Monday, May 4, 2009

Building Your Tax Lien Certificate Empire Takes Time

As the title suggests there are no easy short cuts to investing just like there are no tax sale secrets.

Right now in Louisiana, it’s tax sale time and research and prospecting have required my attention preventing me from posting as I would like.  That being said, attending my most recent tax sales has given me a new story.

Case in Point:

At a recent tax sale, I ran into an acquaintance that is a tax lien investor whom I’ve known for some time.  The sale was not going to get a lot of action as the property list wasn’t very large.  As for me, the tax lien property I was most interested in was scrubbed because the homeowner paid his taxes prior to the sale.

 Anyway, in my conversation with my friend, she commented on the lack of interest and then pointed out a “newbie”  tax lien investor that was one of those “idiots” who had attended a couple of tax sales  because he must of seen one of those late night tax lien investing infomercials.

I don’t take offence when people make dumb statements; I just chalk it up to ignorance and try to garner whatever tidbits of knowledge they may contain.  Anyway, the sale proceeded and our newbie tax sale investor purchased a property.

 Immediately, my tax lien investor expert friend whispered to me, “Good thing he only spent $98.00, he won’t get too badly hurt.  The lot he just purchased isn’t big enough to build on its too small.  He’ll never get a zoning variance. Like a lamb led to the slaughter, that poor infomercial watching guy”, as her eyes rolled back into her head! 

Well, I started to analyze the situation as the tax collector continued to knock down properties.  Here was a person that I knew strictly from attending tax lien auctions.  I never really considered what her angle or perspective was on tax lien investing. But now, I was pretty sure it was a static approach.  She knew how to deal in a certain types of property and if it didn’t fit her mold, she wasn’t interested.  There’s nothing wrong with that approach.  Find a formula that works and just keep repeating the process. It can make you a ton of money.   However, I tend to reject this view when it comes to my tax lien investment strategy.

First, I think it shows a total lack of understanding.  I want to understand the investing process and accurately appreciate real estate and tax liens. Doing so makes it possible for me to respond whenever any dynamic in the process changes.  Consequently, I’ll know what changes I need to make to continue to be successful investing in tax liens.  We live in a world of constant change. And if you don’t have an understanding and appreciation of the dynamics of what you’re doing when change happens you’re lost. Now, instead of being at the forefront and taking advantage of the situation, you’re stuck with everyone else trying to regroup and figure out what to do.

Second, if I view my investments as nothing more than a cookie cutting process, I miss big opportunities.

Let’s look at the case in point.  Our newbie investor just purchased a tax lien certificate on a vacant lot that probably had a value of $40,000.00 even if he can’t build on it (if we take into account the building restrictions issue that our tax lien expert advised us of).  Our little lamb to slaughter just made a potential $39,902.00 profit from a $98.00 investment.

The possibility also exist that the tax lien newbie can get a zoning change,  increasing the value of the lot at the same time, and then build on it himself or sell it to a builder. He could also donate it to a neighborhood organization and take a tax credit for the $40,000.00 value of the property.  There are any number of ways to approach a zoning matter.  Where my tax sale expert saw a problem others would see an opportunity, less competition.

In that 30 minute tax lien auction our newbie bought one more property.  On my way out, I stopped and introduced myself and commented on what a super buy his first purchase was.  He introduced himself and proceeded to thank me as he had attended his first tax sale some years ago and overheard a conversation I was having with someone else. He informed me that his fortuitous eavesdropping confirmed he was on the right track.  It was at that point I asked him if he intended to build a swimming pool on his new lot.

The look of puzzlement on his face was priceless.

You see, my friends, I was interested in two tax lien certificates that day.  One got paid before the tax lien auction took place and my newbie tax lien investor had beaten me to the punch on the other.  Once he introduced himself, I knew exactly who he was.  The piece of property he bought was owned by a man who had passed away and left no heirs. It was a slam dunk buy property for pennies on the dollar type of tax lien certificate most people dream of.

He learned this when the neighborhood kid that cut the grass stopped cutting it.  I learned it through research, but my newbie friend and his two other neighbors would have been the first people I would have approached with an offer to sell if I had acquired that tax lien certificate.

Yep, lambs to the slaughter….

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