Knowing Whic to Look fprerties to Buy
Selecting Good Properties and Deeds
The Steps to Take
This article explains some of the steps you should take in screening, profiling and analyzing a property in order to make an informed decision on its purchase.
Obviously, not every property on every list you get will be profitable for you. Your research will help you determine whether or not you are willing to pay for the property. You will also want to decide whether or not you will be able to use it profitably once you own it – by selling it or holding on to it for income over time.
1. Decide on the Maximum Amount You Should Pay
You never want to let your emotions interfere with the auction process. People that do so end up over-paying and they lose money. Any time you participate in an auction, you need to leave your emotions home under your bed. To protect your own best interest, you need to work with your logical abilities without the clouding of judgment that your emotions bring to the process.
The most important thing to do to ensure you stay logical is to decide in advance on a precise maximum price you will pay on each individual property. This will not be a cut and dried estimate, because in most cases you will not be able to inspect the property closely. Some will be too far away, in those cases where the property is improved, i.e, has a structure on it, you won’t be able to get inside to inspect the interior.
What Deeds Can Do for You
The Philosophy of Getting Properties to Own
As investors we have available to us two directions that one can take with property tax investing: tax deeds or tax liens. In talking to you it is clear that your interest and needs lie firmly in the tax deed side of things. To put mike explanation in good context, though, we will address both. They differ greatly – 180 degrees:
- Tax deeds put you in the position of working for money; you leverage your knowledge and efforts into making profits – this is active income.
- Tax liens puts your money to work for you; this is passive income – once you set it up it runs itself, 365 days a year generating interest income.
Clearly both activities are good. Deeds bring in profits, liens accumulate wealth. Since this article focuses on deeds we will focus on profits. The highest and best use of profits is in creating capital. The American Heritage Dictionary provides two definitions of capital as a financial term:
1. Wealth in the form of money or property, used or accumulated in a business by a person,
partnership, or corporation.
2. Material wealth used or available for use in the production of more wealth.
A business must have capital to function. However, profits don't automatically convert to capital. Many people will spend years buying and selling properties repeatedly and spend all the profits on stuff, leaving them nothing to show for their efforts other than a nice life style. Clearly the fault with that is that these people only make money as long as they are hustling. Once the effort stops, the hose is shut of and the income stops. Far better to create residual income that continues to flow while you are doing nothing.
Highest Rate of Return on Investment
One last point before we outline the program designed to get you your full tuition reimbursement. When you work for your money, the rate of return on investment is much higher than with passive income. A perhaps extreme example would be when a person takes a job, be that as a laborer or an engineer: the employee does not have to pay for the job, yet he makes money from it. He is paid for his labor, not for money invested. Since he pays no money for the job, his financial return on investment is infinite.
Tax deeds bring us a little closer to earth – we don't get infinite returns on investment, but the returns are still higher than almost any other investment out there. When we buy a house from the owners or the bank, we hope for a profit of 10 – 20%. A landlord hopes for a 10-15% return on capital from a rental. In a normal economy, XYZ Widgets Company would expect about a 10 – 15% annual return on capital.
The difference with tax deeds is that you should be able to buy a deed for less than 25% of the property balance. Since the whole purpose of buying and selling real estate is to make a profit – the old idea of buying low and selling high – this offers a great opportunity for making large profits. If you buy somewhat low, you must sell high to profit. If you buy extremely low, you can sell somewhat low and still make a profit, which means you never have to wait a long time to sell.
Typically what we will do will be to find available deeds, get a good idea of what the property is worth, discount that to 80% of its market value, then set a maximum bid amount of 50% of the discounted value. That way we leave plenty of room for error and unexpected events to happen without destroying profit.
We really expect profits of 100% - 200% on the deed purchases and subsequent sale of property. If you pay $1000 for a deed, should can expect to sell the property for at least $2000. If you pay $10,000, it should sell for $20,000 or more.
Breaking Through the Limitations
Keep in mind, too, that the only limitations on how many transactions you can get involved in are the limitations of how many you can find and purchase. Deeds are available in one location or another year round. That is exactly the reason that you and we first discussed qualifying at least 5-6 counties a week. The deeds must be hidden, otherwise you could never get one because other people would grab them first.
Let's say that your first deed is available for $5000 and you sell the property a month later for $10,000. Obviously at that price this is probably a building lot, not a house, but that doesn't matter. It's all buy low and sell high. we will be teaching you how to select good properties, the kind that will sell. So two months later you now have $10,000 to put into a second deed, which you then sell for $20,000.
Already your original $5000 has generated total profits of $15,000 – you are that much ahead. With the $20,000 the next deed may well be a house, which you sell at discount for $40,000. In six months you have parlayed the original $5000 into profits of $35,000.
Norm, please understand, this will not just happens. It would only happen with focus and effort on your part. You will have to find the deeds: we will show you how. You will have to analyze the individual properties: we will show you how. You will have to take action to bid on the properties: that part is up to you. You have to take steps to sell the properties. The entire fourth course at www.shlibrary.com is devoted to that one idea – selling properties, especially when they are unimproved parcels of land.
We will do everything we can to help you move forward to reach your goal. It is entirely possible for you to get the tuition refund within a year. It has happened before and it will happen again. It should be you, because you have background and knowledge that gives you an advantage over most people.
What to Do
As we see to it, in order to accomplish this goal you should commit to doing the following on a weekly (ideally daily) basis:
- Complete the rest of the course materials at www.Shlibrary.com, including the reading, which contain materials not found in the videos. Once you have completed all four courses, go back and review them.
- Read all the materials on my website athttp://taxliens.homestead.com.
- Qualify at least 5 tax-deed-selling counties every week and create a master calendar showing which counties hold auction in which months throughout the entire year.
- Create a list of all counties that you can discover that sell properties over-the-counter.
- Make sure that you are preparing to bid on a minimum of 20 or 30 properties each month; you never know which you will be able to buy, because many will be redeemed before the auction, and others will be bid to a price higher than is prudent to pay.
You want to keep your pipeline filled with upcoming deals. If you are preparing for an auction by researching only 2-3 properties, and they get redeemed, you are left with nothing: that can be discouraging. If you are preparing for three different auctions and researching 8 or 10 properties for each, the loss of any one property is not a problem – you have other possibilities.
You always want many leads available to give you the luxury of picking which properties you will take.