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.
Alright, today I’ve got a topic that is on a lot of investors minds: Competition. This is something I’ve discussed a few times over on youtube but I wanted to shoot a podcast to discuss this with everyone. This episode will be more of an overview of how to properly look at competition, combined with a few different ideas to work around this competition. All of this is based on close to two decades in this business, in many many markets throughout all market conditions. Now, some of these I’ve mentioned before and they’re certainly worth repeating, while others new takes on handling competition.
The first one to understand is that competition levels change, often with the market cycles. As of this recording, we’re in a very strong real estate market. When the market is up, everyone hears about it. This leads to a lot of people wanting a piece of the action. And there is certainly nothing at all wrong with this, I want everyone to have a piece of the action. The problem lies in who gets involved. In a booming market you will have a much higher percentage of so called investors who actually have no idea what they’re doing. This creates issues for the investors who do know what they’re doing – either through experience or through education, like you’re listening to right now. You can compare it to being a good driver only to have someone run into the back of you. It’s not your fault, but it obviously still affects you.
These type of investors drive up prices and drive down margins. The bad news is that you might feel they have a huge impact on your business. The good news is that this is not true – while they might require a minor pivot, they don’t have that large of an impact on your business and sooner or later they’ll be out of business anyhow. You can only go so long on extremely thin margins before something derails you.
The fact remains that we can’t change our competition. We can’t change what someone else does. If someone wants to overpay for a property, that’s on them. Those people will always exist. But it’s up to us to find ways to work around that competition. We should never try to beat them at their own game – you can’t expect to simply spend more money than someone else to beat them. That’s foolish and a loser’s game. And besides, as mentioned, they’ll end up beating themselves at their own business sooner or later anyhow.
And I’ve seen this time and time again. When the market is hot, you’ll have a room full of bidders at a tax sale all bidding on the same properties. Prices are stupid, the market makes a correction and eventually the room is only occupied by the wisest investors moving forward. In 2009 I can assure you that there was very small crowds.
Now, it doesn’t mean that you should just submit to the market and forget about investing when it’s hot. I am not saying that one bit. You can make a tremendous amount of money in a hot market. And if you can pickup the easy properties, that’s fantastic. Flip them all day long. But if you can’t, begin searching for different angles during this time.
There are a few different ways to do this.
One is the area. Certain areas see tremendous spikes during competitive markets. There are plenty of areas that are highly impact by the market swings. You can look at the lists only and there are good aspects and bad aspects to this. In some situations, if you play your cards right of course, it can prove very profitable to wait for and profit off of appreciation. If you’re a long term investor, then it might make sense to actually focus on these types of areas even if that means you’re paying a premium – I just sold a property for 7 times what it was purchase for just 24 months ago. If you’re a short term investor, you need to determine just how short term you are. I’ve seen quite a few tax sale investors making a decent chunk of change off of properties they bought just 9 or 12 months ago. That’s the way you can leverage appreciation. In this situation, if the competition pushes the price to the market value then it’s no big deal.
Now if you’re the investor looking to buy a property today and sell it tomorrow where you need to get properties at deep, then you might want to avoid these areas in hot markets, unless you can line up another investor to buy it from you. And as discussed, investors are certainly more prevalent in hot markets.
The alternative to investing in these rapidly growing areas is investing in smaller markets. I’ve always, always been a fan of smaller markets. I’ve been to plenty of competitive of tax sales where there were well over 1,000 people in the room. I’ve also been to extremely small sales and can assure you that the smaller sales have provided me with much more success. It’s simply a population and numbers type thing. The more people in an area, the more people will be at the tax sale. There will always be a point where you CAN go too small and there aren’t any buyers there, but work to find that sweet spot between having buyers but limited competition.
On that same note is convenience. Work to find areas that are extremely inconvenient for everyone to buy properties at. I believe that many people are naturally lazy. They want to buy properties in the places where everything is as easy as possible to invest. If it’s easy for you, that’s great for you. But not so great once we factor in competition. Easy for you, easy for everyone else. The harder it is for you, the more effort it requires you, then the more effort it will require of every other investor like you. That will lead to decreased competition.
Another method is by going after different property types. I’ve invested in plenty of homes, but I’ve invested in many, many more vacant parcels. And many of those vacant parcels are different than what other investors want. That little house with the picket fence is what everybody is after. Consider different property types. One of the largest purchases I ever made was an entire subdivision. Despite it’s value there was actually very little competition for it. Most investors at the auction were looking for single family homes and simpler type properties. Naturally I wouldn’t recommend you go after an entire subdivision for your first transaction, but the point is that there was very little competition for this property because the type of property it was, just wasn’t popular with the bidders in the room.
On that same note is the actual strategy you’re using. If you can find a strategy outside of the typical, I want to buy it today and sell it tomorrow strategy then you’ll have a much easier track to success. I’ve mentioned a few of the various angles you can take previously, but what I’ve noticed over the years is that the long term investors seem to have an approach that is just a little bit different that most other investors. Perhaps it’s a long term hold strategy, maybe it’s just dominating and controlling one subdivision or one property type, maybe it’s offering owner financing, perhaps it’s having a large buyer’s list you sale to at discounted prices. Figure out a different avenue and you’ll definitely reap the benefits.
Another one is to be patient. I know it’s difficult when you’re first starting out. And I’ve seen this through The Tax Sale Academy time and time again. Some members get frustrated and I have to constantly remind them that they need to be patient. And once they are, they’ll eventually acquire the deals they were after in the first place instead of forcing themselves to invest based on some sort of artificial timeline. I had a member that took like 12 or 13 months before getting their first deal – but on that first on they made well over 10 grand in just a couple of weeks, then the next property they picked up for I believe $9 or 10 grand and are renting it at $850 a month. Or numbers similar to that. The point is that their patience paid off.
If you’re just starting out, my advice is to practice. Research properties, research other bidders, research the market, go to auctions, record max bids, followup on properties sold a year or two ago and see what the investors did with them, become in tune to the market place. Learn what you’re doing. It’ll make your life so much easier than just throwing money at a property and hoping you get a return.
Now, the good news is that once you figure this business out and learn the correct way, then you can successfully invest in all markets with just a small pivot. This is something that I discovered after the 2008 crash. I tried to keep doing what had worked for me in the previous years. Once I learned a slightly different angle, my business took off again. The tax sale business works in every single market. You can make incredible amounts of money in good, bad or even stagnant markets with just a minor pivot in your business.
Listen I truly hope that this episode has helped you when dealing with competition in a good market and also helps prepare you for the time when the market does begin to turn.
If it did help or any of our episodes here on the tax sale podcast have helped, please do us a huge favor and leave some positive feedback for us on whatever podcasting platofmr you’re listening on.
And as always, for more information check the show notes for some helpful links or visit taxsaleacademy.com.
Take care, bye bye.