Transcript:
Welcome to the Tax Sale Podcast, where tax sale investing is made easy.
I’m Casey Denman, a tax sale veteran, the leading tax sale 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.
On today’s episode, we’re going to discuss a great way to fund your tax sale investments, in the event you don’t have the required capital. Or, possibly, if you are looking to inject additional capital to grow your current business. We’re talking about partnering with others. Simply using their money, perhaps combined with some of your own, to buy and sell properties. Now what we’re about to discuss on today’s episode is just kind of a brief overview. We actually go into more detail on this inside the academy.
You’re looking for an investor with capital – simply, put somebody that has money and is willing to loan it.
The most obvious examples will be family members of course. From there, check with friends and even consider getting some referrals to others. The less experience you have, the closer the investor will likely need to be with you. Every person is different, so I can’t sit here and provide a list of potential partners. In short, if you ask enough people, you’ll eventually get a yes.
Now . . . obviously, there are strategic ways to do this. So let’s talk about that. First off, you must understand the process of borrowing money. An investor who is willing to loan you money will want to be sure that their investment is safe so they must have trust in your abilities. As a new investor, you don’t have a track record. So they’re already taking a bit of a risk and now it’s up to you to minimize it as much as possible. My suggestion is to become as close to an expert in this business as possible. Not only in tax sale investing, but also in real estate in your area. If they can’t invest in someone with loads of experience, or any experience for that matter, then maybe they’ll invest with someone who has loads of knowledge.
You see, this is the first step that many people want to overlook. They just want people to give them money to invest with no experience or knowledge. Seriously, think about this. So many people have zero experience and virtually no real knowledge, but they complain because people won’t loan them money. What?! Of course, you can’t find an investor then! Instead of being lazy, become the expert. You should be able to tell them what the properties are selling for, the expenses, the margins, you should be able to quote a dozen or more recent examples of the earnings other investors have received. You should know all of this stuff. Again, become an expert.
What might also help is for you to actually partner with them. Teach them everything you know, make them feel at ease, help them learn so you both can be in this together. Even if you are actually going to do all of the work, at least let them know exactly what you plan on doing! Walk them through the process. Explain in in detail. Show them previous deals from A to Z. Demonstrate the returns.
Along with that, I want you to be ultra conservative. You should more concerned about losing someone else’s money than your own. That’s right. If you’re more concerned about their money than your own money, the odds are that you’ll be very conservative. Don’t risk anything just because it isn’t your money. That’s foolish, inconsiderate of you and is a great way to put yourself out of this business and every other business.
Alright, so once you’ve found a partner willing to invest with you the next step is to determine where the money will be utilized and how exactly you’ll split the proceeds. I want you to really take the time to figure this out to. Don’t just accept someone’s money and tell them you’ll bring them back what they loaned you and more. Instead, lay out the exact types of properties or liens, what the estimate returns should be (conservative of course), put in the timelines, everything. When you bring this a deal, if they aren’t directly involved, it should meet those guidelines to a tee.
Alright, so you’ve done all of this and you’ve made them some money. How do you split it? So many new investors want to ask this question, which is obviously important. But, you need to understand that someone is loaning you money, even though you don’t have experience. In other words, that’s called risk. And that risk is worth a decent percentage. Sure, if they’ll loan to you for nominal rates, then that’s fantastic. But, what I often see is that the people that fund the transactions will receive lopsided payouts. For example, they’ll capital investors receive 70% of the profits, while the person doing the legwork gets the other 30%. And some of the tax sale investors don’t like this. They think they’re doing all the work. But . . . their only risking their time, not their money. Even if the split is 90/10, if that’s the only way it’ll work, then go for it.
Obviously, the goal is to do enough of these transactions to keep stacking money away and do one of your own. And then another and another. With that said, you’ll eventually get to the point where the returns are lopsided in perhaps your favor. Instead of giving away 90% of the profits, you might one day reach the point where your skill level is so valuable that you don’t invest a dime of your own money, yet collect 60% of the profits. This happens every single day in a variety of investments. That should be your goal. Remember, it’s a long term play.
The last point I want to address is that whomever you decide to partner with, even if it’s the closest member of your family to you . . . put everything in writing. I know, this can be difficult for some people, because they don’t want to offend anyone. And I get that. I believe in the handshake of a deal more than anyone – I’ve been involved in multimillion dollar deals with a handshake before. And that’s fine, until something goes wrong. And it eventually will. I can promise you that. More often than not, it’s not something major like stolen money, but it’s a miscommunication or misunderstanding. And this happens A LOT. You’re thinking you agreed on one thing and they think you agreed on something else.
For example, you said the profit split would be 60 to you and 40% to them, and they heard it the other way around. Or maybe there’s an issues with the time frame. Whatever it is, put everything down in writing. I’d also include some sort of termination date. And this isn’t popular amongst some, but I also suggest that the agreement includes a stopping point. Because if you promised 40% returns, but the investor is only receiving 5% returns, in your mind they’re still making money, but in their mind they are losing 35% from what was promised. Then you get into he said, she said bitter situations. So always include a stopping point. If everything works well, then you can amend the agreement to get it pushed back.
This agreement of course can be written by an attorney or you and your investor might even decide to write it up together. Whatever the case, get everything in writing. The fastest way to severe relationships with friends or family is to take or lose their money.
So hopefully this has helped to give you some insight on working with a partner. It can be an extremely beneficial way to get started, but you MUST approach is correctly. Please, don’t start asking for money without knowledge or experience. And please don’t go invest that money recklessly. Do it the correct way!
And the last note, is a reminder that if you ask enough people, you’ll eventually find someone willing to invest. If you can’t find anyone, then look in the mirror and ask yourself if your really y knowledgeable enough and if you’re marketing the opportunity properly.
Hopefully this has helped you out today. Obviously, this is just a brief overview of a much more complicated topic. When you’re ready for me to help fill in the gaps, I highly suggest picking up The Tax Sale Playbook at TaxSaleAcademy.com, the book is free, just cover shipping. And of course to learn the step by step comprehensive approach with every single detail, you’ll want to take advantage of The Tax Sale Academy. And you can join by going to TaxSaleAcademy.com and clicking on join.
That’s it for today’s podcast. I really hope you’ve found this helpful.
And as always guys, if you did enjoy this episode we’d really appreciate it if you take a few seconds to leave us some positive feedback and a five star rating. We read and notice every positive comment and are so thankful for those who have taken the time to do so already.
I really hope this has helped you out today. Take care. See you.