Month: April 2021

Eric, we live in a digital age. There's so much information out there. How do I get information that's going to help me as a real estate investor?

Alright, so I'm going to take us out of the digital age for a second, OK? Remember when we had to take notes back in class? Those of you who had to sharpen your pencils and stuff like that, I know I'm dating myself. But, I want you to grab your pen, pencil, notepad. Get ready to type some information in here. Because I'm going to share with you some resources that I commonly use that we encourage our students to use to make the best decisions possible when it comes to real estate and tax liens. Let's talk about what some of those tools are and why we would want to use them. So one of the first ones would be your real estate software. Make sure you're taking full advantage of how to use that, make sure you understand how to use it, and make sure you take full advantage of the education that comes along with that opportunity as well. 

Now, some other things that will help us out tremendously in finding real estate deals, in evaluating them: realtor.com. 

You can get great information, and you can do mapping by it, you can find out what's available for sale, you can get some sole data, you can even reach out to agents that way. 

So realtor.com is a great place to go. Zillow is as well. Just as a quick introduction, Zillow doesn't like realtors and Zillow doesn't like a realtor. So they're going to give you different points of information. Zillow will be more based on where the county recorder information comes from, a realtor will be based more on the sales on the MLS. Which ones better? They are both excellent. Wherever you get the best data to help make the right decisions is excellent. 

They've also got sites like redfin. One of the other sites I like is called trulia.com. I like it because it includes the crime statistics of that property and the surrounding properties. How great is that to know? Because you know exactly what you're getting into as a tool. When you're evaluating properties, you definitely want to have a great cash flow analysis: an income and an expense form. If you don't have one, make sure you go through, and you grab those from our site. So that you can have that as part of the tools so you can do those evaluations quickly. Maybe you could even have your agent do those evaluations and save you time so that they can bring you things that way. And that information and assessment is already done. 

What about other tools, what are your favorites?

Looking at another tool that I enjoy using, it's called bestplaces.net. At bestplaces, you can type in any city in the US, and it will give you an overview of that city. It will provide you with, average age. Population. Is it on the incline or the decline? It will give you job growth; it will give you the unemployment rate. Bestplaces.net excellent tool; use it. It will give you more confidence in understanding what's happening out there. Let's talk about some specifics when it comes to tax lien investing some tools that will help out. 

One of the tools that I like to use, this applies to both, it's called neteronline.com. What it is, it's every county's website. It gives you the assessor. It gives you the tax collector. It gives you the recorder's office; if you have a GIS, all of that is there. All you do is click on the state and then the county, and it will give you all of that information. It's an excellent tool to have when you're validating information that way. 

Now when you're investing in tax liens, you want to make sure you're very clear in understanding how to use the lien hub. You can use lien hub; it's a free access point, they contract with counties to provide a porthole to purchase over-the-counter liens, and they can actually help you with the auction process as well. Another resource on your tax lien side is bid for assets. Bid4assets.com

Another one that helps out across different states is called realauction.com 

Now there are so many more sites, and so many more resources that you want available. But you want to build your own template when it comes to real estate investing. What are your required parameters for a fix and flip? What are your required parameters for a rental property? Build a system. Make sure you can track your portfolios. Whether you're tracking your tax lien purchases or tracking your real estate investment, keep them organized. Make sure you have a team in place to help you continue to move forward. 

You've done an excellent job choosing to be a part of our team, as we move forward, and so make sure you get the most out of your investment by building this process and increasing the tools that you have. The more tools you have, the more successful you will be. Now don't forget, you've got the opportunity to go on increasing your funding. You could always go to the Scotsman guide. And there are so many different places you could go on funding to be able to enhance your success opportunities. Now always be looking for new tools. The beauty of the information age is simply this; there's something new every day. So add to it. If you've got additional sites that you love to use, you use those sites. But the main thing is that you're using it.

The main thing is that you're taking massive action. And the main thing is that you're planning to use the tools and that you're doing something about it. And so be in that place to where you are moving forward towards your goals, where you are taking action, to where you're making offers, you're making offers, you're making purchases on your tax lien, you're getting the returns and you're seeing the results. So with that, those are the tools that will make a foundational difference for you, and keep moving forward towards your real estate and tax lien objectives. 

You got this. 

Eric, let's talk about research that I need to do on tax liens and tax deeds. I don't want to make mistakes. Is there anything I should be looking out for? 

You bet, let's talk about the things that you want to be aware of first on your to-do list. So the first thing is figuring out: what type of investor are you? Are you an active investor or a passive investor when it comes to your tax lien investing. Remember, passive investors purchase and wait. Active investors purchase and file TDA's because they want the liens; they want the deeds. Once you've determined that, there are some very important numbers that you can go by on your research every time to make the right choices based on the right decisions you want to have happened. One of the most important things is you want to know the year on that tax lien. And that's basically going to go ahead and tell you a story. 

Can you tell us a little about redemption periods?

How soon is the redemption period going to be complete? How long is the lifetime of that certificate? And when do you need to file your TDA? So that's going to tell you a lot of information. You also want to know the interest rate. Especially if you're a passive investor, you want to know how much return you will get off it. 

Even if you're an active investor and you file a TDA right now, it won't matter. You'll go to 18%, and that's how it will work. So you want to understand what the delinquency was of the face value of taxes that were owed. The reason why that's the case is that's where the interest comes from. Let's say it's an 18% tax lien on $1,000. That's what the interest is moving forward every year. It’s 18% on $1,000. So it's going to be $180 every year. Now some states are not compounding interest; some states are. Just be aware of that. Interest is definitely important. So we've got our face value, we understand what the face value is. Redemptive value is what we pay for that tax lien. Based on the face amount, plus interest to the day we purchase it. OK. So we want to understand what that is. 

And then the rollup is: it's a total of all the property tax liens against the property rolled up into one. And we pay that amount, and then we file our TDA. When we pay that rollup, remember we get 18% on that entire amount, and then we go ahead and file our TDA to move forward. Now the last thing we want to go ahead and know is our assessed value. And the reason why is that it will tell us what the county thinks our property is worth and let me cover these things again really quickly. 

So this is our research. We want the year. We want the interest rate. We want the face value. We want the redemptive value. We want the rollup, and we want the assessed value. Those are vital for us to know in making the best decisions possible. Now you also want to be in a place where you choose the appropriate state for you. Whether it's an administrative state or a judicial state, or maybe you just want to invest in tax liens that are closer to home. Or deeds that are closer to home. Learn how that process works. Now, if you're going to invest in tax liens, I would recommend you choose three counties. 

Can you give us an example of a specific state, like Florida?

If you're going to go to Florida, choose three counties that you're going to work with and get bitter numbers on those and have those be the initial counties that you work with before you go after every single county that's out there. Now another thing that you want to do on your tax liens, once you've figured out that initial — the year, the interest rate, you want to get a viewpoint of where this property is located. Because if you end up picking it up, is that going to be of value to you. Can you sell it and make money on it if you end up picking it up. So a couple of things you do want to be aware of. Is that property landlocked, which means it doesn't have any street access, right? 

You can deal with that, and there are ways to deal with it, but it's timely, and it costs money. Another thing is the property could be underwater. Another thing is the property could be undeveloped. And so is it essential to have streets and utilities. And so, when you do the research, you want to validate the market value. And when we talk about tools in a minute, I will talk about different ways to validate the value. But one of the best ways to do that, I've found both realtor.org and Zillow provide a huge vacant lot or residential, where you can see the sole comparables of that given property and the surrounding ones. 

And the ones that have sold, the dates, how quickly they took to sell, and that way you can go into that tax lien purchase with confidence knowing, hey if I have to file a TDA, I'm confident because I know if I get it I'll be able to sell it. I also know what it will sell for. So then you can move forward with your investing ROI strategy, and that's going to make a huge difference not only toward your portfolio, but to your confidence as you move towards your goals. 

Eric, let's talk about market research. Where am I going to invest, what neighborhoods, how does that all fit? 

Oh, you're talking about the analytics dream and nightmare at the same time, right. Because some of us who like information and data can get way too hung up on it. But when used the right way, you can understand the best marketplaces throughout the country and even in your own different neighborhoods. Let's talk about the big picture first; if you really want to get a handle on what's happening with the economy nationwide, one of the best resources that I would recommend is realtor.org. And they actually have these quarterly reports that show information, job growth, what sectors are growing, what's declining. Make sure you go into their presentation slides; you're going to get so much excellent data. It will help you make decisions if you're looking to invest in different parts of the country. 

Also, you can use your real estate software to figure out what the best resources are that way. You can look at it as a whole and say everything is across the economy. What you can also look at in the big picture is interest rates. Because whether interest rates are super low means lending will be a little easier, which means that individuals can typically afford more, all of those things that kind of drive the economy. So that's a big picture. Now when we're in a place where we are looking at our local market, we need to get a little bit more defined. What are some of those things we think about? 

What is the most important thing that we want to know when we're in a specific area? Well, I want to see if it's on the incline, if it's stagnant, or if it's on the decline. I want to be prepared for that in knowing what's happening. 

Can you explain this process a little further?

There's an easy way you can tell that too; you can take that certain area and tell how many properties are listed active for sale, how many are under contract, and how many have sold in the last month. I'll give you a quick example. Let's say you have two properties that are active in that area. Let's say you have 17 properties that are under contract in that area. You have 42 properties that are sold. In your mind, where do you go? It's like that's a hopping area; I can price it for whatever it's going to sell. 

What if we change it up? What if we have 32 properties active, two properties under contract, five properties sold. Well, that's telling you it's on the decline, or you have to be super competitive with how I did it or how I fix it up. So you have to know what's happening. Incline, is it stagnant, is it going down? Stay on top of it. One of those indicators also is called dom. If you don't know what DOM is, it's: days on the market. It means how many days was the property actually active until it went under contract. And so the shorter the days on the market, it means things are moving really quickly, right. And that means it's going to be a shorter time if you're doing a flip, to where as soon as you get that ready where it's going to turn quickly. So days on market are definitely important. Now see what the inventory is like, is there an inventory shortage, is there too many on the marketplace. But here are some unique things that you want to pay attention to. In an area that I went in, two major factors came into play regarding how the local economy and the local jobs affect property values. 

What can you say about the role of big business in infrastructure and real estate investing? 

Recently, a small company named Facebook decided they would go ahead and invest in a 5 million square foot warehouse facility, not too far away from one of the properties that I hold. Now with that being the case, what does that kind of tell you? You have a large company that's investing infrastructure into an area. The natural consequence is there will be more jobs; there will be more commerce, there's going to be more things that are taking place. So you got more of a buzz. What happens when an Amazon hub opens up, which it also did in this area. What that does is that it creates jobs, like energy, people moving in and around closer to that distribution center. So look and see what's happening with the local economy as well. 

Understand what's going on in that market. How are the jobs, how is the city, how's that neighborhood, understand those things and that's going to put you in a super desirable neighborhood. Look at the school districts, look at the schools and see what's happening that way. Find out where the desirable locations are, use that. Check out your days on market, because all of those are factors that are going to help you make the right decision on your investment because you're going to understand the marketplace. Use your real estate tools, too. Have your agent pull up comps for you. In fact, you're going to be able to pull up comps with your real estate software. So you may as well do that and stay on top of what's taking place. Because the more you understand your marketplace, the more confidence you will have when making your offers. And the more authentic you'll be, and the more deals you'll do. 

Another lending term I hear all the time is GAP lending. Eric, tell me about the gap. What's gap lending? 

I'm going to tell you about GAP, but I'm going to tell you a story first. Use your imagination and go with me on this story. Just humor me for a second. So let's imagine all of us, we became general contractors. So we went out, we got our education, our license. We went out, bought our big truck, and a big trailer. And we got our first contract. And this contract is on a high-end house, at the end of the day, our fee will be a couple hundred thousand dollars. We are so excited about this. And then we walk back over to our trailer; we open up the door, get our toolbelt on, and guess what we only have one tool in our tool belt. Which is a Phillips screwdriver. And the expectation is for us to do this entire gut and remodel job with one tool. 

Now I can imagine many of you are like: are you serious, Eric? Are you actually bringing this forward to draw this point? Yeah, I am! Because far too many real estate investors think if they have one lending option available to them, that's all they need. And that's incredibly not smart. 

In that case, what would make a successful contractor?

Think about a successful contractor; what do they have? It's like saws, right, hammers, nail guns, mallets, how many drills. Go through all the things that a successful contractor needs. And to be a successful real estate investor, you need as many different lending options. And that's where gap lending comes into place. Because you may need a certain amount of funds not only to close a deal, but you might need the interim funds. Maybe you need a hard money loan here, and maybe you need to get a gap loan over here. To be able to put permanent financing that you're going to keep as a rental. And then so you need one resource to go to another one. You want to have as many tools available to you as possible.

And so a gap lender could simply be, maybe it's a private lender. And this is somebody you meet at a real estate investment club. Maybe this is Aunt June or Uncle Bobby. 

The great thing about real estate is, I always thought I knew who had money. And I was wrong, OK. I would take it by outward appearances, but that's not reality. What you do is you be in that place to where you ask. Remember, you're adding more tools to your toolbelt when it comes to funding. And so ask the question: have you ever thought about being the bank in a real estate deal?

Tell us more about what it takes to become your own bank in a real estate deal. 

Go get a commercial lender; go get a line of credit. Good heavens, you're setting up your entity or LLC, establish some corporate credit for your entity. Or go ahead and create lines of credit even in your personal name, on your property. Or other properties. You could even use one property for collateral on another property. It's like where is the gap in the deal. What is missing to be able to complete that deal? And be creative on how you solve it. At the beginning of this, I shared with you the first deal that I did. Where was the gap? 

What happened was, I got a 60% loan from a bank, and there was a 40% gap. Where did I get the rest of the money? Well, I went to the seller. And I had the seller finance the other 40%. That was the gap that I needed to close the deal. Whenever you're looking for that creative, or to complete the deal, use your creativity, because it could be any one of those different funding strategies, that could be the gap that allows you to be successful with real estate. 

So here's the thing, close the gap! Alright? Have fun with it. 

Eric, everyone is worried about retirement, and so we have these IRA's out there. What's a self-directed IRA? 

Oh, that's a good question! Now I like stories way too much. So I'm going to share with you an example first. I personally believe they are one of the best-kept secrets in funding your real estate or your tax lien strategies. So first off, for this story. I often will ask investors–to understand where they are. I will ask them about their cash situation, their financing situation, what tools they have available to them now. To see where they are so we can see the right days and get their toolbelt full of their funding, right?

And so often, investors will come back to me, and they'll say, hey Eric, I don't have any cash. I don't have any funding options, but I do have 600,000 in my IRA. And I'm like, huh, OK. So you look at that, that's a tool that can be leveraged, right? And I think most individuals think, if I've got 600,000 in an IRA, well, if I access that, what's going to happen.

What are the drawbacks of a self-directed IRA? 

There's going to be penalties, taxes will be crazy, and all those other things. Now initially, you should have had the opportunity to be introduced to a self-directed IRA or what that looks like. If you haven't been, I will encourage you to look into it because it is super valuable. What it allows you to do is to be able to access your funds, and you actually take control over how those funds are used. 

Now here's the thing I will give this disclaimer. Make sure you have your proper legal and tax advice on this. But I'm just sharing with you information on why so many individuals use the self-directed IRA. And so with that, what they'll do is they will take those monies and put them in a self-directed IRA, and all of a sudden, you're not in a place where you had to pay all those fees and taxes like you would be if you withdrew it. And so you can actually grow depending on if you have a traditional or a Roth IRA, and you'll want to talk through as you do while investigating how that applies to you. But what happens is you can use that money for investing. You could use that money to lend to other investors. You could actually be the lender to other investors.

Any other potential restrictions to know about?

Now there are some restrictions on that with family members and what you could actually have that be a part of your investing strategy. You could also use it for rental properties. There are many different forms that you could use your self-directed IRA for. And if you haven't looked into it, I would strongly urge you to check it out this week, self-directed IRA's. Check into it, add that to your toolbelt as an incredible tool when it comes to your funding options. 

As real estate investors, we hear about hard money all the time. Eric, what's hard money and how do I use it? 

Hard money, wow. Hard money to me is hard for me because it's typically going to be a higher interest rate. It's hard for me because it's going to cost me more in points and fees. That's going to cut into my profitability. That's why it's hard for me. But it's a tool to use. Just because I say it's hard for me, I want you to be profitable as well. Know that it's a tool, just like any of the other financing tools. You want to learn how to use it effectively. 

Now, I know individuals who only use hard money and they are entirely successful. They make it work for them. And that's their strategy. But let's understand what hard money is first. 

A hard money lender is either a group or an individual; they have their own individual lending criteria. They may have a specific LTV that they loan against. LTV means low to value btw. Maybe they will go to 80% or 90%, or some hard money lenders will even go to 200% of the value, including your fix-up cost. That could be a really cool thing. 

Now there's a couple of things you want to watch out for in any loan. What is the interest rate? How important is the interest rate, if we're getting a 6% interest, or a 10% interest. On a three month loan. It may not be massively important, but where it may come into play is, what are the fees we are getting charged? What are the points, what are the appraisals, and what is the underwriting? What does all that look like? 

Is hard money a fast or slow option for funding deals?

Hard money means you've got access to funds. Usually, it's meant to be a quicker process and a faster scenario. And one of the places that I like to go to as far as a tool that you may want to check out as well. I've used it for years as a lender and it's called Scotsman guide. Scotsmanguide.com you can check it out. They do have it setup by hard money lenders by state. You can check that out. It's a great resource. 

Now hard money lending, let's dig a little deeper into it with regards to rate of return. With anything, first look to get the lowest cost loan, but you also want to make sure that you have: if you've setup a track record often with a hard money lender, they will say OK, on the first deal, we'll charge you two points and the loan will be at 10%. We'll charge you one point on the second deal, which is one percentage point of the actual loan amount, and maybe they will say 8% interest rate. Now that means they are telling you that they are flexible out of the gate. 

Does that mean you as an investor can negotiate with any lender at any time, to get a better interest rate or negotiate on the points and fees? You bet it does. And you better be asking them to reduce those costs and those fees to be able to go ahead and maximize your return. So pay close attention to that. Just like getting the best rate that you can in real estate when you purchase, you also want to get the best deal you can when you're negotiating how the funding goes. And that will make a big difference to you as you move forward with hard money. So again, hard money, don't shy away from it. 

Can you sum up for us the benefits and drawbacks of hard money lending?

So you might say Eric, that seemed kind of bad with your initial approach. Ooo, it's hard. No, hard money is just different. It's not good or bad; it just depends on how you use it. And is there a better tool that you could use. But I would definitely recommend hard money as one of your funding sources moving forward. So get more educated about it, get a couple of hard money lenders in your back pocket so that you're ready to move on deals. That way you know what to expect so when you're running your numbers that way you can actually determine your profitability, including your lending cost. That's when the funding part will be fun for you. It really will turn into a positive thing. Hard money, excellent way to fund deals, excellent opportunity. Add it to your toolbelt. 

Eric, let's talk about funding now. We can get some big numbers fairly quickly. 

Now I have to tell you, I actually look at funding now, as fun. Because it's challenging, you can be creative, come up with a solution, and do the deal. And reach your goals, and have it be awesome. But I'll tell you initially, when I started, it meant fear to me. And it terrified me. Because I'm like, where is the money going to come from? You may feel that way right now too. And I have to tell you, if you follow the process, you're going to be in a place where the funding will work for you. It's just a part of the process. Don't let it overwhelm you. When different ideas are brought up, try it. 

What kind of mindset should the newcomer have when they start to understand the process of funding their own deals? 

Remember when I talked about mindset initially? And you may say, oh that won't work! Or, I don't know anybody with money. Or this won't happen. Well, you're already putting that barrier up to hold you back from success. And so when we bring up different topics to talk about funding today, I want you to really look at it with an open mind and say: how can I apply this? And try it. And you may really actually like the process. 

As we mentioned in our early videos, we talked about funding as one of the main ways to maximize your income. If you can key in and focus on those low-interest rate, low-cost loans to help you maximize your returns, you're going to be sitting in a great place. So again, take the funding, and let's add the fun into it. Let's get rid of the fear part.

OK so with that out of the way, what are the best or most common ways to fund deals? 

Just think openly, and you can have a conversation with me. What do you think is going on? What ways can we fund deals? Now we've talked about wholesale buyers—that's actually a way to fund a deal, by the way. Did you ever think of that? So we could fund a deal with our own cash. You may not want to, but you could easily do that. What if you did something like a home equity line of credit? If you've got low-cost interest you could use, why not? Depending on what kind of return you're going to get. Now there's a lot of different variations on how you can use partners. 

You can do a joint venture, you could bring them on as a certain percent partner. It could be a debt partner or an equity partner, it just depends on what you decide. You may cross over into this world called private lenders. I think a lot of folks are scared of that, because that's your network. And that's just simply asking people around you, hey have you ever thought about being the bank in a real estate deal. And you'd be surprised at what happens when you do that. You have conventional lenders: you could go to a commercial lender, right? So are you getting the picture? There's a lot of different ways you could fund deals. You could use options to fund deals, good heavens, you could even go to the seller, and the seller could fund the deal. 

What about seller refinancing? 

Now, if you've ever heard of the actual funding way of purchasing a property, called subject two, that's a form of seller financing. You can definitely do that. We can do hard money, and we're going to get into a little more depth on specifically what hard money is and how to use it effectively. 

There's also gap lending, which is either a portion of the actual purchase or maybe it's: you're using some equity from one property to get into another property, but we'll talk more about the details on that here in a moment. 

We'll even spend a little bit of time talking about self-directed IRAs. Now the great thing about this, remember I'm not just talking about investing in real estate, like the fix and flip. I'm also talking about investing in tax liens, tax deeds. That's also real estate. The information that we shared with you can be applied in both areas, and so as part of your effective strategy as a real estate investor, you must have funding as one of your key methods of success.

What are the three most important things to focus on in this process?

Now I'm going to introduce one more thing to you before we talk about hard money. You're going to want to focus on three things to have a successful real estate business. You have to have consistent finding, finding the deals, you have to have consistently have your funding efforts and your funding ready to go, and you must be able to make your offers. As long as you're focusing on those three areas, your business will continue to move forward. 

We really need to understand each funding type to have genuine success in real estate. 

Eric, let me ask you a couple of questions about tax liens, and so as I'm looking at that, how long is the process? When do I start making money? 

OK, so on a tax lien, remember the term that new language we were talking about called redemption, and that's when you get paid. You could initially go in right away and know if you pick up that tax lien or that tax lien certificate; what happens if you could have an owner. You're kind of waiting. 

You know there are two approaches that you can take. One is more of a passive approach, and then one is more of an active approach. And the passive approach is to buy that tax lien and wait. Either wait for the owner to redeem it, or you wait for another investor to come to pay us off as it goes through—but you're kind of waiting on someone else to take action. 

Now, if you were more on the active side as an investor, and your tax lien has passed that two year redemptive period in the state of Florida, you can actually file the TDA and be more aggressive and get 18% on your money during that window when you file the TDA until it is sold at the tax deed auction. And so you can influence when you get paid, or you can invest and be more passive. 

So it just depends on what you want as part of your investing strategy. 

And so I buy that tax lien, and the owner pays it in 6 months. Am I happy? 

That's why you want to pay attention to the interest rate that you're picking these up on. They can be different interest rates. What happens is that the tax lien's initial offer is offered beginning at 18% and then through the bidding process, they actually bid down the interest rate. 

And so, let's say your bidding against others, and let's say it goes to 12% and you become the owner of the tax lien at 12% well, you're going to get 12% interest during that six months until the owner pays you. And if you're satisfied with that 12%, btw that's a whole lot more than your getting in your savings account, wouldn't you agree? I mean really, 12% is a great return. And so that's how that process is figured out and that's one of the ways you get paid on tax liens. 

So one of the reasons we love tax liens is you got that interest rate, and you're like, wow, that's good, and if it can roll into me doing something and getting that property in a tax deed sale, then that's fantastic. 

You have to love that because it takes it from good to fantastic. It's like good to even better, right. And so yes, you can get paid, and there's nothing wrong with a 12%. But if you want to be more aggressive, that's when you can file more of those tax deed applications. The unique thing is when you file that tax deed application, you're automatically going to go to 18% so that the entire amount that you've paid of those back taxes will be collecting 18% from the day you file it. 

And so what happens is until that property is sold at auction, you're going to collect 18% on that. Now maybe you're happy with that and that works, or even better, you could potentially pick up the property if no one invests in it and the tax deed auction. 

Let's suppose I buy this tax lien. Can I go knock on the door and talk to the owner? 

No. In all of the resources and tools that we talk about later, that's a big no. I will say it again, no. 

So don't go knocking on that door and cut a deal directly? 

No! 

And owning that tax certificate is the line; before it goes on sale, I can knock on the door and talk to the person and say, hey I'm wondering about your property? 

Yeah and see if that might want to sell. Maybe they might be a flexible seller. They may have some challenges. But up until you cross over and own that certificate, no. 

Excellent, and so if I want to be a real active investor and jump right in, then I'm looking at tax deed sales cuz then I get ownership right away.

Immediately.

And so that's the beauty of tax certificates. I can get in for a relatively low-value amount, and boom, I've got upside. Tax deeds, OK, I'm ready to either flip this house or do something with it. 

Right, and find out what fits your personality and your strategy. You may do all three approaches. You might purchase it and wait. 

Eric, I've been around real estate for a real long time, and I kind of feel like I know the language of flipping properties and commercial buildings and everything that way. But when I get into tax liens, it's almost like I have to learn a new language. Tell me about that language. 

It is its own unique language, and you do want to learn it if you want to be a successful tax lien investor. One of the first things you need to understand is: what is a tax lien to begin with. As property owners wherever we are located in whatever county we are in and whatever start we're in–we're required to pay our property taxes. Our property taxes are due at different times of the year, depending on where you live. 

I will ask you this question: what happens when you do not pay your property taxes. You're going to get those letters in the mail that says your delinquent. What happens is that delinquent tax will actually become a tax lien. Now that allows us as investors to strategize how we can make money on that. Now that tax lien is then auctioned off. And as investors, we can go in and bid to get that actual tax lien, and then that's when it becomes a tax lien certificate. So when you hear me talk about tax lien and tax lien certificates, know that it's pretty much one and the same but it's that actual lien has become a certificate against that property and we'll talk more about how that works. 

Can you tell us a little about the common terminology used when it comes to tax lien investments?

So we're going to talk about some terminology, which will give you a little bit of a taste of this different language that we're talking about when it comes to tax lien investing. So the first thing is, there is a term called redemptive amount. A redemptive amount is basically what you will pay for that tax lien certificate or that tax lien, if you will. And so what happens is, it's going to be the original amount of the delinquency, plus the interest until the current time. And so that's our redemptive amount. Now the next term I'm going to talk about is a redemption period. Now a redemption period is slightly different in every state. For example, I'm going to give primary examples in the state of Florida because they are super investor-friendly. 

They're an administrative state which is what we will talk about later on. But if you are interested in investing in other states, you can find this information out. But let's talk about the redemption period. So for me as an investor, if I want to take action and file a foreclosure based on the actual tax lien, then I have to wait a time period from the day I actually originally picked it up from the auction. I have to wait two years in the state of Florida before I can actually file a TDA and start the foreclosure process on that property. And so the redemption period is important to know, because that's how long you have to wait until you can actually start the foreclosure proceedings. So that's a valuable thing to understand. 

What about this term, “redemption” that comes up a lot with tax lien investing? 

Now redemption is such an excellent word. Redemption simply means that you get paid. There's a lot of different ways that you can get paid as a tax lien investor. You can have the actual owner of the property pay their delinquent taxes. You could have another investor out there when they file the TDA to pay us off when they pay the rollup amount. Or we could go to the actual deed process where we file the TDA, take it through. Maybe the owner pays then, or maybe we could actually end up picking up the property. Now, if no one bids at the deed auction, we actually become the property owner for the amount of our investment in the taxes. Pretty cool huh? And that allows us to eventually pick up a property and even increase our returns even more on tax lien investing. So a couple more things when it comes to this language of tax liens. 

I hear a lot about the term face amount, what can you tell us about that? 

Let's talk about face amount. Face amount means the original amount of the tax lien delinquency. You have the face amount and then you have the redemptive amount which we've already talked about. And then we also have to note something: it's called a certificate life. A certificate life is, how long will that tax lien be in existence. Now in the state of Florida, it's seven years. So from the date that it becomes a certificate until the date it expires. Expire means death, it's done, it no longer exists. Remember we have to wait two years until we can take action on it, which is that redemptive period and so we have that five-year window where we can go ahead and move forward enforcing the foreclosure. And that essentially means filing a TDA or a tax lien application. Now give an example, another state like Arizona, it's 10 years. And so you'll want to know about the different areas you're investing in when it comes to your tax liens. Let's talk about this. Let's say you did want to focus in and force this foreclosure to take place. 

What is a rollup, how does that relate to face amount?

In this situation, you're going to have to pay what's called a rollup. This rollup is any other subsequent tax liens that are on that property, you have to pay all of those. So maybe there are two others. So you've already purchased your tax lien certificate, so maybe there's two others there that you've gotta pay off and that's part of your rollup. And then you can file your TDA or tax lien application to start the actual foreclosure process. Then you have that option when it goes to the tax deed auction. We can talk more about tax deeds later. But that tax deed auctions are typically held in each county towards the end of each month. And that process is not as long as one would think. It's typically between a 3 & 6-month process to actually go through that entire foreclosure process. For an example in the state of Florida. So we do want to understand how to identify and do our homework. Like on tax liens just like if we were doing a rental property we want to figure it out. So we have to get the property address and the parcel and really dig a bit deeper into what's taking place. 

One of the things that stands out is, we want to see where we are. So if we have our rollup, remember that's the amount we pay on the back taxes compared to the assessed value, which can give us one determining factor on where we stand on that specific investment on hey what are our chances to pick it up. If it goes to the TDA, what are our chances that the owner redeems? One of the simple calculations that we can take, is the total amount of all the owed taxes divided into the assessed value. We like to call that HLTV — lean to value or horizon lean to value if you will. 

Can you give us an example of the way that these technical terms relate to each other?

Basically, what you do is, for example, let's say you are looking at a vacant lot in Florida and your rollup is 5,000, and your assessed value on a property–now remember the assessed value, people can argue that assessed value is actually much less than the market value. But let's say your assessed value is 10,000 and so if you have a 5,000 rollup, or the delinquent taxes and you have a 10,000 assessed value, that's going to be a 50% HLTV. And all that's tell you is that if you end up picking up this property, you're going to pick it for 50% of the assessed value. 

Now is that a good deal? Sure it is. We can get into all kinds of things with strategies and plans. That's why you want to dig deeper in understanding your education and dig deeper in understanding how tax liens actually work. You want to examine yourself and see: what kind of budget I have to invest with? As part of that you may so OK I have 20,000 to work with, or 100,000, or 500,000. Whatever that looks like. And then you're going to go ahead and adjust your strategy according to that. Because you will have a certain amount that you invest in your certificates, and you'll have a certain amount that you'll pay in reserves with your rollups. 

So again, like I said, I know this is a different language and learning a different language can be a little bit difficult at times, but hang with me. We're going to cover a couple more points, and we'll talk more about tax liens. 

Can you tell us about how each state differs when it comes to tax lien investing?

Alright, so let's talk a little bit about the different kinds of states. The state of Florida for example is what's called an administrative state. In an administrative state, what is required for a foreclosure on the tax liens is that you simply go to the county and file what's called a TDA. Which is a tax deed application. You do not have to go to court, you do not have to hire an attorney, which is a straightforward, straightforward process. Now in an administrative state, you do have to go to court, you do have to hire an attorney, and the process takes more time. So you'll want to find out, get that information on states where you are investing and figure out how to do that. 

A couple of other things you will want to learn to make purchases on these. You will need to get what's called a bitter number. 

What is a bitter number? 

Bitter numbers are easily obtained through the county you are making purchases from. You can get them from the actual tax assessor or collector's site of that individual county. But you'll need that because that will associate with the name or tender that you're purchasing under. 

What is the difference between administrative or judicial when it comes to tax liens? 

Alright, let's talk a quick clarification on administrative vs judicial. Every state is different, and some states have both. Now administrative means that you go to the county to file your TDA (Tax Deed Administration) and that's how the foreclosure process works. Now in a judicial state or a judicial state, or a judicial situation, you have to hire an attorney and take it to court. Now it's more costly and time-consuming on the judicial side of things. 

That's another reason why we like administrative states such as Florida. Then from there, I would say you set your goals. Once you understand the language, you may say I want to hit this amount per month as a return—then figure out what that looks like. I need to purchase six certificates a month and then I need to file two TDA's a month for me to get where I want to go. Here's the thing, get more educated about this new language. Tax liens are an exciting way to enhance your real estate portfolio and your real estate investing experience. To learn more about it, get educated in the process and best of success with your tax lien investing. 

Eric, I hear a lot about wholesaling as a real estate investment strategy. Tell me about wholesaling. 

Who doesn't love a great deal, right? So, first off, I think wholesaling is a big scary word for many new investors. Or if you've never done it before, it's like ooh, how do I do a wholesale? And you're like, is that even legal? Well, of course, it is! Let's talk about how you can move forward with a wholesale deal. First off, what do you need to make a wholesale deal work? It's really only two things. It's a property, and it's a wholesale buyer. It's that simple. All you do is identify the property, put a contract on it, and then have your wholesale buyers step in. It is that simple.

And so, let's talk about some of the tools that will help you out when it comes to wholesale buyers and completing a successful wholesale deal. It's OK to have a little bit of fun with this. So let's talk about: how do you find wholesale buyers. So think about it for a moment; where do you go to be surrounded by other potential investors. One of the best places that you will go to will be to meetup.com, which lists all of the local real estate investment clubs out there and available. You might as well go there because anyone who is attending could be a wholesale buyer for you. 

What about Craigslist, is using that as a tool a viable strategy?

Absolutely you could utilize Craigslist. Anyone who is listing properties, you can tell them: I buy houses, I buy properties, I pay cash for houses. Or maybe you get something in the mail that says they want to buy your home. They could be a wholesale buyer for you. So really, anyone involved in real estate wants a deal because all we're doing is identifying the deal and then passing it along to another investor to complete the sale. 

Whether we identify a property as great as rental, and then we build ourselves in on the wholesale side of things, then we pass that along to purchase it or use it as a rental, that's great. Or we identify a property that's an excellent flip, and then we go ahead and take our portion for the wholesale fee, then we let that other investor finish it out. 

What about other forms of social media?

That allows us to finish that deal. Now, other places that we can find wholesale buyers. Think about it, social media. Have you ever been on social media, and you've seen people who have their real estate business on it, where it's like for all your real estate needs? You can even create your own social media. To have a social media page, it doesn't even cost you anything. You can pay to advertise and market on those platforms, but that's a great resource you should plan to use as you move your investment business forward. 

So where else are you going to go to find your wholesale buyers? So think about this. You can even put up bandit signs to find them. Or even call on the bandit signs that are out there. Because their buyers as well. It's really limitless. And what you want to do is go create a list. Create a list of 20 or more wholesale buyers. And then what you want to do is you want to prioritize them, from the best to the worst. And when I say best to the worst, it is: you want to quantify these wholesale buyers. 

And what this means is, you prioritize them. OK, well, do they have cash and are they ready to close immediately? What area do they like to focus on? What type of properties? “It's a 3 bedroom two bath in Garfield city is where I'm mostly interested in” they may tell you. So you want to find out all of those things up front, and then you want to let them know. So if I bring you the best deals that I have, you're going to be able to take action on them–how quickly. And you want to be able to find that out so you can prioritize that. If an investor comes back to you and says: I can be a cash buyer in thirty days! That means they are waiting on getting financing which is not a horrible thing, but that delays the process for us. 

Can you tell us a little about the process of contracts in the wholesale process? 

Absolutely. This is where I think a lot of the confusion comes, when it comes to wholesaling. There really are only two ways to do a wholesale deal. One way is through a simple assignment. Another way is through a double closer. Now I will talk about the assignments in a second. But a double closing is simply—I think some investors get a little bit scared of that because they believe it's a dual contract. No, it's not a double contract, that's illegal. That means you have one contract that goes to a bank, for the financing and then you have another contract that goes to the deal, with the intent of defrauding the lender. That's a double contract. That's illegal. 

But what we're talking about is a double close. All that means is that you're buying and selling it on the same day. Let's talk about the assignment first. You may have seen in a contract where it says someone's name and it says: and/or/assigns. So if I put coach Eric, and/or/assigns that means I could sign that contract to whomever I choose and they could fulfill the terms of that contract. And then I could go ahead and put an assignment fee on that, to where if I felt that the value was there that I could go ahead and make 10,000 on that deal, then I could put in a 10,000 assignment fee, that new buyer would step in, they would fulfill the contract, I'd be out of the picture and that's a great pay day. 

What about assignment fees

You should ask yourself: what is a typical assignment fee? That's dependent upon you and the deal. Find out how much room is in it. If there's an extra room in it, charge more! If there's not as much, and you don't spend as much time on it, charge less! And so in looking at it, it really is that simple, and you could use a title company to help you with the process. You definitely want a title company to help you with the process. You want a title company that understands how to process, even a simple assignment. That way they can make sure that everything is taken care of, the process is followed, and the money comes to you, the way you want it to come to you. 

So that's a simple assignment. 

And what about double closing?

So a double close does tend to be a little more costly. Because when I say you're buying it and selling it, you're buying it and selling it either on the same day or simultaneously. You're going to end up paying closing fees on the purchase or closing fees on the sale. So there's more cost that comes to it. But it is worthwhile to understand the ins and outs of both the wholesale processes and then make sure you have a team and make sure you have a title company that knows how to process wholesale deals. Make sure you have real estate agents that know how to process real estate deals. 

Because they will come back and say, you can't do that, that's illegal. Well no it's not. A lot of times they'll say, this is not assignable unless it's in writing. OK well, then put it in writing that it's assignable. That's a simple way to get around that. So with that being the case, that's a quick introduction to wholesale; you want to be aware of your local laws and state laws regarding wholesaling. That's why you wanna have great team members, that's why you want to go and check out your real estate investment clubs when it comes to wholesales and the right team to help you with it. And again there's only two things you need. You need a property, and you need a wholesale buyer. This is a quick way to get to cash. 

Eric, in talking about wholesaling, there's a concept that I want to talk to you about. The value is now in the contract. And I think people get lost a little bit on wholesaling, and we scare real estates agents when we're selling a property, when what we're really doing is: that piece of paper now has value. Talk to me about that.

Well, I like how you brought up that the real estate agent has a concern for that. Because I think the first concern that comes up for real estate agents is: am I going to get paid on this. But in all reality that contract stays the same way. You're just changing one person's name to another name, or one entity to another entity. 

So as I look at that, I've got this piece of paper and that's what I'm assigning to someone else. I'm not really passing that home on, I'm passing that piece of paper. Right?

Yeah. In a simple assignment you're just passing the contract along. 

Depending on how you're doing the deal that's when we start looking at wow, I have to actually close on this property, and pass it one to someone else and sell it on the same day. 

Yeah, that's when you will actually make the purchase on that double close. You'll buy it from the seller, it will be in your name for a concise period of time, and then it goes on to the new buyer. And so that is essentially the difference between the two. They're both wholesales, but that's your process when it comes to buying and selling on the same day. 

Excellent. Another thought process is, let's suppose we are looking at a property and we're willing to offer 200,000 for it and it's a fix and flip. What if we are going to offer 180,000 on it, just to be good on my offer, and it's accepted. Is that when I find out it's an opportunity for a wholesale deal? 

Well of course, because you're picking it up for 20,000 under the price right? And so potentially, you may have someone who would be willing to pay 190,000 for it, and you could do a simple assignment for them for 190,000. They're getting a 10,000 deduction on the price, and you'd be getting a 10,000 wholesale fee. 

So would you say that there is a reward for making good and aggressive offers? Because then you say wow you took that price, that's less than what I would pay for it. Now I have a choice, do I want to do the deal myself, or am I gonna wholesale? 

I think you're onto something, because, in all reality as a new investor or even upping your game and getting into wholesales, it's like, we kinda have this thing in our mind where it's like: are those deals really out there? And, they are if we create them. We always have to remember that we don't ever get what we don't ask for. We have to be in the place where we ask for the deal, we have to make that aggressive offer that works for us. Because in all reality, if we make an offer, it has to work for our goals, it has to work for our time, or we can't do it. 

So part of being an investor is understanding your skillset. If you're committed to getting people to sign the contract and making that deal, there's real value in that when you're a wholesaler.

That's correct. It's all about identifying the deal and understanding your market and taking action on it. 

Eric, let's talk about fix & flips as an investment strategy. Tell me all about it. 

The fun stuff! This is the sexy stuff in real estate, right? This is the stuff we see on TV where we identify a house, go in, and buy it, all within 30 minutes, right? There's a lot of discussions and desire to do fix & flips. It's also a great way to build capital. There are some things that you do need to do to understand the process. And here's the thing, I think we all know individuals who have applied the sound principles when it comes to fix & flips. Would you agree? We see what it's done for them in their lives, whether it's that they help them to build wealth and they go and buy rental properties—you know, whatever their process is. 

But we may have also seen someone who went through a fix and flip, and they were like—they have one of their stories where it didn't go very well. In fact, it went horrible, and I lost money on it! OK so I'm going to talk about some things that will help you to maximize your return, and really take control of your investment on a fix & flip. You can call it a buy, fix and resell. You call it. Whatever works for you. 

Can you talk a little about how value relates to the fix & flip process? 

Sure! In a fix and flip, you have to be in a place where you understand the value. Because we are looking to buy a property at a price that we're actually able to go ahead and make a profit, we've got to have some holding costs, but we also have to pay to fix it up. That's a key part of it as well because we have to include it in our calculations. 

Now when we're running the numbers, there are many different calculations that we can use in determining whether or not something is profitable for you. One of those simple calculations that I can share with you is the 70% rule. 

And what about repair value?

Very simply put, you take what a property's after repair value is. Once a property is fixed up, that's what it would sell for based on sold comparables. You start there, and what you do is you take 70% of that number, so you take that number and multiply it by 70% and then you subtract out your repair cost. Or your fix-up cost. Now that thirty percent is your profit, is your holding cost, now you can get a lot more in-depth—you can go use the software, go use all the tools out there. But that's just a quick flash on how you can analyze a property that way. And guess what? You might find a property that needs a lot of work. And you may only be able to offer them half of what they're asking, or you may be able to provide them with 60% of what they're asking. But it's based on how you can best make a profit off of this. 

Now, when you're doing a fix and flip, you have to have your financing together. You could have the owner finance the deal if you want to. Which is awesome, right. You might as well ask for it. You could get bank financing and do a hard money loan. You could do all kinds of things; you could do private lenders, the sky's the limit. Be creative when it comes to how you want to get your money. Remember, the lower cost the money, the more profitability you're going to make on the deal. 

Now if you get a high-cost loan that's a high interest rate and high fees, that's going to cut into your profits. So be aware of that. Find the lowest-cost loans that will allow you to have the best returns on this fix and flip. 

So, we've identified the property, we've run our numbers, we're happy with what's going on–we've made the offer now. Now the offer is accepted, we do your due diligence, we have our contractors check it out, and we're OK with it. Even if we're not OK with it, we can still go back to the owner and say well, guess what it needs 20,000 more work than we thought—we need to cut the price. Right, so again, everything is negotiable. Pay attention to your deadlines when it comes to inspection and your finance and all those things, but on the fix and flip process, you will want to have a great team in place. 

Now I hear this too often: you know what I want to be the contractor on all my fix and flips. And it's like, well how many deals do you want to do a year, like one? Two? If you're doing all the work, it will take more time than having a team go in and do it in 60 days. If you want to hold it for 6 months as you and you want to do the work as you have the time, it's going to cut into your real estate investing business, it's going to cut into your personal life, and really it's not recommended. And so, as you move forward, make sure you have that great team in place. 

What can you tell us about the reality TV shows that show the process of fix & flip? 

Good question. Even when you watch the flip shows on TV, it's all about their team. They come in, and they say how much it's going to cost, how many days it's going to take, and then you work it through that process. Now in building your contractor team, vet amount. Whether you're going through like an Angies list or even Amazon has a services list that you can go to and get recommendations to see how good they are. You can also go to your local real estate investors club and find your contractors. Heck, even go hang out at your local home depot and find them on Saturday mornings; those are the ones that are working the hardest anyway, right?

So with that process, get your contractors in place, make sure you have low-cost financing, and have your exit strategy in place. Stay on top of what the values are. You had the original value of what you thought it would sell for. Let's say two months later, maybe the property prices have gone up. I mean, is inventory low in your area right now, and that's a pretty common problem. Or is there a lot of inventory? 

You could always compete when it comes to fix and flips. No matter the market. Even if the market is going down, you just have to buy it right. And buy it at a price to where you can make sure you get the best return possible. Or, do things that other properties are not doing. Do those higher-end finishes to make it stand out, do the things that…in those types of markets, just adjust your focus so that you can get the best returns as possible. And then have a plan for your funds. 

I think far too often, investors will get in and they'll have like 5-6 checks and they're like “oh yeah let's do this”. Well, realize that's also short term capital gains, so what you want to do is make sure you have a plan on what you're doing with those proceeds, how you're going to go ahead and responsibly take care of your taxes as well, and then what you're going to do to reinvest. So fix, and flips are an excellent way to build capital so that you can grow your real estate investment portfolio, and it is a lot of fun, it is exciting and frustrating. 

Always remember there is going to be a problem in every real estate deal you do. Now, the important thing is to prepare yourself for that. The more mentally prepared you are, the easier it's going to be on you. And remember this, those of us that are the most successful real estate investors are those that anticipate problems and focus on solutions. 

Prepare your mind, prepare yourself to be in a place to know, oh here's the problem that comes up, and then realize so on the next deal when it comes around, you'll know how to address it even more effectively, and you'll be able to go ahead and work through your systems when it comes to fixing and flipping. 

Above all else, run the numbers, understand your market, realize you can do this in multiple markets wherever you choose to invest, and happy hunting when it comes to fixing and flipping!