95: Using Tax Sales To Diversify Your Portfolio with Julia Spencer

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Hey, it's my pleasure to welcome my friend Julia Spencer back to the show. She's been on before and she was the featured speaker at our Savannah Venture Alliance Mastermind event about maybe a year and a half ago now or something. It's great to have her back. I want to talk about tax sales. We are also super excited because Julia is going to be presenting for our Empowered Investor Inner Circle meeting on Zoom coming up on the 15th of the month. And if you want more information about that and would like to join the group, just go to empoweredinvestor.com she is an expert in tax sales. That means tax liens, tax deeds, real estate in general, too. Of course, most people practice a lot of areas of real estate, but tax liens and tax deeds are really kind of her main thing, you know? Want to talk about that in the market in general today? Julia, welcome back. How you doing?

Hi. Hi, everybody. Thanks for having me back.

It's good to have you. And you're coming to us from Savannah, Georgia, right?

Excellent. Well, I'm really excited about your presentation coming up. We do these monthly Zoom calls. You're going to be talking about how people can make potentially huge profit margins with tax sales, tax liens, tax deeds. You know, this is an area of real estate that not many people know about it. I first heard about it way back in the late 90s when I was listening to a Robert Allen audio and I thought, wow, this is really interesting and cool. It sounds neat. I later, several years later, I invested with a company, had a bad experience, but that was the company, not the vehicle. And you got to make those distinctions. You do it yourself and you help people do it directly themselves. Tell us about it. Like first, maybe start Julia, with how many areas of. We'll just call it tax sales. How many areas are there in that niche that people can work in? What can they do?

Oh, so there's all kinds of numbers or areas of sales that you can get into. But the bottom line is to basically get properties for pennies on the dollar because of some sort of default by the homeowner, whether it's they didn't pay their taxes. And that could be all kinds of taxes. Could be city, county, any kind of municipality, government taxes, property taxes. But it could also be Marshall sales for Example, it could be seizures because of IRS defaults, hospital liens, anything like.

That, or drugs or all kinds of other things. But what I meant on the tax sale stuff is. And let' back up for a moment to just make sure everybody knows what we're talking about. You know, on the tax sale component of this, there are tax liens and there are tax deeds. So Julia will tell us about that in a moment.

There's also tax lien certificates.

Okay. And tax lien certificates. Thank you. But basically the idea is, look, when someone has a property and they don't pay the taxes, many municipalities hold auctions and they auction off the rights to, to the stream of payments on these taxes because they need the cash now.

Right.

So they let investors take that longer term stream of income. Well, it's really in default now, so there is no stream of income. But the idea is that people will redeem and start paying their taxes. And when they do, you're going to earn a rate of return, penalties, late fees, and then ultimately if they don't redeem, the property goes into foreclosure. Right. So just take us through that a little bit.

Well, there's different kinds of ways of how to acquire property in the end and different kinds of methods how investors get into it. Some of them do actually get in it to ultimately obtain the property at the end. A lot of people get into it just to get that income stream though. So the penalties and the interest is more what they're interested in. So there's different ways to approach it depending on what your ultimate goal is with all of this.

So you're saying some investors don't want to get a property.

Right.

They intentionally just want the stream of income and the penalties and late fees that they'll receive on a redemption. But some want to go all the way to the end and hope to get the property. And that's how you hear about these people buying properties for pennies on the dollar.

Right, right, right. And there's a lot of steps involved in this. It's a little bit complicated, it's not straightforward. And the point is also that pretty much every place I've ever been to, the rules are different in every place. There's similarities within a state, for example, but when you go from state to state, the differences become larger. But also from different counties or cities, there's differences in the way that it's done. The key is to learn how to do it to be successful.

Right, right. And so is your life basically when you're doing this, is it you sitting online and looking at a screen and find. Finding these deals listed on the county websites, or do you actually go to physical auctions anymore?

Both. I do everything. Yes. And I have an assistant. So we both do the research ourselves and then we split up. Because a lot of times what's available is more than one. One person can look at in a set amount of time. So we split it up, but we do both. We actually even go physically as much as we can to the properties before we bid on anything. Because the condition of the properties is as. Is where is. And sometimes you don't want to step into a landmine, basically.

Right, right. But you don't always go see the property, right?

Not always, no.

Yeah. Okay. When you don't go see a property before bidding on it, or you're just probably more conservative or you're more sure about the property's condition, or maybe you're just assuming the worst and you know, it can't be worse than zero, right?

Well, it can be.

Yeah, I know. I was actually just going to correct myself because one of the ways I got scammed a long time ago in this, when I didn't know anything about it, and this was about 15 years ago, this fiasco started for me. I bought these tax liens. Then the promoter told me to foreclose on a certain number of them. And, you know, they. They're a company that was supposed to be doing the due diligence and doing all the work and acting like my agent. Right. That was the way that deal was set up. And then I got an interesting voicemail, by the way. I wish I had it handy. I would just play it for everybody, saying that the house was fire damaged and it was raining. I got this voicemail from like the county or the city. This woman called and left me this message, you know, that the house was fire damaged, it was raining. They had told me to foreclose on this property because the person wasn't redeeming and that the property would be valuable and I'd gain a bunch of equity. Now, I didn't end up happening on any of them, by the way, but it could be less than zero because you could have a mess that you're responsible for cleaning up.

Right, right.

There's an important lesson right there.

Well, like I said, there's inherent risk in any business. It's just how do you go about to minimize that risk and maximize your profits? And for that information and education is the most important. But your question was, do I always go to these properties and look at them or if I don't look at them, what do I do? I've been in this like so long now. I've been doing this for so long that I can get a pretty good idea in very minimum amount of time whether or not something's going to be profitable, what I'm looking at. So even so, the risk is always there. In fact, we almost made a mistake 10 days ago when I bought a property, but it turned out okay. So there's different ways to make profit. Even with the most difficult situation, there's a lot of adventure in it. So out west of real estate investing.

Basically, that's such a good way to put it. There's a lot of adventure. I love it. That's great. So, you know, one of the things that attracts people to this type of investing is a low cost of entry.

Right, right, right.

What are some of the, like, the cheapest cost of entry deals that you've gotten into? I mean, you can buy a tax lien for a couple hundred bucks, right?

Right. I've actually gotten tax liens for about $100 in Florida tax lien certificates, but that's, of course, a little while ago and the market is changing. But these are not properties that I eventually got ownership of. This is just for interest purposes. Properties that I've actually gotten. I could say probably one of the lowest that I've gotten was about $500 where I ended up with the property.

In other words, what you're saying there is that on that one property it was like $100. You got paid an interest rate, penalties, late fees, but you didn't end up with the property.

Correct.

But the $500 one, you actually eventually got the property, right?

Correct, yes.

How much did you resell the property for?

Well, actually, I didn't sell it for that much. I think I made maybe $20,000 or something in profit. But I did owner financing, and you can do that when you buy properties really, really cheap. So you make money on the interest and you can write off, if you do lease to purchase, you can write off taxes for all the years that the payments are being made. If you make them as the owner.

That's fantastic. So is the $20,000 that you made on that deal, which, by the way, is excellent. I mean, everybody listening is thinking $500 to $20,000, and you're saying you didn't make that much.

Well, the profit margin is huge, but the amounts are not that big. And friends out in California, for example, in Nevada, Arizona, they're much More experienced than I am. And they have deeper pockets, obviously, so they can afford to spend 20 or $30,000 on a property, but then they end up with something that's worth 400,000 or 300,000. So you have to invest money to make money, basically.

Sure, sure. But what I want to distinguish is on that $20,000, that 500 to $20,000 deal was 20,000, the total stream of payments, or did you take a down payment of 20,000 and then you have payments in addition to that?

Yeah, that was the actual sales price in the end. But it went over six years. And I think I financed it for a 7%. It was really high interest rate because owner financing, we don't do banks, we don't have to worry about scores. People are very hot on getting owner financing. So I think I ended up, I don't know, I calculated compound interest, maybe like 30 or, or something. So it was good.

Excellent.

Yeah. Well, that's what Einstein called the eighth wonder of the world, compound interests.

So low cost of entry. You can diversify geographically, which, by the way, is one of my commandments. One of my ten commandments of investing is take the most historically proven asset class, but diversify geographically. And it's easy to do this with the tax sale business.

Right, right, right. It's easy, yeah, just open a paper. A lot of people also subscribe to services to get these tax sales delivered to them in nice handy formats, if you know where to look. There's really no need for that because the information is publicly available for free and most.

But there are some services you can subscribe to that sort of give it to you on a platter. Silver platter, right?

Yeah. You can always pay for the silver platter.

Yeah, yeah. You talked about the ability to sell creatively, meaning that you acquire the property for so little money sometimes, but then you sell it with terms owner financing. You have that stream of income, you collect a down payment that will usually pay you back much more than you paid for the property in the first place. But the one thing we should say is that this takes a tremendous amount of focus, dedication, time and research, doesn't it?

Yes, it does, because there's a learning curve, obviously, just with everything. But I believe that if, if somebody was really dedicated to get to it, you can get the hang of it fairly quickly. You still make some mistakes along the way, but if you're adventurous and you're. You're not afraid to make some mistakes along the way, there's no reason why you shouldn't learn this Within a couple months or a year or so.

Don't get scared.

Right, right. Yeah. So you got to be a bit of a risk taker because you can get into something that, like we talked about before, could go sideways on you, right?

Absolutely. Yes. You can lose money, that's for sure.

How active are these auctions nowadays? I mean, if you go live, you kind of get a sense of it probably better. But online, do you have a sense of how many people are bidding on these properties nowadays?

Actually, I. Okay, so there's a distinction. How many people go to these auctions and how many actually bid. There's a big difference.

Sure.

Usually these auctions are in person. Life auctions are attended by a lot of people. We can see sometimes hundred people, sometimes we've seen 200 people. There's a lot of people there. But the people that actually bid at these auctions are not very many. And I can give you an example. We went to an auction on May 26th where I purchased a property in Georgia in a different county, not here in Savannah. And there was maybe 100 people there. I actually made a video I need to post on my YouTube soon. The people that were bidding, maybe five people out of the crowd. And it's always the same ones, too. People that actually came to spend money there.

Yep, Those. Those are the experts that are the regulars that are focused on this. And they treat it like a business, right?

Exactly. Exactly, yes.

Julia, have you noticed any scams at these auctions shill bidders, fake bidders, people trying to bid up the price, then dump it on a newbie investor? I know that happens at foreclosure auctions. Tell us about that.

Well, there's always going to be people that have their little tricks, especially. And there's different kinds of auctions. Here's the thing that has to be distinguished, that there's a different strategy for every auction. For example. Let me just give you an example. If you go to like a lottery auction, it pays you in. The lottery auction is just what it says. Somebody every bit of puts a number in a hat. If you pull out the number, then you're the winning bidder. But it behaves you as a good investor to put as many numbers in that hat as you can. So you bring extra people. So you essentially can outbid scams like that where the competition is just a little bit more savvy. And there's other ways where people just upbid the price and disappear. Send somebody else to collect the property at the other end when it goes into default. And things like that all the time. All the time.

Yeah. Folks, it's a sweet world out there.

What it is. You know, this is why I love going to other countries. And this is one of the things you asked me. But in the beginning of the show, why do you like Mexico so much? It's because the people there have not forgotten how to fight for their living yet for their life yet. You know, everything here is kind of handed on the platter for us. I'm not saying universally here in the United States, people suffer here, too. But over there, everybody's hustling, everybody knows how to make a buck. Everybody's doing something. So this is kind of what these auctions are like, too. Everybody's going to try to get the leg up on the competition, and you need to know what all of the rules are and what everybody else is doing.

Right.

I love it.

Yeah. Good stuff. So the point I wanted to make, though is be careful, proceed with caution. You know, it's a. It's a dangerous world out there. There's lots of scammers and a lot of thievery going on.

Scam, too. So, I mean, you can.

Oh, yeah, I got scammed and, you know.

Yeah, I definitely got scammed right there.

Yeah. But my scam was different. The way I was scammed was by hiring an agent who scammed me. Right. Versus, you know, you can get scammed directly, even if you're doing it direct and you're at the auction. You know, there are people that are working together to collude to, you know, do various things and manipulate auctions and so forth and. And other scams as well. Okay. So that would take a lot of time to discuss all that. Hey, Julia, I want to switch gears if we can. You know, we hung out in Europe a bit and had a good time there. And you go to Europe every summer. You were talking a little bit about. We were talking about real estate markets, and we got into this discussion about different parts of the world and so forth. You mentioned Mexico already. Want to get your general take on the market, if you will, because you've been doing this quite a while. You do short term rentals. You've got experience in long term rentals, certainly tax sales. Tell us what you're seeing out there.

Well, the market is changing. I don't know about most areas, but the areas that I work in, it's a seller's market. People are scrambling, prices are skyrocketing, especially in areas where people want to live, because it's a nice area. People are leaving the cities. I mean, if you owned suburbia before this whole pandemic hit, you're golden right now.

Yeah.

If you owned any real estate, with any real estate, five years ago was the best time to get in. Today is still okay. Tomorrow. Yeah, don't wait till tomorrow. Basically get into it now. Today.

Exactly. It's. It's like the tree thing. When's the best time to plant a tree? 20 years ago. Second best time is today. So you always have to start somewhere. That is definitely the thing that.

In the auctions too, by the way. I know you were asking me about that. Some of these prices that I've gotten five years ago, I can't get them anymore. Properties I've bought for a thousand dollars go for nine or $10,000 right now. So it's changing, but we're changing along with it. So we're making the best of it.

Definitely. Definitely. It's definitely a seller's market. I don't think that comes as a surprise to anybody at all. People are leaving the cities, moving to suburbia. That's the strategy I started recommending 18 years ago. So then you know, that strategy has definitely paid off even more in the COVID and post Covid world. You have some good friends that live in New York City and this is interesting. You know, you stayed at their place many times and you know, we've, we've talked when you're there. And you told me this morning that their maintenance fees for their. Basically their homeowners association fees in their condo are how much? Just say that again.

$10,000 a month. That's what I learned. But one of my good friends owns an apartment in Manhattan close to Broadway, and she owns it, it's hers, but she still has to pay $10,000 in maintenance every month. And it's mind boggling to me.

That is just mind boggling. So 120 grand a year just to the homeowners association, not even including the price of the property or the maintenance of the interior of the property. That's just shocking. So you can see why New York is definitely highly overrated in my opinion, and I think yours too, right?

Absolutely.

What about the rental market? You made a few comments to me before we started today, but just share those with the listeners.

What I had mentioned to you before is the rental market is also changing. While, as in the past, we were scrambling for good tenants. And we carefully evaluate anybody that comes our way because if we lose them, then we have a vacancy. It's not like that anymore. Somebody wants to leave. I'm like, okay, if you're out by tomorrow for short term vacation rentals because you don't like my place, I'm not worried because I can get somebody else in there within 12 hours or a day. Tenants are definitely looking. The biggest increase in people looking are these seasonal rentals. People that want like a month or two or three at a time. They want furnished with everything included in the utilities. People that are temporarily working somewhere, and that's really the biggest increase. So I'm not. I don't have long term rentals anymore, so I can't comment on that. What I did before was short term rentals for two, three days at a time. But the seasonal ones is where we get most of the requests right now.

There's another component to that, Julia, that is just huge. And I know this from direct personal experience. I have firsthand information, and that is that so many people are moving around the country right now and they are looking for lower tax, lower cost, more spacious locations. Everybody loves Florida, my home state for the last three years. I have so many friends that are coming to Florida, many from California or elsewhere, renting a short term rental for a month while they look for a house. And that is just huge. That's a huge part of it. They all want to get a place for a month, you know, and just be here so they can find a house to buy. It is just fueling a mass migration that we have just never seen in our lifetimes. There is nobody. Well, I guess there could be. There could be like one person.

That'S old enough to remember. There's virtually nobody watching this or listening to this. That was alive at a time when we had such a big migration in the United States. And I'm going back to the Great Depression and the, you know, the John Steinbeck novel that I read in high school, the Grapes of Wrath. Okay, this is a major mass migration. And what that really means is not just people moving. Okay, think about that in a deeper level. It is a huge wealth transfer. It's a transfer of wealth because as people move, their income tax and property tax and sales tax moves with them. That revenue they generate, the money spent into the economy locally moves with them. All the restaurants they go to, all the dry cleaners they go to, all the car washes, they go to, the haircuts, all of that moves with them. So it's a giant, giant wealth transfer that is happening right now. And that transfer, there is no question about it, it is leaving high density cities. And this is around the world, not just in the US it's leaving high density locations, la, San Francisco, New York, Boston, Seattle, at least downtown Seattle. It's leaving all of these places. It's also leaving business unfriendly places, it's leaving landlord unfriendly places and it's leaving left wing politically oriented places to move to right wing politically oriented places and landlord friendly places and business friendly places and lower cost of living places with more space. That's what people want. That's how they feel safe. It's just incredible. I mean, are people renting your short term rentals? You're talking with some of these people and are they saying, hey, I just want to get this place for a couple of weeks or a month because we're moving here and looking for a home.

Absolutely. All the time. All the time.

And did you see that pre Covid.

Not as much people mostly vacationing. We're close to a vacation area here by the beaches. So people from Atlanta would come up, from up, down, you know, from Europe. Most of the travelers we used to get from Europe and as far as have stayed away, obviously for the most part for the last year, replaced by people looking to see if they may want to settle here because it's a place to live in the South. I'm still pretty much the south like you. So yeah, it's changed. The people have changed too. Absolutely.

Yep. It really is. It's an amazing trend. And you know, five years from now, folks, we are going to see just a whole new complexion of the country as the pieces on the board are moving around like this. And there's some things that people aren't thinking about this much. And I've mentioned it on the show before, but it's really a kind of a democratization of labor talent, of knowledge, of intellectual. Because a lot of this used to be concentrated, you know, the, the super smart people lived in Manhattan or Silicon Valley or you know, some of these like prime areas, right. And now they're all dispersing to just everywhere. I'm not a total fan of the guy, but you know, Friedman's books, I mean the concept is, right, the world is flat or the earth is flat. I can't. Thomas Friedman, you know, those, those books are like 20 years old now maybe, but the concept is the same. It's a flattening of the country really, and the world where people are dispersing out of these places, just mixing in with everybody else. So I think that's a really good trend.

Yeah, I like it. I just always liked location independence anyways, but we were all location dependent prior to Covid. But now we're realizing that it's different. And what you said in one of your other podcasts, the home is becoming the center of of life again, as it should be. So yeah, like that.

The home is the center of the universe. That's the way I said it. Yeah. That's great. Well, Julia, we're looking forward to having you on the 15th of the month. And everybody, if you want to join us and learn all about tax sale investing, it's empowered investor.com empowered investor.com get signed up. Join our community. It's got a ton of other great benefits. The regular members only calls zoom meetings are just one of the benefits. It's a whole social network, a community. It's just awesome. So join that Empowered Investor.com and Julia, any closing thoughts you want to share?

Just join us. And even if you don't want to get into this line of investing, it's always to get more educated than less. So just come and join us and have some fun. Join the adventure in the Wild west of Real estate investing.

It is. It is the wild west of real estate investing. Good stuff. Well, looking forward to seeing you all there. Hopefully. Empoweredinvestor.com and Julia, thanks so much for joining us.

Thank you for having me on.

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