Posted over 8 years ago

2014 Lien investing strategy and Thomas Edison

My thought process for the 2014 Arizona Tax Lien auctions is taking a different turn this year. I now have my i401k opened up and that increases the funds available for investing.

In the past years through this blog, I have shown how I focused on high rate liens one year, then went after highly competitive liens the next year.

This year, I'm looking for specific property types that will allow (hopefully) high rates on the liens, and the possibility of income producing property if I was to end up foreclosing.

To be honest, those two features are usually mutually exclusive in lien investing. If the parcel has income producing improvements, then it gets many bidders and the rates will be low. Vacant land usually is your best bet for high rates, but the income producing possibility is low on vacant land if you foreclose. Unless you have the right type of vacant land...

With the help of some new software, I'll be viewing thousands of parcels quickly to see if they have the qualities of producing income in the rare case I can foreclose.

With thousands of parcels in each auction, I'll have to work fast to review these parcels. Will it be worth it? We'll see. If I don't try it at least once I'll never know, but I know enough to make me try this new technique.

Part of my conative makeup as an Entrepreneur is to do research into something new, then take action without having to know every detail. Many people on the forums ask "How do you know when to stop researching?" or "I can't seem to pull the trigger on my first deal because I don't think I know enough."

Well, I do enough research to find evidence there is potential money that not many others would be looking for. I formulate a plan to get the information I need to take an action. Then I do something that others never do - I actually take action.

If I spend a lot of time and there is no payoff, then at least I know one way to NOT invest. More likely, I'll find ways to improve what I'm trying to do and get better each iteration. If I can't justify my time with the return, eventually I'll abandon the idea and move on.

Thomas Edison didn't invent the light bulb with his first try, but he eventually succeeded because he found enough reason to keep improving and trying.

We know Edison is credited with inventing the electric light bulb, the phonograph, and motion picture camera. The ideas he worked on for several years but eventually stopped were, sound with motion pictures, iron-ore extraction from lower grade ore (He sold all his General Electric stock to fund that effort), and Edison tried to build many things using cement for cabinets, pianos and houses. Those uses failed to make an economically feasible product, but his company supplied the cement for the old Yankees Stadium.

So if I can get this method to get me a payoff (or at least ideas on a better method), then it will be worth it.

Of course, there is also truth in the advice - "why try to reinvent the wheel"... You don't have to try do something new to make money. Take an action on a tried an true method. You're not an actual investor if you never take an action.

Comments (2)

  1. Ned, Thanks for the comments. There are some really great threads and even other member's blog posts about i401ks here on BP. I like i401ks over an SDIRA for several reasons. The biggest reason is because you don't have to create an LLC or other entity to get the checkbook control - which you usually have to do in an SDIRA for most real estate investing. In the i401k you can contribute much larger amounts each year than an SDIRA. You can also contribute Profit Sharing from the business you have connected to your i401k. If you're over 50, that is over $50K you can contribute a year between regular contributions and Profit Sharing. The business connected to the i401k can be a sole proprietorship, S Corp, LLC, etc. In my case, I have two S corps that I created for some side businesses. I was able to roll an old 401k that was still being held at an old employer. I don't have to make any new contributions from my side business. I can have both an i401k that I can make contributions from earnings of the side business, and still contribute to my current employers 401k plan at the same time. I can take a loan against my i401k - and also take a loan against my employer's 401k too. The max loans is $50k so in effect I can get up to $100k. (I may open an i401k for my other S corp some day too and add up to another $50k in loan availability) I may someday also open a Roth SDIRA mainly for lien investing where I go for properties that I can foreclose. If I find the Holy Grail of determining a way to pick liens that won't redeem, then I can buy liens, pay sub taxes each year until the redemption period ends, then foreclose and get the property for a few thousand dollars in total. I can turn around and sell the property, and because it all took place in a Roth, I wouldn't have to pay a penny in taxes on the gain. I am a dreamer...

  2. I like you philosophy Jerry. The good news is you don't have to give up totally what is already working if you have more money to play with. The i401K, is that the 401K equivalent to self directed IRAs? I need to look into that. The SDIRA seems a little to restrictive.