Understanding Winning Isn’t Everything is the Key to Success in Tax Lien Investing

In tax lien investing you can win at auction and Charles Sells tells you how to also make it a win for your portfolio.

By Charles Sells

As tax lien investors, we are constantly bombarded with emails from our competition (who would like us to stop bidding in auctions they are interested in dominating) telling us how we’re risking our capital by purchasing tax lien certificates.

People who we know really know better than what they are telling us constantly warn us and our clients that tax lien investing is “fraught with risk” and that newbies, in particular, are doomed to end up paying too much, accepting too little, or otherwise just blowing their entire deal (or deals) because the property tax lien and property tax deed investment process is just too complicated.

To those people who say these things, we have just two things to say in response:

  1. You should be ashamed of yourselves. This type of real estate investing offers one of the lowest-risk, lowest-bar entries into the vast potential of real estate investing in the business. When you publicize this “fluff” (our nice word for it, by the way) about how truly successful tax lien investors only make “decent returns” when they are lucky, you scare off an entire population of people who could and should be able to generate great returns and generate true wealth for their families using this strategy. It makes us angry because it’s unfair: Why would you try to block out people who can benefit from this strategy just so you don’t have to actually use a smart strategy at auction? Which leads us to the second thing we would say…
  2. Don’t you know that winning isn’t everything in tax lien investing? That’s right: in a tax lien auction, an investor can win in three or four very different ways. Those different types of “wins,” which we cater to on an individual basis at the PIP Group, are easy to portray as losses by an educated party seeking to mislead other investors. They are also easy to misconstrue as losses if you are new to tax lien investing, so let’s take a minute to investigate them further.
Charles Sells advice on the Keys to Success in Tax Lien Investing

The next time someone tries to tell you tax lien investing is “fraught with risk,” take a minute to look at their motivations says Charles Sells.

First, in tax lien investing, you can win an auction

Most people get this part of the process.

The investor bids the most on a property or accepts the lowest interest rate on a tax lien. Depending on the sale, you can win by going high or going low. If the price gets too high or the interest rate gets too low, you might “win” the auction but you might be out of luck when it comes to a win for your portfolio. Just as with any other type of real estate investing, you have to know what constitutes “winning” for your bottom line before you start bidding or you can easily end up winning yourself a losing proposition.

That is not a risk of the business, however, and anyone who says it is could be trying to mislead you. Risk is when you take on uncertainty; if you know your numbers in advance then the bidding process should not be an intuitive process but a factual one involving very little or even no risk at all.

Second, a tax lien investor can win when they lose control of the property

What? Losing the property is winning?

Well, yes, it certainly is when the property owner redeems the tax lien by not only paying you everything you paid to get the certificate in the first place but also paying you interest and possibly other fines, fees, and penalties. Some misguided people in this industry will try to tell you that when an owner redeems their property, you have lost. However, if you walk away with a whole lot more capital than you put into that tax lien certificate, we would say you have won. You might not have gotten your first-choice scenario (if you wanted to foreclose and own the property permanently) but those good returns are definitely a win.

Third, sometimes you win by losing

Yes, we know. You’re probably thinking “What?” again right now.

Here is what we mean. The same people who will tell you that you “lose” if someone redeems their property and you generate a fast, double-digit return will then turn around and tell you that you “lose” if that person does not redeem that tax lien. In reality, if you select your property carefully to ensure it meets your personal investing goals, if you do end up having to foreclose you will not face a loss but, instead, a very big win. After all, now you own a property that you acquired for literally pennies on the dollar!

So next time someone tries to tell you tax lien investing is “fraught with risk,” take a minute to look at their motivations. Maybe they just are trying to reduce their own risk by reducing the population of active tax lien investors by a count of one: you.

At the PIP Group, you’re not investing alone, and that helps reduce competition and risk because many of our investors use complementary strategies. If a property is not behaving the way you expected, there very likely is an investor in our network interested in buying that property from you because it fits their needs perfectly. We believe the more active tax lien investors, the better, because sometimes “winning” can happen for everyone.

Investing in tax liens with a self-directed IRA

Resources:

9 Things to Know About Tax Lien Investing

Investing in Property Tax Liens

HUD Tax Lien Sales

About the Author

Charles Sells is the founder and CEO of The PIP Group, a turnkey service provider that focuses on investments in distressed real estate assets including tax liens, tax deeds, traditional foreclosures, fix-and-flips and long-term cash flow acquisitions. He has been involved in tax lien investing for over 20 years, during which time The PIP Group has grown to become one of the largest agencies of its kind with nearly 1,000 individual and institutional investors worldwide.

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