with you three different strategies in today’s podcast. If you implement any of these three, the odds of facing these deep pockets will be greatly reduced.
The first strategy is to be different. Think of the most typical real estate possible. Your single family home in a good area that will be lived in by your family that has a working class or better salary. This is going to be the safest type of real estate. This is what most large investors want, because it’s simple. Easy to value, easy to buy, easy to sell. And I’m not saying you must avoid this type of real estate to avoid competition. But just understand that the properties that are a little bit different, will definitely be skipped over by those large buyers. It’s possible that many of these large buyers might have guidelines that prohibit them from going outside the norm – they might skip vacant lots, commercial properties, maybe even mobile homes, or anything else that’s not your very basic single family home. So look for the properties that are a bit different because the big players usually skip them.
The next strategy is to go rural. I’ve had private coaching calls before where a popular issue is that there is too much competition in the areas where these students are bidding. This causes everything to be too expensive and doesn’t meet desired margins. When I dig a little further, what I typically realize is that the issue is not that the student’s expectations are wrong or even that the properties they’re choosing are wrong, but it’s a locational issue more than anything else. Here’s the rule of thumb I use . . . if you can tell the name of the city to someone on the opposite side of the country and that person would recognize it, then don’t invest there. For example, if I’m in Florida and I’m talking to friends in California and I mentioned Orlando, then they’ve probably heard of it before so I’d skip it. This is a very unscientific way to say don’t invest in the most popular areas. The most popular areas for visitors and residents are also the most popular areas for deep pocketed investors. Instead, go rural. Don’t go so far rural that you’re buying in a place where no one has moved to in three decades, but find a mid size town somewhere and go for it. Big players are usually in big cities.
And the last strategy I want to share to avoid these deep pocketed buyers is to go where it’s difficult. Here’s what I mean by that: If you’re looking at an auction list and it has a description, photos, title information, values and everything else you can imagine available online, that’s easy. If it has a parcel identification number available and that’s it, then that’s difficult. You’ll be required to put in extra effort to research and value properties, to figure out what’s on it, how much to pay, that kind of stuff. These deep pocketed buyers often run off such thin margins that they can’t invest the time into sending an employee to a county office to do research. Instead, they’ll stick to those counties where everything’s available online. So, go where it’s a little more difficult for you and subsequently everyone else.
Now, these aren’t always the perfect way every single time, but by following these three strategies you’ll certainly have a leg up on many.
Thanks so much for joining me on today’s episode.
And if you haven’t done so yet, be sure to pickup your copy of my free book, Tax Sale Playbook, which you can get at TaxSaleAcademy.com. The book itself is free, we just ask for your help covering the nominal shipping costs.
And as always guys, if you found this episode helpful it will mean so much to us if you take a few second to leave positive feedback.
Take care guys and make it a successful day.
See ya!