Transcript:
Welcome to the Tax Sale Podcast, where tax sale investing is made easy. My name is Casey Denman, I’m a tax sale veteran, the leading tax sale expert, author of The Tax Sale Playbook, founder of The Tax Sale Academy and I’m your host right here on The Tax Sale Podcast.
Thank you so much for joining me on today’s podcast episode. This is a completely free podcast and is brought to you through and because of The Tax Sale Academy. If you’re looking to learn more about investing in tax defaulted real estate, just head to TaxSaleAcademy.com. Again that’s TaxSaleAcademy.com.
When you first look at a tax sale list, you’ll see lots of weird text, numbers, dates, names . . . it can certainly be confusing and a little overwhelming. Once you understand what you’re looking at, it can still be pretty overwhelming. In some areas you’ll have hundreds of properties to choose from. In other areas there might be a dozen or two, but they all seem like great deals.
One of the common questions I get is how do you decide what you purchase? Here’s the simple answer: I buy the properties that I can exit, before I enter. Here’s what I mean by that: I don’t buy any properties just because they are a good deal. Instead, I buy properties based on the confidence that I have in my ability to exit that investment at a profit. When we dissect that farther, the more confident that I am in my ability to exit that investment at a profit, the more interest I have in purchasing that property.
Allow me to explain this through the eyes of some of the veteran tax sale investors who operate like myself and then we’ll work backwards so that brand new investors have a better idea of what they should be purchasing. I’ve previously discussed the ability to leverage a buyer’s list. Just like most professionals build up a list of clients over time, a tax sale investor should focus on doing the same. While our lists might change more frequently than, say, a doctor’s list of clients, ours is certainly just as useful. This is obviously something that I wished I would have started sooner, but a few years into this business I began to keep a record of everyone who purchased properties from me. This went into one file. I also kept a record of anyone who had contacted me with any interest in purchasing a property from me. This went into another file. So, I had had converted leads and general leads. These leads were developed after spending quite a bit of effort marketing properties to investors. I targeted investors because I knew they’d be much easier to deal with, they’d buy properties quickly, and they’d likely want to buy more than one – one well marketed property might bring one buyer and another 10 or 15 leads. Now, of course a lead from 10 years ago might fall off the list or might no longer be interested in real estate at all, but you are constantly adding more leads to your list than properties you have available.
Eventually, you’ll be able to segment your leads into a number of different categories. And there are strategies to this too, but common segments could be based around location, price, property type, that kind of thing. The entire idea behind this process is to develop a buyer’s list specific to certain types of investments. The buyer’s list will ultimately decide WHAT you should buy, WHERE you should buy it and HOW MUCH you should pay for it. This removes ALL of the guesswork out of investing. At that point, it’s just a matter of going through the tax sale list and selecting the property that is desirable for your buyers. Once you buy it, you send it to your list of buyers and you’ll have it sold in seconds. This is the same principle many Realtors use when they work with their investors – the successful realtors have a list of investors, they find properties that match those investors that they sell to them. The difference here, of course, is that you are the seller making the profit and not just a commission.
Alright, so how can we apply this to a brand new investor. One that is just getting started and doesn’t have a single potential lead? My first piece of advice is to work towards building your list from day one. Start early. Focus on it often. It will eventually snowball into an invaluable tool for your business.
The next thing I would suggest is to NEVER buy something just because it’s a good deal. I’ve passed on many properties that were good deals – a good deal could be good after lots of headaches, or good if you find the one specific buyer for the weird property you came across, or it could be a good deal if everything goes right. Instead of focusing on if it’s a good deal or not, focus on your exit from the start. How can you exit that deal profitably? This requires us to have some foresight.
One of the key factors to look for is demand. How much demand is there for that property type? And you can research this by reviewing websites like Zillow or Realtor.com and looking to see how long similar properties in the area have been on the market. If similar properties are selling in 9-10 days, that’s probably a good indication of high demand. If you’re seeing that they were listed 4 years ago, then that’s a good indication of low demand. No matter how good of a deal it is, if nobody wants to buy it from you, then is it really that good of a deal afterall? The answer is no. You’re looking for a property that will allow you to advertise it and get a considerable amount of responses. You shouldn’t be looking for that one property that has one buyer. You should find a property that will have buyers lined up.
Now, this could be a result of everyone wanting that 1200sf single family house that you’re thinking about buying because it’s in a desirable area. Or it could be that lot you’re selling for $1500 and you can easily get buyers because it’s so cheap. Whatever the case, you want to preidentify your potential buyer pool and you want to be confident in your ability to have that potential buyer pool be as large as possible. If your first buyer backs out, it really shouldn’t concern you other since you have many others lined up.
After that, think about everything between your exit and your entrance into that investment. How much effort and money will it take for that investment? If you were to look a month or two into the future, after you’ve sold the property, and everything that could have gone wrong, went wrong, where will you be at from a time and money perspective?
Unless your fairly advanced or just have quite a bit of time and money on your hands, you shouldn’t want an investment that is going to drain you. Buying and selling real estate should not be an exhausting business.
In the end, you should work backwards. Ask yourself what is the property that you can buy today, that will have buyer’s waiting to buy it from you as soon as you complete that transaction? Then once you have the confidence that you will easily be able to find end buyers, it’s time to dig into it a little more to determine the time and effort required to get to those end buyers.
When I was first starting, I’d focus primarily on vacant lots, with just a few homes sprinkled in. This has changed slightly from time to time, but when I was starting, I knew that I could buy one or two vacant lots for nearly nothing, they’d require zero time or money investment outside of the acquisition cost, then I could advertise them like crazy to bring in other potential buyers, then I would resell them to other investors, make a few bucks and it would keep snowballing over and over again until it became easier and easier, and I’d make more and more money.
I’ve mentioned this before, but your goal should always be to have low effort, high reward transactions. When we combine this with you having the utmost confidence in your EXIT out of a transaction before you even enter that transaction you have created the golden business. It will always be a work in progress. But if you work every investment with the intention of a low effort, high reward transactions, with 100% confidence in your exit strategy prepurchase you will see your business grow substantially, while becoming recession proof, all the while reducing stress and workloads. It’s the perfect tax business.
I truly hope that today’s episode has helped you out. If so, please take just a few seconds to leave a positive review on whatever podcasting platform you’re listening to us on today. It really means quite a bit to us when you leave those 5 star ratings.
And if I can be of any additional help on your quest for tax sale success, there are a bunch of links in today’s show notes, including one to our primary site at TaxSaleAcademy.com.
Take care and I’ll see you next time on the tax sale podcast!