Is it worth it?

9 Replies

My brother & I have been talking about getting into real estate investing for about a year now. We have listen to a lot of BP podcast and have come to realize getting rich quick isn't going to happen. While talking with my real estate agent uncle and telling him Were going to whole sale and start flipping houses he told me to look into TAX LIENS & TAX DEEDS. We have listen to the BP podcast SHOW 56 featuring ANKIT DUGGAL about 50 time. We want to know as a new investor with little money to start investing with are TAX LIENS AND TAX DEEDS worth investing into as a business? Will we ever be able to work for our selves full time or is this just a part time business for investors with less than 100+ grand to put into it? How do you scale this business? How can we syndicate deals? These are just a few questions we have. Any and all help is greatly appreciated.

hi kevin, congrats on your decision to get into RE. that being said, there are several ways to get into RE. tax deeds and tax liens are all part of a bigger world. you will find your niche in that world somewhere. i started with just $2000. i actually bought a house that had been repossessed from a city for back taxes. fixed it up, and i rent it out and have for about 10 years now. my niche in the RE world is flipping houses. tax deeds and liens are ok, but there is a lot of competition in it, so at the auction, you will find yourself getting outbid many times or paying too much for the deed. most states have a one year right of redemption for any tax lien, which limits you to being able to do anything with the house for a year. why would you want to sit idle for a year? my advice to you would be to take a drive, several drives around any and all neighborhoods you would like to invest in. look for houses that have obvious signs of being vacant and/ or abandoned. high grass, papers piled up on the porch, boarded up windows, general trash around the area. in the winter, its houses with driveways and sidewalks not shoveled. find the owners and make a deal. you would be amazed at how many of these houses you can find and how cheap they can be had. your local county clerks office should be able to help you find the owner and tell you about any back taxes owed. good luck

That is solid advice from @Mark Elliott .  If you are just starting out, you can get a higher return on your money in other sectors of RE.  Plus, as Mark said, if you only have a little bit of cash now you don't want it to be tied up in some tax lien for 12-24 months while you wait for the court case to play itself out.

Are tax liens scalable? Absolutely, but you would need a bankroll of several hundred thousand dollars to scratch a living.  And the Baltimore auction has been pretty frothy the past 2 it's possible you could spend months doing prep work for the auction only to find that there aren't many good deals.

People in the tax lien business generally either have excess capital (that they are unable to deploy elsewhere at acceptable rates of return) or they are borrowing to invest in tax liens.  And to borrow money you would need a track record.  It doesn't sound like you fit either of these categories, so I think your best bet is to look elsewhere.

That is good advice from Mark on how to use your time and sweat equity to get deals. You could also offer to assist a landlord or flipper with a rehab project so that you get experience with estimating rehab costs and managing contractors.  That would give you an awesome foundation for building your own business.

Good luck!

@Kevin Simmons

 as the others stated tax liens in my mind are not a good starting point.. highly competitive can be complicated.. and you need a BOAT load of capital to make any kind of decent living at it.  you would do much better just being a RE agent than trying to do that.

Hello Kevin,

Im a brand new investor getting ready to purchase my first home. I just want to say that i agree with most of what everyone else has said. The one thing i have a hard time agreeing with is that to borrow money you need a track record. Im not sure if he means borrow money from hard money lenders, banks, or friends and family, or all the above. For some hard money lenders i believe that if you have most of the things that qualify you then you will be ok. I have a good credit score and stable job but not ten percent of the total cost of what i am borrowing. I was told that i could roll that into the money that i borrow but the interest rate would be higher. So saying this i just want you to be encouraged and find your niche. Your niche will most likely not be the first strategy you think of when coming into the rei business. I was supposed to build sustainable homes and sell them (which i plan to revamp that strategy in the long run, im not giving up on it) now i am into buy and hold investing. I strongly suggest going with the flow of what works best in your current market. Dont try and do flips when your market is screaming "Rent me, Rent me". Well atleast not by yourself and without knowledge of the area. If i may add, your market can change from town to town. For example Towson, Md has had excellent properties that works for flipping homes. A ton of property were bought at 69k fixed up and sold for 225k in less than 3 months. Where as the closer to the city of Baltimore you get properties that are sold for 15k to 50k and rented for 700 to 1200. Maybe more. You see what i mean? As far as tax liens are concerned it can be a gold mind but also a waiting game. If you play your cards right you could have a very good buisness in it. But to me thats something for the seasoned investor. I say that because there are legalities that many newbues know nothing about. Even when just purchasing a home with cash, there is so much you should know. Another thing is that if trying to make a buisness out if it you woukd need to purchase more than one home. And if possible at different times. Some cities have year round tax lien sales (atleast one in florida) and some I know are once a year (i believe anne arundel county). I say at different times because you dont want to have too many projects at one time when the forclosure process is complete. If you choose to go that route start small with maybe two and see how you like it. That way you can find some trustworthy contractors and work on structing your buisness to where everything is bid, wait, fix, repeat. I hope what i said helped. If you have any questions feel free to message me anytime. I live in baltimore maryland and have for a minute so if you want some help with anything i will try to help or direct you to someone who can. 

P.s. I say go with buy and hold. But thats just me. 

@Kevin Simmons I have done it. and I am also in MD.  My first auction I spent $17K. I now buy $1 million a year in liens, and I can live off that alone. However it is not easy and took a lot of work and analysis to get here. 

The way to scale the business is use borrowed money. Many of the big bidders are using borrowed money, partners etc. Once you have a track record, a bank may even lend for tax sale, but certainly you can get private lenders. Where do you think hedge funds get their money - from investors.

That's how I got into real estate. I've borrowed money from friends and family to invest in tax liens. The biz has been very kind to me and I have made a profit on every property that was deeded to me. I basically started out w/100k and currently my portfolio is worth around 300k. Best part is all properties are free and clear and kicking off a few grand in rent every month. 

However, as others have noted, institutional investors are changing this marketplace. The last couple years auctions have been hyper-competitive. Investors are searching for yield anywhere they can get it. I'm looking for other avenues of RE investing, until the market improves. Probably worth taking a look after the next stock market crash/correction.

Hello, I am new to this and am enjoying reading the many informative posts.  This seems a more appropriate section for me to ask if anyone knows of a buyers market for Tax Sale Certificates.  (I believe these are a little different from Tax Lien Certificates - but not really sure).  I purchased two tax sale certificates for $1315.27 and $601.00 for two properties (both doubles) in New Orleans, LA in March; one property has already been redeemed ($601) and I have received my refund with interest.  However, I would like to sell the other tax sale certificate.  Please let me know if you know of a market where I can offer the tax sale certificate for sale.  Abundant thanks.