Category: United Tax Liens Blog

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! 

Eric as we start to look at investing in real estate, rental properties—tell me about the investment opportunities associated with rental properties. 

I have to tell you I really love rental properties, and for so many reasons. If you're in that realm where you're like: I don't know about rental properties. I'm only making a couple of hundred dollars, or $500 a month. If you don't understand or don't think there's value in owning rental properties—after our discussion hopefully, it will allow you to reflect on your mindset and look at what's possible. Because rental income will enable you to build long-term wealth and passive generational income, you can pass on to others. 

If you purchase a rental property, whether it's a commercial property or a single-family or multifamily—whatever it is. Imagine someone paying for that asset for you. They're paying it down over time, they're making the payments on it, and you get benefits by owning it. Now rental property, you have to dig into the nuts and bolts of what it is. 

Can you give us an example of some of your personal experience with rental property investing?

Sure! This was the very first property that I've purchased. It was a rental property. I was in a place where I had no money, and I had marginal credit at best when I first started—this was in 1994. So this is a long time back. And what happened was: I was like how could I figure this out, how could I make this happen? And so I went to the bank. The bank qualified me and said “we will give you a 60% loan,” and then I was in a place to where I had to figure out, well, how do I come up with the other 40%?

So I said: I can save it up, I can go get a partner, maybe I can talk to the seller and see if the seller might be the bank. And in this instance, the seller did. So what I did is I got a bank loan for 60%, I got the seller to finance 40% so the whole purchase was financed, and I walked into it with a $187 cash flow. Imagine that, no money into it and $187 a month cash flow. That's called an infinite return. And what happens is, every single month, that rent comes in and keeps paying down that property. Now I don't have this property anymore, but I will tell you it was a great foundational start for me because it showed me the benefits of rental properties. It's not just the cash flow, and there are so many other things that come from rental properties. And let's talk about it for a second. 

So what did you end up doing to solve this problem?

The first thing you have to be able to be really good at with properties that takes all of the fear away, is you have to be good at running the numbers. So you gotta be able to say you take the income, so if the rent is $1500 and you want to look at all your expenses. What is the management fee? 

Now here's the thing, you're not going to want to manage your own properties. You want someone else to do it for you. It's OK if it's like your first or second one, and you're just learning how to do it, but after that, you're going to want to maximize your time to build your real estate portfolio. And so having that person on your team will help out. 

So you look at the income that's coming in, and then you look at your expenses. You do take a vacancy allowance out of it. You do take the rent payment, the mortgage, the insurance, the taxes, all of those things. At the end of the day, you're leftover with a positive cash flow. Now one of the best things that you want to do, if you're ending up with a negative cash flow, and you're like, oh, I'd lose money if I buy this, now the actual definition of an asset is something that puts money into your pocket. The definition of bad debt, is something that takes money out of your pocket. So when you get into a deal, especially a rental deal, you want to make sure that the property puts money in your pocket on an ongoing basis. 

Otherwise, you're in a position where you're losing money and you're feeding that property. You don't want to be in that position. If you do find when you run the numbers, you're in a negative cash flow situation, change it. Either get a better interest rate, or offer a lower price, or find a way to make it work. And I'll tell you guys; the most creative amongst us in real estate investing are those that will be the most successful. So if you hit a dead-end, don't stop. Just figure out a way to make it work, so it works for you as you move forward with that process. 

What are some other positive benefits to owning rental properties in real estate investing?

Just think of this. So if you own a rental property for 10 years, right, and you're paying down that mortgage. Whether you have a 20 year mortgage, 30 year mortgage, whatever it is. Well, you have a tenant that's paying down that loan balance every single month. And so it's actually taking that loan balance down. That's another great benefit for you. And what happens historically? Suppose you look at the historical numbers when it comes to property values, and you look at appreciation over time you're gonna be in that place to where it's like guess what. In that case, properties go up anywhere between 3-6% annually and that's pretty awesome. 

Now we don't want to count on that necessarily, that's just another benefit of having a property. Because it goes up in value, we pay it down. And there's another unique feature about rental properties. And if you don't understand it, invest a little bit of time figuring it out. It's called depreciation. And there are different forms of depreciation. Now, what happens when you purchase a rental property? You have to establish what your cost basis is in the property. 

So, how much is it in the land, how much is it in the improvements? And the great thing is we're going to take those improvements—over a 27 ½ year time period, and then that's an allowance that you're going to go ahead and depreciate against the property. It's almost like a loss. Now, this does affect your cost basis in the property. That's why you need a tremendous tax CPA, someone who understands real estate, so that you can maximize these opportunities for yourself. So you have depreciation, you have an appreciation, you have loan paydown, you have cash flow, you have so many options to build wealth. 

Can you give us an example to help drive the point home?

Absolutely. Imagine what would happen. Would your life be any different? So let's say you started investing 10 years ago. And you decided to buy one property a year as a rental. And the cash flow builds up. And let us say each property is producing at this time $500, and over time, those mortgages will go down to zero and those rents will keep going up. That's another benefit that I failed to mention.

What do rents do? Rents go up. And if you ever have questions about rents, a great tool that I like to use, it's free it's a really cool tool to use, it's called rentometer.com 

You can put in the address, the bedrooms, bathrooms, and it will give you all the rents around in that area which is really great. Then, make sure you're using your other real estate software and those different programs that will maximize your opportunity to understand what's going on in that market. Rental properties, foundational rental wealth really will change your life. Let's talk about some action items you should be taking if you want to understand more about rental properties. 

First off, you want to be in a place where you understand how to run the numbers. When it comes to a cash flow statement, income minus expenses. That is the foundational key when you're looking at properties. Now there are other terms out there that are used on rental properties to kind of establish value. You may hear a term called cap rate, cap rate is just a function of the net operating income, divided into the purchase price and it gives you a percentage. 

Can you give us a little more detail about what cap rate is?

The higher the cap rate that we get as investors, the better for us. So you want to go out and find the general cap rate for your area. And it's different area by area, and you may find that investing in my local area may be a little tough on the cap rate and cash flow, so you go find an area that's very profitable and go ahead and do your market research. Maybe it's a certain area across the country; perhaps it's a specific area a few miles away from you. Just find those best opportunities for you. Now, this doesn't just apply to single-family homes, it applies to a duplex, a triplex, a four unit. Now when you cross over into the 5 unit, that's where you call it commercial property. You always have to be in a mindset that is: what can I do to improve this property. 

So you could build a lot of equity and wealth and increase the value of the property. If you go into a property and raise the rents, if you improve the condition, if you get it better managed, there's lower vacancy. Everyone asks when is the best time to get into buying rental property, and the real answer to that is: today. So you want to go ahead and take the time to understand your situation. Make sure you understand the income, the expense. Make sure you have a team member who can help you with the process to maximize your benefits when it comes to understanding everything and the benefits that come from rental properties. But let's talk about that for a second, what are those benefits again. You have someone paying for your asset. 

What about depreciation, how does that relate to cap rate?

You have monthly cash flow. You have benefits like depreciation. There's one other thing I wanted to talk about on depreciation. If you can improve a property, sometimes you can take it all within a year, or you can spread it out over 5 years depending upon what it is. But if you do a repair that's a little bit different, so that's why you're going to need a qualified CPA to help you determine what all those schedules are so you don't have to stay on top of it. But depreciation is an incredible value on owning rental property. So remember you also have an appreciation, we talked about that. What else do we have they paid on the mortgage and over time it puts you in a great place. Make sure you're getting the best interest rates possible. Now remember if initially it looks like it's not going to work, change the numbers until it does work for you. Again, I can't tell you how important rental properties are to your investment strategies as you move forward. So if you haven't considered it before, take the time to do it!

Eric, as I look at a property, a single family home, and I'm thinking wow this might be a rental property! How does that change my look at the rehab and what I'm gonna do to the property. 

OK so on rental properties, it's area-specific right? There's retail ready for someone who is going to purchase it to live in it. And then there's a rental ready for someone who will rent it, and pay the rent to you. Now what does your area tell you? If the market says that the rental properties have to be at that prepare level, then you have to make sure they are up to par. But a rental property is typically a little different from a property that you're selling for someone going to move into the property. 

And so there's kind of an anticipation that the renter might damage something or there could be flooring issues, so as I select those kinds of treatments in the home, it's about how long will these things last? And if there is something damaged how much do I care. 

You will be replacing carpet and paint more frequently, on a rental property than typically a homeowner will be. So just because it typically gets a little more wear and tear, you're not going to go to that high-end finish and have that be at that level. This brings up an excellent point, as part of your due diligence in having the right renter there, you don't want to do that. You want your property manager to qualify those individuals. You want your property manager to do those background checks and make sure they do all those things for you. So that way, you're in a place where you keep working on your real estate portfolio. 

That's a great comment there, because how can I tell if I have a good property manager? 

Love it! They have to be a licensed broker, they have to have a trust account, because that can be jail time. Reputation, get some referrals and recommendations. Another great way to do this and we'll talk about this, it's through meetup. Go in and talk to other investors in your area and find out who they use. Go in and find out who's the best and who produces the most. 

So as you look at the property there may be times when you realize: well I can keep this one rented myself. And there's some great ways to do billing and get everything automatic. But at the end of the day you have to look at yourself and decide: do I want to talk to a tenant? 

You know last week I was talking to an investor, he owns a four unit in the Midwest. And he is just like so on top of things, he knows everything about his tenants, and he knows all this stuff. He's so on top of the game and he spends so much of his time managing that property that he's failed to neglect adding new properties to his portfolio–which has held him back from his investing goals. And we've made some adjustments in that, so it's really hard for him to let go of: I have to have control over everything. But having that right team member in place, gives you that time and that flexibility to make that happen. 

So as I look at a single family home, I'm always doing that math in mind. Is this a flip, or is this a buy and hold. And my portfolio dries out a little bit, but I have to know those numbers and say do I want money now, or do I want to hold this over time. 

Well, the property will always tell you a story, OK. In that story, you have to have an exit strategy. It's great to have multiple exit strategies. And what is the best strategy for you based on your goals. 

Does that property rent, or does that cashflow meet your goals enough to make the purchase as a rental? Now if your goals are you have to build up that cash base and go through that process and flip a property, you turn the property you buy and resell it, and I would say look at the profitability of both. 

If you rent it, what is the cash flow? If you buy it, rehab it and sell it, what would you gain that way? Then based on those two goals which ones would you choose? And I'd recommend having a combination of these two elements in your portfolio. 

So Eric, tell us a little about your background and what makes you a Tax Lien Guru?

Welcome to your investing journey! Hi, my name is coach Eric, and I'm here to help you go through your own individual process to help you achieve your goals. Whether you are investing in real estate or tax liens. 

So, I've been a real estate investor for the last 25 years. I've seen the ups and the downs. And helping individuals like you grasp on what they really need to grasp on to have success towards their individual goals. 

So first off, again, congratulations on the choice that you have made to invest in yourself and to move forward with your investing strategies. 

So first off let's talk about something. Have you ever been around an individual where you feel like, wow, if I could just be like that person! Maybe it's a guru, perhaps it's someone you have met and you're like–they really have it together. And if you think about it, it's that word called: authenticity. And it's where someone's actions, their thoughts and their words are in alignment. You see it and you feel it! That's something that you want to focus on, as you move forward with your investing strategies as well. Because you want to increase your education, you want to have confidence. You want to have that authentic factor that's going to make all the difference to help you succeed.

Eric, how would you define authenticity? How does it manifest?

A big part about being authentic is your mindset. Have you ever thought about something where it's like: well, I don't know if I can do that. Well, if you think you can do something, you're correct! And if you think you can't do something, you're also correct. And so we need to be in a place where the mind adapts to the idea that we can do this. The hardest person to convince of anything that we do is ourselves. And so we have to be in that place to where we believe it. When we believe it, it comes across as authentic. Because that's who we are at our core. And so make sure we are focused on our mindset as we go through this process. 

One other thing I am going to address quickly. Whenever we start something new in our lives, we always get those people who say: “well you're investing in real estate? You're gonna lose money. That doesn't work. The market crashes. There are tons of things that can go wrong.” And they bring up: here's why it's not going to work for you. Here's the thing, if that's what they're focused on or what you're focused on is: what can go wrong, then that's what will grow. 

However, if you focus on making it work for you, that's where you're putting your energy, and that's how you will grow your real estate or tax lien investing business. And so focus more on the how can I vs. it won't work because: here's 20 reasons why. Well, you're just sabotaging yourself at that point. So let's move forward and focus on how you can make it work. 

What are the best ways to set goals for someone who is new to real estate investing?

Alright, so some quick tips as we move forward. You gotta have goals. Doesn't matter in any one of these sections we are talking about as we are moving forward. Goals are key. What is it you want to accomplish as far as a return? What is it you want to achieve as far as your education? All of those things. You need to make sure you set those goals. 

It would be best if you established a plan. Plan out your week, plan out your time and make sure you're in a place where you're taking control of your time and making the best decisions possible as you move towards your objectives. 

You will need a team. Now your team can be real estate agents, lenders, title companies, wholesale buyers. You want people to help you to succeed while you're doing other things in life. You want your team to help bring the best out of you, in helping you be successful. 

Alright, you also want to build systems to make it easy for you. Whether it's analyzing properties or analyzing tax lien certificates, you want to make sure you have the best options possible. 

It's all about taking action. I'm not talking about a little bit of action, I'm talking about massive action. If you are serious about your goals, you're going to have to take massive action to help you succeed in where you want to go. So remember those steps. 

Can you sum it up for us in a concise list?

1. Be authentic
2. Make sure you're feeding your mindset
3. Make sure you're working on your goals
4. Make sure you have a plan
5. Make sure your team is apart of what you're doing
6. Build your systems
7. …and take massive action!

And you'll be on your journey to success!

Who are the most important people to consider when you are assembling a team for real estate investing?

Now we will talk about a lot of important information, and we're going to talk about some things that you are going to need to have the right team member in place for. We're going to talk about some things that involve taxes, and we're going to talk about some things that involve legal. Now you will need on your team, an attorney, a tax professional, to make sure that you are doing the right things according to your own personal situation. 

So the information that we are sharing as we move forward is for example purposes only and you want to make sure how it affects you individually when you work with your professional. 

So Eric, describe a real estate investment portfolio. I hear that all the time, what is it?

Well, that's just a really sexy way to say: what real estate do you own? And that's it! What are your total holdings? What do you have as far as rental properties, what are you doing as far as your fix & flips, do you have residential properties that are a part of this? Maybe you even have some air bnbs, or some timeshares that are a part of it. You could have some wholesale deals that are a part of this, and some commercial deals. So it really is the grouping of all of your real estate holdings. 

That's what a real estate portfolio is.