Let’s talk about some of the barriers, suggestions, and requirements for these investment strategies in order to help you decide where you should spend your time.
There are essentially two categories for investors in this space; aggressive and passive investors.
What kind of investor are you? Let’s figure that out right now.
In the beginning, this is largely determined by your resource and experience constraints. For example, the cash that you’ve set aside to invest, time available to you, your ability to travel, and experience managing a real estate project.
Grab a pen and paper, and write down your answers to the following questions:
How much money do you have set aside to invest? We’re not talking about money that you could have, but money readily available at this moment. This is also money that you won’t need for food, bills, or other pressing financial obligations.
Where is that money located? Savings, Checking, 401k, IRA?
Do you have an IRA or 401k that you’re willing to use for this? Is it self-directed? We will discuss self-directed retirement accounts in a later video if you’re unfamiliar with what that means.
Will you need access to these funds in the next 24 – 48 months?
How much time can you dedicate each week to this strategy?
Are you willing and able to travel?
How often can you travel?
What experience do you have in real estate investing? Have you acquired a property aside from your primary residence? Have you gone through the process of evaluating the after-repair value of a property?
Your answers to those questions will largely determine what type of investor you need to be right now, but that doesn’t mean you can’t evolve into whatever investor you’d like to be in time.
The first investor type is simply a tax lien certificate investor. Tax lien investing is the simplest place to begin and has the lowest barriers to entry. Investors can buy tax liens for as little as $50 – but remember that there is a direct correlation between the value of the property and the tax lien certificate purchase amount, so the lower the tax lien certificate price, the lower the property value. With that said, the average price to get into tax liens can be as low as you’d like it be. The majority of tax lien certificates are redeemed during the redemption period, so the likelihood of acquiring real estate through tax lien certificates is relatively low. That means that your due diligence doesn’t need to be as intense as it would be if you were more certain that you would acquire the property. We will discuss due diligence in a later video. Travel is optional for this strategy and most tax lien investors rarely travel for investment purposes. Tax liens are often purchased through online auctions or from the comfort of your home.
The second profile is a variation of the first and is referred to as an over-the-counter tax lien investor. We will discuss over-the-counter investing in a later training video, but it is essentially the purchase of a tax lien certificate after the public auction takes place. This investor prefers to avoid the live auction and wait to purchase from the list of leftovers after the auction. This has obvious advantages and disadvantages that we will discuss later; however, in brief, this strategy allows investors to take their time and invest more leisurely.
The third type of investor is the tax deed investor, which also includes redemption deed investors. There are two primary barriers to entry with tax deeds and redemption deeds; the first is the cost to purchase a tax deed is generally much higher. Tax lien certificates are typically won by bidding down the interest rate, whereas tax deeds are a typical bid up the price of the property until the auctioneer has identified a winner. This means that prices will inflate depending on the desirability of the property and competition for the property. The second barrier is experience. The only way to gain experience is by doing, of course, however it’s important to not bite off more than you can chew. Make sure to have a mentor or coach available to answer questions and guide you through your first few deals. This is crucial during due diligence to spot fixes and problems and to make sure the deal goes smoothly. If those barriers are okay, then the upside of tax deed and redemption deed investing can be very good.
There is a fourth and more rare type of investor, which focuses on the corners of the space; strategies like excess proceeds, which requires no money to get involved, but tends to be a little trickier to execute. We will discuss those strategies in more detail in a later video.
Please understand that it isn’t necessary to focus on just one strategy. You might fit into more than one profile; so if you would like to do more than one, then go for it. You just need to adjust your time and money to accommodate.
Think about these profiles in relation to the answers you gave to the questions earlier. Where do you fit in and what would you like to do? If you have financial or time constraints, then raise money, save money, free up time, or do what you need to do to fit into another profile.
After you know what profile you are and what kind of investing you want to do, you need to go through the reference materials for states on our website to find out what states you can invest in and how they work.