The PIP Group Newsletter, April 2016
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Close to $18mm spent with zero return! It happened last year too, but not quite to these levels of ridiculousness. Why, you might ask? So many of us that have spent many, many years attending Illinois tax sales are asking the exact same question. The only answer we can come up with, is they are more interested in spending the money than they are in making a profit. They earn a commission on what they spend and not on how they perform.
This year, we actually tried to break down and search for some sort of methodology of what they were doing. We looked to see if their primary objective was foreclosure. We looked to see if they were buying at zero in the hopes to get the sub-taxes (next year) at 12% and how that might average out their numbers. What we found was that in a best case scenario this group could 3% a year, at best. That is just crazy and you would get better odds at a blackjack table.
We bring this up because it is that time of year where we tell you how the long, drawn out Illinois tax sale season turned out. It was tough! We attended a record number of auctions and placed less this year than in the past 10 years. This was partly intentional as we increase our levels of conservatism in the selection of leins, as well as avoid competing with the “dummy bids” as discussed above. The end result is that we continue to maintain our high levels of purchase rate performance, purchase a better quality level of liens, but as an end result, we are placing far less capital. All in all, we placed right on target for what we were expecting. The good news is that these “dummy bids” usually come in 3-year cycles and this past season was their 3rd year. We expect the 2016/17 season to be right back on track.
Southeast Foreclosures: Hands Down our best performance yet
The PIP Group in on pace to do $7mm in foreclosure acquisitions ($75k at a time), in 2016. It has taken our seasoned clients a little getting used to, but once they learn this is a very hands-off passive investment, the popularity of this opportunity is irresistible. Opportunities fluctuate from month to month, but on average, The PIP Group is acquiring 4-8 properties a month. Those properties are repaired, listed and either rented out or resold on an average of about 8 months. The net profit to the clients (after all fees/costs) have never been less than 24%. Then, the cycle starts all over again!
As most of our investor are aware, we never speak in terms of annualized returns, because when you have individualized real estate investments, averages of annualized returns can vary. If you take our companywide performance of 24% every 7-9 months and calculate that across two years, you will quickly realize why our foreclosure activity right now, is topping any other investment we have to offer.
Foreclosures/Fix-Flips & Buy/Hold:
Think the days of investing in foreclosures for a quick profit are gone? Think again. Just last month, Fannie Mae offered its largest delinquent loan sale to date, totaling $1.35B. Although that may seem a small figure on the grand scale of things, it is evidence of an increasing trend on the return. Coupled with ever increasing local taxes and the quiet deregulation of “push-button” loans, the inevitable is upon us once again.
The PIP Group has acquired, repaired, managed, marketed and resold distressed properties on behal fof its customers for nearly 20 years. In 2015, no investor made less than 24% (net profit) through our Georgia and South Carolina Fix-Flip Program and we are on target in renting your acquisitions. The increase of renters vs. buyers has been steadily on the increase for more than 6 years and those projections show steady growth as well.
Q: What is the minimum investment in these acquisitions?
A: Currently, the minimum is $50,000. We plan to increase that to $75K very soon. The objective for these acquisitions is always quality over quantity.
Q: How long does it take to place my funds?
A: Although sales are every month, it could take us up to three months to get the funds placed. Regardless of the timeframe to place funds, the window of total turnaround on the sale, or rent of the property will average about 8 months.
Q: A target of $7mm seems like such a small figure for such a large company – Why not more?
A: For 17 years we have said “slow and steady wins the race”. Again, it is about quality and not quantity. We could spend $14mm and get half the profits (still good), or spend $7mm and get twice the profit. The PIP Group always has and always will be a “Boutique Servicer”. We will never be the biggest, but we will always be the best. We have never been a group to see how much we can place, but rather, how well we can place it.