1997: Unveiling the Secrets of Tax Sale Investing with Julia Spencer: How Maintaining Control Can Help You Profit from the Current Housing Shortage

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We'Ve been on the fence about downsizing and, you know, getting out of the bigger house. So we went ahead and made a decision to do that. And I met with a real estate agent I've known forever here in town and sold it before I even put it on the mls. I was helping the agent put the sign in the yard and the lady drove by and said she had some friends, an officer from Hawaii who was looking at buying. He was going to be in the.

Space force out here.

He called that night and I signed the contract on Sunday.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your financial Independence Day. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to episode 1997. We are getting very close to the 2000 mark. What a big deal. Everybody's asking, what are you going to do for your 2000th show? Well, we're thinking about it, folks. We got a couple of options and we're going to try to make it something unique for you. Anyway, so today we have got a great show for you with my friend Julia. She will be here to talk about tax sale investing. You know, this is an interesting opportunity for people who want to be more actively involved as investors. I would say in terms of real estate investing, direct investing, which is the best kind, the kind that makes the most sense, because you have control. You have commandment number three working for you. Thou shalt maintain control. Remember, when you relinquish control and you don't follow my commandment number three, you leave yourself susceptible to three big potential problems. Number one, you might be investing with a crook. Number two, you might be investing with an idiot. Number three, assuming they're honest and competent, they take a huge management fee off the top for managing the deal, right? So either one of those ways, you lose money, right? And we want to Help you make the most money. But when you're a direct investor, you're definitely in the position to make the most money, no question about it. And to prevent any potential losses through one of those three problems just mentioned. However, it does carry some more responsibility. You got to pay a little more attention to it. And I've always said I don't believe there's any such thing as a passive investment. What we want to do for, through our support network, through jasonhartman.com, through our property tracker software, and all of the resources we bring to bear, we wanna make this easier and easier and easier for you and move it closer. Although there's no such thing as a passive investment, anybody who tells you that is just lying. Passive investing does not exist in any form. Money in the bank is not passive. I've debunked that myth many times. But we just wanna move it over that way on the spectrum with our resources. So that's what we're gonna do. So tax sale investing, much more active. Like, if you're looking up and down that spectrum of active versus passive, you're more on the active side. And a lot of the stuff we teach in Empowered mentoring is on the more active side of investing. Greater profits, greater opportunity. However, more involvement, more of your time needed. Treating it a little more like a business versus an investment. Okay, so that's what we have for you when Julia's here in just a few minutes. A couple things I want to cover first though, look at this article. If you're seeing it on video, it's just shocking. Half of Americans fear their bank holdings are at risk. And experts say there's no reason to fret thanks to the FDIC insurance. Well, you know, just understand that the FDIC will pay out. Their fund is minuscule. Compared to what? Compared to the amount of deposits in banks. But I think we all can have a decent amount of faith that even if the FDIC goes under, the government will bail out the fdic. They'll just print more money to do that and you'll get your $250,000 worth of FDIC insurance. But the problem is the FDIC has some interesting terms in their insurance policy. You know, they can a while to pay you back. And if there's a lot of inflation during that time, you might get paid back in nominal dollars, but you might lose a lot of money in real dollars. And of course, then there's the second problem of being over the FDIC limit, which we've talked about on many shows in the past as well. So it's just interesting how so many Americans, half are in fear of the banking system now. I don't know that it's been that bad certainly ever in the lifetime of anybody since the Great Depression, right. Back then they were in fear, rightfully so. During the Charles Keating Lincoln Savings and Loan, the SNL crisis that happened a couple of decades ago. Nobody was very much in fear then either. I think now is different in terms of this. I think the fear is even greater now. So we shall see what happens with that. But just wanted to share that article with you on the mortg side and the housing side, this article by Jan Swanson. You know, it's just an article from a few days ago. Inventory woes, right? The woes in housing inventory mean there's not enough inventory, not enough housing inventory. Inventory woes help boost home prices in March. And she shares some Black Knight data that talks about how there's just not enough inventory and it's pushing prices up. So, you know, I'd certainly say that's true. But the question is where compared to what? Right. We're seeing Case Shiller Composite Index markets that are 75% cyclical markets. Those markets are definitely experiencing some pain. And I'm gonna show you this map, okay? So this map on the screen from the Wall Street Journal and Black Knight is quite interesting. And Rick Sharga, who you're gonna hear his interview soon, I recorded it yesterday. I had him back on the show. Really interesting insights. We went for over an hour, so it was quite a long interview. And we will publish that one real soon for you. You're really going to like it. But I wanted to share just two quick things from his presentation that's coming up on a future episode. And that is this map of the United States shows where prices are going up and where they're going down. And it shows you that in the high end cyclical markets, San Francisco, San Jose, Silicon Valley, Seattle, those markets are really, really suffering with major price declines. And remember those type of markets, those cyclical markets are heavily weighted in the Case Shiller index. But you look at where I grew up, Los Angeles, you look at where I lived most of the time as an adult, Orange County, California, you look at San Diego, where I live for a short time. And in all those markets they are also experiencing some significant pain, even though it's less pain than the markets just mentioned. But on the opposite end of the spectrum, you look at Florida markets, Orlando up 9.3%, Miami up 12%. I mean, folks, unbelievable how these markets are doing so well. And what's interesting about this is it could be, and I mentioned this to Rick during the interview. Looking at a map of the United States like this and seeing where the markets are suffering and where they're doing well is literally like looking at a political map. Because you look at the left wing areas, they're suffering the most. You look at the right wing political leaning areas, they're doing quite well. And that's the migration trend. The market and the migration trend are almost the same. They're not exactly the same, but they're almost the same. People want business friendly environments, they want personal freedom, they want a low cost of living. And you know, it's just crazy to me how people say, well, let's not make it political. And then whenever I make political comments on the show, I get these really foolish responses and this hate mail and I get the comments, you know, if you're watching on YouTube, comment below. And you control me and say, oh, you know, you should stop talking about politics. Stick to real estate. We don't need your political views. These things are so intertwined. The political environment is the economy. I mean, how can it be any different? It would be like someone saying in the former Soviet Union in the 70s, for example, saying, you know, why are you talking about politics? I mean, what does that have to do with the economy?

Duh.

If you live under communism or socialism or far right laissez faire capitalism, that has everything to do with the economy. It has everything to do with the housing market. The political environment is like the air we breathe. It's the context in which we live and operate. It's the context in which the economy lives and operates. So to try and separate those two is just moronic. It's just idiotic. Like it makes no sense at all. You cannot talk about the economy or the housing market or investing without talking about politics. They're like one in the same. One completely influences the other and vice versa. So, you know, it's, it's just like so foolish when I see those comments. But hey, listen, foolish people, please comment below because that helps the algorithm. So I don't mind your comments. Troll me, tell me I'm crazy, whatever, you're just helping me. Okay, so that's the way the algorithm works. YouTube does not care what you say. It cares that you say something. So go ahead and tell me I'm crazy because I'm talking about politics when I should be talking about investing as if they're not related. I, God, I tell You. It's crazy. Okay, here's another thing. Housing Affordability Index. This is my third favorite index for telling you what's going to happen with housing prices. But it has some big flaws and that's why it's third. It's not first. Okay, but what's interesting about this is this chart that I'm showing on the screen, by the way, for those listening on audio only. Okay. It shows housing affordability how it was super low back in the early 80s when interest rates were insanely high under the Paul Volcker let's kill inflation mantra. But then housing affordability got better and in 1986 it actually got quite a bit better. And then throughout the 90s, it improved quite a bit. And then it sunk like, plummeted like a rock right before the Great Recession. And then as prices came down and they eased up and they turned on the money printer, we started to see affordability get better. And of course it was extremely good just recently during the COVID era. And it has plummeted with these high interest rates. So what does this mean? Why is it important? Well, usually this would tell you that if housing affordability plummets, housing prices will go down.

But that hasn't happened in any real way because there's just no housing inventory because the inventory has not increased by any meaningful amount. We still have only one third of the inventory we need to be normal. We're not even close to normal. Inventory is so scarce. And the reason is, is all these people have these super cheap mortgages that they don't want to give up and don't have to give up. And there's no distress in the market.

Right.

But at the same time, new buyers entering the market have high prices and high interest rates. So what do they do? All those would be 25 to 34 year olds. That's like the biggest demographic for household formation. Well, they're just going to rent and if they're having kids, you know, they want a house, not an apartment. And so that puts a lot of upward pressure on rents. So as a real estate owner, if you own rental properties, you like to see the housing affordability index plummet. You like to see inflation high because all these things are the things that are going to make you more money.

If you're the owner that's looking for capital gains or capital appreciation, more a home flipper than an investor long term, then you love to see housing affordability be super high. Because when housing affordability is high, everybody can buy and they're going to push prices up, but they're also going to suppress rents. Now, why is it that over the last couple of years, when we had high housing affordability before the rates went up, we had rents skyrocketing and prices skyrocketing at the same time?

There's a distinction that has to be understood here, and the distinction is between really the. Compared to what question. Because what you have to ask yourself is about the dogs that don't bark, the profound impact of the thing that didn't happen, or the thing that was unseen. You can't hear the dogs that don't bark, as I always say. Well, what dog wasn't barking? Well, if housing affordability had gone down and prices were still going up because there was a bunch of capital in the market just looking for a place to go, you could see prices going up and rents going down, which is usually the case, right? Where you see that upward pressure on price and the softening of rents because affordability is very high and everybody's buying and moving out of the rental market and decreasing demand for rentals. And the thing you didn't see here is you would have seen rents go up even higher if the affordability was lower. But there was tons of capital chasing houses. Because the housing affordability index has a couple of major flaws. I like this index a lot, okay, it's my third favorite, it's number three. But what are the flaws? The flaws are that it compares income to the cost of a mortgage on the median price house in a given area. What doesn't it tell you though? What are the dogs that don't bark? Well, the dogs that don't bark are, number one, foreign money. If there's foreign money moving into a market, foreign direct investment, outside money, it doesn't account for that. And I saw this firsthand in the 90s during my real estate career in Southern California where all of this foreign money was flowing into that Orange county market. Chinese money, Middle Eastern money, tons of foreign money flowing in. And even during times where it showed housing affordability being low, the market was still booming because of the foreign money that was not counted in the housing affordability index. Also, it doesn't account for people who are just in a market trading equity. So for example, they bought their first home, they made a bunch of money on it, they got a bunch of equity in that house, then they buy a second home that's more expensive, a move up house. And guess what? They're not really freaking out about housing affordability because they've got, you know, a couple hundred thousand dollars to put down on that second home they've purchased as they're moving up in their life. But a new buyer entering that wanted to buy that home if mortgage rates were high and prices were high, they're freaking out because they didn't have that cushion of equity that they could trade into the new property. So the trading of equities and the foreign money are two giant blind spots in the housing affordability index. Okay. So just understand that. All right, let's get to our guest. Let's talk to my friend Julia about tax lien investing, tax sale investing. And I'll just mention again, even though I'm kind of not supposed to mention it, if you want to be invited to our Zoom meetings for some of the special financing and other special offers we have, like 4.75% fixed rate mortgages. I know, that's unbelievable, right? 4.75% dramatically lower than current interest rates. Go to Jason Hartman.com make sure you get on our newsletter mailing list. We've got some great newsletter articles coming your way too that are totally free. So get on our list. Go to Jason Hartman.com and sign up so you'll be invited to these special Zoom meetings that we have from time to time. 100% financing, interest only financing that increases your cash flow because it's interest only or 100% financing, which allows you to defer your down payment over the course of a few years, which is an awesome deal. That is a fully underwritten loan, though. You gotta qualify for it just like any other loan. It's not an easy loan to get, but you can do it. Many of our clients have or are in the process of doing it and those are great, great opportunities. So jasonhartman.com just fill out any contact form on our website and you'll get on our mailing list. All right, let's talk about Tax Sale investing. Here we go.

It is my pleasure to welcome my friend Julia Spencer back to the show. She did a fantastic class for our Empowered Mentoring group on Tax Sale Investing. And we're here to talk a little bit more about that today and why it's something that you might be interested in. Julia, first of all, welcome back. But also thank you so much for spending about an hour and a half with our Empowered Mentoring members last week. That was really valuable to the members. I heard. Great feedback and just wanted to have you on the show again as a little bit of a follow up to that maybe. But tell us, you know, why are you interested in Tax Sale Investing? What is Tax sale investing, you know, why did you choose this path versus all the other paths you could have chosen in real estate?

Well, thanks for having me back again. I appreciate it. So the very first thing, what is it? It's basically purchasing properties for pennies on the dollar for outstanding taxes. And that's, that's really a mouthful because there's a lot of different avenues and different nuances, but it's basically people default on paying their taxes and their properties are being auctioned off and that is how I acquired them.

Right. So there are really sort of three methods to this, right? Or three, I guess, investment opportunities in the tax sale arena, right?

Well, yeah, there's a, there's more than that to it even. But the three main ones I think is what you're going for is the types of vehicles that you can purchase the properties under like a deed, a lien and a tax lien certificate is. I think that's what you're going for. Right?

Right, yeah, that's what I'm looking for. And just explain briefly, if you would, kind of the differences between those.

Well, if you purchase a deed at a tax sale auction, you actually get the title to the property right then and there and you basically walk out with the title for property. Now we can go into a long discussion about what kind of title it is, what you have to do to it legally to be able to insure it and get a mortgage and all this other stuff. But that's, that's a more extended explanation. But you're basically getting the property at the auction.

Right? So, so you're getting the deed, you're buy, buying the property. So that's the most, shall we say, expensive way to get involved in tax sale investing by actually buying the property outright. But you can kind of get there potentially, or you may not even want to get there, you may not even want to ever buy the property. Right. So tell us about the other two methods.

So you can purchase a lien as well. So a lot of times municipalities that assess taxes will generate a lien against the property for those outstanding taxes, and then you can buy that lien from those municipalities. And it could be counties, cities, states, sometimes even even the federal government can do it as well. And you can buy basically a lien. So then you have the claim against that property versus the government municipality. So then you have to do additional steps to get the property. Or in reverse, you can just hold on to the lien and collect interest and penalties on it.

Okay, so with the lien, you're buying the rights to that, really, that stream of cash flow that may or may not come from that owner. In other words, they don't pay their taxes. So then they start getting notices. Hey, you're delinquent on your taxes. Now you got to pay the taxes plus a late fee, plus maybe interest. I mean, it varies in different municipalities, but then you buy the rights to that and the government agency sells it at a discount because they want to raise. Well, not necessarily at a discount. They sell it at an auction. So it'll be determined by the bidders what's paid. Right. So that's their way of raising money. They want to get this, like this bad debt off their hands. So they basically sell the bad debt at an auction. Right, right.

And that debt is secured by the actual real estate. So you can potentially foreclose on it later on and get the property, or you can do a number of things. You can resell the debt, you can try to collect on the debt, you can get the property.

So the lien could potentially turn into a deed where you actually get the property, just like we started with.

Right, right, right.

Okay.

Additional steps are needed for that. Yes.

So in your field, and we'll talk about certificates in a moment, but in your field, are there investors that don't want to ever get the property, that their whole game is just to buy and then get income from and potentially sell and trade liens, and they really don't even want the property? Does that exist?

Absolutely. In fact, institutional investors is something we see a lot at these auctions. And that's just basically other banks or trust funds or investment funds and their representatives show up and buy these properties for that cash flow.

Okay, great. But sometimes the opportunity is to get the property, and that's what people want. It just depends on their investment strategy and really how much they want to roll up their sleeves and deal with an actual physical property. Because there's more responsibility to that, but there could be a lot more profit in that too. Right, right, right.

Yeah. And there's legal steps involved and potential problems, but of course, the benefits are huge. Who doesn't want a property for pennies on the dollar?

So when you see those late night infomercials on TV that are misleading most of the time, to say the least, when they say, hey, I got this house for $236, I bought a house. Right. What they did probably is they bought the lien and then the owner never redeemed. Right. They never paid the back taxes, and eventually that property turned into a Foreclosure, where they turned it into a deed and they now own it. Right, right.

And there was probably quite a few more steps in between that this investor had to do to get this property for those $200, which is $236. But, sorry, yes, in my example, there's a couple more steps. But the nugget of truth in that infomercial is essentially, it's correct what this person is saying. Yes.

Right, right. And so those steps usually involve a lot of times hiring an attorney to do that foreclosure. That'll cost you money. They can contest it. I suppose that'll cost you money and time, and it takes a long time. It seems like they give the owners a pretty good opportunity to pay the back taxes and the penalties. Right, yeah.

And that depends, of course, on the location. So in all 50 states of the United States, there's laws that concern how that basically describe how a property can be sold. And different states have different timelines for this. So some states are more advantageous for investors. Others are more advantageous for the actual homeowner to retain their property. So it's good to know laws and the places where you want to invest and align those with your strategy, basically.

Yeah, good. Good point there. So let's just dive into that for a moment, and then we'll get to the certificate option as well. Well, one of the things we didn't talk about yet is different government agencies pay different rates of interest. Well, they don't really pay them. They just require the property owner to pay them. By the way, their laws are set up and they have different penalty structures for not paying the taxes. Right. So when you buy the lien, you step into the shoes of the government agency and you get whatever they put into law. Right, right. Okay. But that's one element. The other element is how hard is it to actually get that property? And how long does it take if you want to ultimately foreclose or even if you want to sell your lien to somebody else? Because they. If they know what they're doing, they'll want to buy liens in a jurisdiction that makes it easier and faster to actually acquire the property, because the easier and faster it is to acquire the property, the more likely actually the owner's going to redeem. Also, because they know this, they're getting notices in the mail saying, hey, you're going to lose your property if you don't pay. So that's going to create urgency on their part. So there's really, like, two elements here. Right? There's the ease of getting the property if you're going in that direction, and there's the amount of return on the investment while you have the income stream. So can you dissect those for us?

Well, actually, you dissected it pretty good already.

Well, I wanted you to say maybe give a little clue or maybe an example as to jurisdictions. And you know, I mean, I know there's a lot to know here and there's a lot of jurisdictions, obviously, but, you know, just maybe an example on that.

I guess I'll just use an example. Here in the state of Georgia, where I live.

We have a very good mix of investors that go in with both kinds of ideas in mind when they go to these auctions. So people do want to get the properties when they go. And we have a lean state here. So we sell liens, not deeds. There is a redemption period. Redemption period is a year and one day. So whenever I go to auctions here in Georgia, it's an equal amount of investors that come in that actually want to retain the property and get the property and then equal. Same amount of people, I guess, that want to just get the interest rate because we have an extremely good penalty structure. Actually we don't even have an interest rate here. So your strategy really depends on not just the ease of getting a property and whether or not you want to get the.

Money for the, the return, the cash flow, but also you can structure your bidding according to what your strategy is. So for example, if you're going to bid close to the value of a property, you know, in Georgia you're going to get 20% from day one and you would want to go quite high on your price, not really wanting to get the property, but wanting to get those 20%, which is right, that, that.

Good return on investment. But interestingly, Georgia's not the highest in terms of that. I mean, there are some that pay like 36%. But again, you gotta evaluate quality of properties, length of time. I mean, one year in one day, that's a pretty quick foreclosure, it sounds like.

Yeah, well, there's a little bit more to it. So some states are self, executing where you get after the redemption period, you get the deed basically sent to you and the state just basically does it for you. In other states, like here in Georgia, it's not self executing. You do have to do some legal steps in order to get the deed. And in yet different states, you don't get any deed. And we haven't talked about that yet. Tax lien, Certificates.

So that's a good, that's a good segue, maybe. So go into that if you want.

I guess, to untangle all of this. I guess the good thing to know from the very beginning, and this is what I teach all my students as well, is to really, really have a really good viewpoint or idea of what you will actually want to go for. What are you actually looking to do? Do you want to get property? Grow your portfolio? Do you want to get cash flow? How much money do you have available? How much time do you have to research? And how willing are you to take risks? Because this is not a, this is an investment. So you can lose your money too.

Yeah. Right. Okay, so what about certificates though? What is a tax certificate? Is it called a tax certificate or tax lien certificate or tax deed certificate or just tax certificate?

It's a tax lien certificate.

Okay.

So it is basically the same as a tax lien. So it's a liability of taxes unpaid against the property. But the reason that I call it a certificate, the name isn't really all that significant. It's just that it is only, it is sold by the year. So while as for example, here in Georgia, they'll sell you a tax lien, you are essentially the owner from the day that you buy that lien. So from that point onward, you will be billed future taxes. But with the tax lien certificates, there could be other owners for the same kind of tax lien certificate as what you buy as an investor for different years. So many people on the same level for the same property, just for different years, they auction off one year at a time, basically.

And that's a certificate.

That's a certificate. So it's kind of difficult to obtain ownership of a property that way because any one of those people that has a tax lien certificate for that property is an equal standing with all the other ones. So in order to move it to the next level, you would have to pay everybody else off first or they have to pay you off. So it's only one year at a time. So you're not really investing in that particular method to get the property, you're really investing to get the interest from the other investors or from eventually.

Okay, so if you're a certificate investor, then you're pretty much a yield or an income style investor. Right. Whereas if you're a lean investor, you could be a physical property owner. Either one very likely. And obviously a deed, you're definitely going to be a physical property owner. Right, right, right.

So it's kind of like a structure. It is a hierarchy. When I tell investors to go into this, I always tell people, why don't you start with a tax lien certificate, see how it works, then graduate to the lien and then graduate to the deeds if you're comfortable and have the money for it. Basically.

Okay. And just out of curiosity, or maybe you like them all just in different ways, you know, which of the three do you like best? I mean, you're very experienced at this.

I, I do liens. And. And simply because that's what's sold here in the state of Georgia, and it's the closest and easiest for me.

But you also, you also invest in other states as well, Right, right, right, right.

I have yet to make a purchase at a deed. Well, actually, I take that back. I did do a deed property that. But most of the properties I've purchased were liens. Just straight up liens.

Okay, fantastic. Well, Julia, this is a great. Just overview explanation. Of course, there's a lot more to this. You spent about an hour and a half with our empowered mentoring group. And I just wanted to kind of go back to the macro overview of this. And I think you did a great job explaining that to people. There's a lot to know here. This is a whole career for you. So obviously there's no way, you know, you could impart all that knowledge to people. But what else do you want people to know? Just any parting thoughts on. On this?

I have a really good parting thought is. And. And I want to kind of just back that up with a story. I started with tax sale, foreclosure investing many years ago, and I fell on my face, basically. I hurt myself really bad. I lost a lot of money. I didn't know what I was doing. No mentors, no books at the time, and really had no clue. And so I quit because I was scared and I didn't have much money to lose and I lost it all. And that's what. What do you do? You walk away. You're like, okay, maybe this is not for me. But eventually, after 10 years, I picked it up again and I'm like, okay, I know what I'm doing now because I won't make the same mistakes again. So I guess parting thought is if you're going to get into this, dedicate some time to it and do your research, get mentors, get, get the books, watch the YouTube videos, whatever you have to do, and really dedicate yourself to it for a while or, or at least get somebody to teach it to you because it is very, very lucrative if you know what you're doing. It could be difficult if you don't know what you're doing, but it's. It's definitely worth it. And I feel it's a lot of fun. It's basically like thrift shopping for real estate. Like going to the secondhand store for real estate.

Yeah. Yeah. Good stuff. Okay, Julia, this is great. Give out your website and tell people where they can find out more about you.

Yeah, absolutely. It's just my name. Juliam Spencer.com. don't forget the M in the middle. You can also google my name and I'll pop up on all social media.

Excellent. Julia, thanks so much for joining us. Thank you.

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