By Charles Sells
I recently read an article in Forbes that made my ears smoke. Usually, Forbes and Forbes Magazine are both really great sources of information for real estate investors. This is one of the original resources for savvy investors of all types for financial advice, education, and strategy. But this time, they really let me down, and I want to tell you what I read so that you do not fall prey to an incredibly misguided piece of information that I find so many investors view as nothing short of basic truth.
Here’s a quick summary of what I read:
Grant Sabatier, also known as “The Millennial Money Expert,” is, as you might have guessed, a millennial. He is also quite wealthy and became so quite quickly. His story starts out as so many millennials’ does: Sabatier got a degree in philosophy, was unable to land steady employment, moved back in with his parents, and had $2.26 to his name when his parents gave him three months to get his life in order before they kicked him out. Apparently, this led him to set the goal of saving $1 million and retiring, preferably within fewer than five years. With this new impetus guiding him, Sabatier spent 2010 to 2015 saving that $1 million and making an additional quarter million, and now he is a millennial money expert and an inspiration to his generation.
“So, what’s your problem, Charles?” you are probably thinking.
Well, here’s the problem. Sabatier is, not surprisingly, now a very wealthy blogger, thought leader, investment expert, etc. And as part of this article on his background and story, the author (who is not Sabatier, by the way) points out that Sabatier made about a quarter of his $1.25 million from investment income and that he plans to do more investing in the future. That’s fine again. Here’s the problem:
“…He specifically avoids more speculative investment practices, like day trading, short sales, buying tax liens, or investing in any type of hedge fund.”
The author of the article places tax liens, one of the highest-returning, most predictable real estate investment options in the business and, furthermore, one of those with the lowest barrier to entry, in the same classification as day trading and hedge fund investing. Now, to be clear, if you work with someone who is an expert in day trading or invest in a hedge fund with an experienced fund manager, those don’t have to be risky investments either. Even short sales are not really that risky as long as you are working with someone who knows how to do them successfully. But the inclusion of tax lien investing really takes the cake. Here’s why:
1. Tax liens are primary liens
This means that if you have the right to collect on a tax lien, then you have the right to get paid before anyone else. You can even foreclose on the property if you do not get paid in a timely fashion! You take precedence over the mortgage lender. That’s saying something.
2. They were created by the government, for the government
Now, I understand at first you may not feel like this makes these liens less risky. Let me explain: The tax lien and tax deed system was created to incentivize real estate investors to purchase these asset vehicles so the government could get paid without having to deal with collecting on the tax debts or foreclosing on the homes. That is why the yields are so high and the system is so specific about how you collect, how you are paid, and how you foreclose. The government has to protect the homeowner and the investor so that the investors will keep buying the liens but the homeowners are not hurt in the process. This system has to be balanced and fair for it to work, and it is in the government’s interest to keep it that way. That’s serious firepower, brainpower, and legal power on your side when you make this investment.
3. Liens, when purchased correctly, are highly collateralized
The right tax lien purchase involves paying pennies on the dollar for a tax lien that will either yield a hefty return when the debt is paid off or come with serious equity when a foreclosure is performed. Now, if the author of the article or Sabatier himself (we don’t know which one of them classified tax liens as being so risky) knows nothing about tax lien investing, then sure, that could be risky because they might pay too much for a lien. But when handled correctly, tax liens are among the best-collateralized asset vehicles out there.
If you have always felt like tax liens and tax deeds were every bit as risky as day trading when you know nothing about the stock market, then maybe you just need an expert in your corner. At PIP Group, we have been investing in low-risk, high-return tax liens and tax deeds full-time for more than a decade, and we have a huge team of investors who have all come along for a highly productive, successful ride. Learn more about what we do at PIPGroup.com and see how tax liens can be one of the safest investment decisions you could possibly make.
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