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Is Investing In Tax Liens Or Tax Deeds A Smart Move For Your Land Business?
This is episode number 2064. This Monday, all week this week, Jill and I are going to be talking about what works and what doesn’t work in your land business. Why are we qualified to do that? Why are we qualified, Jill?
We know a lot about what doesn’t work. We have 30 years behind us. I’m going to keep going. You do. I have sixteen almost years behind me full-time at this. What else? We’ve got 18,000 deals under our belts.
It’s some number like that. I think it’s a little closer to 16,000, but it feels like 160,000.
That’s true. It feels like 3 million. That’s good.
We’re going to tell you very candidly all week this week. Whatever time Jill and I sit down to do topics for the week. We look and see what people are talking about both within our group and then outside out there on the internet. These are five topics that we picked that we would like to maybe bust the myth associated with these topics and give you the real answer because we’ve made money and screwed some stuff up in every single one of these topics.
When people come to me like, “There’s this new thing that’s called fill in the blank.” I’m like, “Been there, done that. What do you want to know?”
Good. I had a kid come to me a lot of years ago and say, “There’s this new band called the Beatles.” He’s just obviously new to him. On Monday, we’re going to talk about how does investing in tax things or tax deeds works as part of your land investment business. We’ll spend some time on that. On Tuesday, we’ll talk about subdividing and land and whether or not it’s profitable as part of your business. Wednesday, adding mobile homes or houses to your business. Thursday, which types of the five types of land should you be flipping and where in the country should you be doing it? Friday, we’re going to look at, Jill and I are going to be very candid about how we have kept food on the table for 30 years doing this.
It all comes back to land.
Land Academy Member Question
Sure does. Each day on the show we answer a question from our Land Academy member Discord Forum and we take a deep dive into land-related topics by your request.
Vahid wrote, “Dear team, for estimating price per acre, the size of the property matters. I would look up recently sold comps in a given geographic location within a certain acreage range which would be comparable to the property that I would be considering.” All good. “Some use this technique for blind offers. How would you group the acres in order to price the land?”
This is what he’s getting at in general. This is a good basic concept for everybody to either now be aware of if you’re new or if you’ve been in this for a while to refresh. Property. The smaller the property is, the acreage size, let’s say one acre, it’s more expensive. More expensive as a price per acre than a 40-acre property, let’s say. A one-acre property you might see on the internet for $50,000 to $80,000, something like that. Then right next to it, there’s a 40-acre property that is listed for the equivalent of $5,000 an acre or less $5,000. That’s just how it is. It’s in economics. It’s called the bottle case theory. When you buy a bottle of beer, It’s more expensive than if you bought all 24 at the same time. Comes back to beer and sports.
I’m like, why does it always go there? It’s when you’re like, you could have used a carton of eggs or something, I don’t know.
The bottle case theory has just been around forever. I don’t think people buy one egg.
No, but we buy hard-boiled eggs, buy six in a package. I do that.
People understand baseball, beer, and members having relations with members of the opposite sex in most cases. Those three things. The land business is about the same. What Vahid is asking here is what categories I should deconstruct to look at the property. Should I look at 0 to 1, 1 to 20, 20 to 40, what’s the deal? Here’s the deal and I’m going to try really hard not to explain how to build a watch when you ask me what time it is. Our entire land system in this country is based off of England’s land system and everything starts with one square mile, which is 640 acres square.
Back in the 1800s with the great land giveaway, the federal government subdivided. Most of the country into a range township scenario and blocked all of the contents of a range township into one square mile. You’ll still see in a ton of places all over the country, 640 acres for sale, specifically Nevada. From there, properties were homesteaded and then started to get subdivided. Usually, it was farmers or ranchers who wanted their kids, they wanted to give their kids properties so that they could stay close to work on the farm or the ranch or whatever. They started cutting them in half.
You start with 640, you go to 320, and half of that is 160. Half of that’s 80, then 40, which is why you see 40 acres everywhere. Forty acres, it’s the title of the song. 20, 10, 5, 2.5, and everything below that. I would heavily recommend that that’s how you do it. You start with 640 and divide by two. It’s really interesting. This topic was all over. This could be the Land Academy Discord channel and somebody in there asked chat GPT this question and very intelligently phrased question. They said exactly what I just said. How scary is that?
I wonder where chat GPT probably got it from you.
No, I wonder. There has to be some stuff in there.
We’re going to have enough content out there. I haven’t Googled us lately, but I bet it’s comical. How much content is out there, especially after how many 2000 and I don’t remember podcasts?
The takeaway from this is it’s not logical. You would think it’d be different, but the reason that you want to use those step-ups or step-downs, depending on how you look at it, when you look at price per acre is because that’s usually what’s out there. If you go to Landon Farm and look at ranch property, usually, it stops at 80 acres, not 60. It’s not logical. It goes from 40 to 80 and 80 to 160. I hope that’s clear. Is that clear?
The reason that you want to use those step-ups or step-downs when you look at price breakers is because that's usually what's out there.
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Yeah, did a great job. Speaking of sports, before we go into the main topic, just something, you’re talking about baseball, the commonalities of certain people, and it leads to their traits and things like that. When you and I are watching the World Series, Dodgers by the way. They throw all these crazy stats on the screen for you during a TV timeout or whatever it is they’re talking. Changing pictures most likely. Anyway, my favorite stat of all stats this whole year was showing the size, the average size, and weight of the players per sport. Remember that?
Yeah. Hockey players are tiny.
They’re little but those baseball players, boy, they outweigh them all. I was laughing.
What’s the message there, Jill? I swear, more than football. It was funny. I’m like baseball players know how to drink beer.
I think that’s part of it.
Jill and I have a personal relationship with several umpires.
Tax Liens And Tax Deeds
They can drink beer. I can personally confirm that. Our topic is Does Investing In Tax Liens and Tax Deeds Work as Part of Your Land Investment Business? Yes, it does. I’ll tell you.
Here’s the deal with tax liens and tax deeds and I’ll do a light definition really quickly.
Jill owns a property and she owns it in Arizona and every year, sometimes twice a year depending on where it is, she gets a tax bill in the mail. Like it’s $19.58 and she gets the bill and she pays it. Either pay it online or write a check. At some point, for whatever reason, she stops doing that.
I get tired of writing those checks.
Maybe she died. In fact, that’s the reason. The vast majority of people are back on their taxes is because they’re died or they just lost complete interest in the property. Just say, “I’ve been writing a $28 check, and back East, it’s way more than $28. It might be $2,800 for a piece of property that my husband bought, my ex-husband bought, and my dead husband bought. I’m tired of it. I’m not paying anymore.”
A period of time goes by and depending on what state you’re in, let’s say it’s a tax deed state. The taxing authorities start to send you notes and letters. They eventually send you certified letters and then they eventually send you one big package at the end. Ask me how I know this. That says, “Look, Jack, the auction’s a month from now. We are going to auction your property off and you have to follow these procedures.”
They involve cashier’s checks, walking into the county, or a bunch of stuff. That’s really inconvenient with all kinds of administrative fees that have been accumulated over the years. If I just blow it off and shred the package, ask me how I know that. The property goes to auction, a literal auction in a tax deed state and Jill wins. I don’t know, we switched positions on those.
That’s true, you win. It was my property, you buy it then.
Jill shredded the documents.
I go to the tax auction, usually sitting next to her, and we buy it. That’s what happens in the tax deed business, and I built this entire company based on exactly what I just described, buying tax deeds. All over the country. This was long before I had any real social responsibility in life and long before I met Jill.
Can we talk about this for a moment? This for you really started in the ‘90s. I would like you to just say I was telling someone the story about this. Someone brought this up recently to me like it’s a new thing and they just found it. I’ve said, hold on a moment.
I really did. I said, “This one used to be in his own forerunner was own camera, driving around looking at property going to these auctions, reviewing this stuff ahead of time, and picking out what you want.” I remember doing this with you. I came in on the tail end of that and that was almost 16 years ago. He put me in the car and had a list that he had highlighted, and we went to a couple of auctions. I remember I was in charge of keeping track of how much money you spent at that time. That’s the story and I know you’re going to say the pros and what was good about it was not good about it.
Fast forward to today. It’s still you can still do this and there are procedures but answer the internet. The internet now is where it all happens. If you go to Los Angeles County and sign up to be on their list, you can do it for free. They have this online only but I’ve been to the LA County tax deduction. It’s the largest tax deduction in the world and they do it every year and they used to do it in a stadium, believe it or not. Over the course of two weeks, that’s how much property and how much money would flow through there.
Now, the internet is where it all happens.
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Really interesting cast of characters in there, buying land. People that are small business owners are buying shops that just have tax defaulted. My whole thing was to drive around, go to these tax, do a lot of research, go to these tax deed auctions. Hopefully, there’s not a lot of competition when you’re there. It’s an auction. It’s just that everything that you’ve seen and heard about auctions is probably true. Buy a bunch of property and then resell it. We would resell it on the internet and mark it up.
A lot of times pretty dramatically market up 5 to 10 times what we paid. We were used to, it was regular for us to buy properties for $10 or $11 or $15. The only reason that I put myself through that was because it was just life on the road situation. It was fun when I look back on it. I got to meet all kinds of crazy people from small towns all over the country. The only reason I put myself through that is because I hadn’t yet figured out how to send mail out. Sending mail out does away with all the actual in-person work.
If the mail does all the work for you, you send out a thousand letters there are maybe 8 or 10 or 20 people that receive one of those offers and they choose to call you. Now instead of you putting all this outbound energy to bring a few properties back, you’re sending out a bunch of letters which takes just hours. All the energy is put on the people who are receiving those letters to contact, in our case, Jill to say, “Please buy my property. I’m tired of paying these taxes.” It really makes a lot of sense. Here’s the deal. When you stare at a tax, it gets really easy to get excited about this. I still do it every single time I see a tax list. I’m on all these lists, by the way.
The emails can go on your list.
I am getting constant emails.
It’s just fun to get on the road and go look at land. That’s what we’re doing in this rig, by the way. You have a list of in a tax deed situation, hundreds and hundreds but sometimes thousands of properties that you have to analyze. You’d sit down in a dark place somewhere and take a lot of time and analyze the tax deed list to see if the properties work. Very often these properties are not taxed correctly, which is why they’re on their list.
All these properties that are on these tax lists, lien or deed, have problems. They either have ownership problems because they’re dead or there are actual problems with the land. That’s very often the case. Now you’re sifting through a thousand, not sifting. You are going through the due diligence on a property that you probably have no chance of ever buying.
When you send the mail out, you get ten back, you do due diligence on ten of those and five of them work or two of them work and you buy it. It’s really efficient. Tax deeds are not efficient. Can you make money? Yes. It’s an incredible amount of work. Tax liens are worse. I’ll end on this. This is how tax liens work. It’s the same story. Jil stops paying. A lot of time goes by. It’s in a different state. It’s in a tax lien state, not a tax deed state. She shreds the final package. They have an auction, only that they’re auctioning off the lien, not the actual piece of real estate.
Whoever wins the auction, they have won the opportunity to pay the actual backtasks taxes plus an administrative fee. Now they own the lien. It’s Jill’s responsibility to either pay that person the amount of the lien. It’s usually 16% in the West. It’s different percentages all over the place. If there’s $100 of back taxes on a property that she let go, I go buy the tax lien and now I own that lien. I buy it for $116 and then a third party comes to me and pays me a premium on top of that. Then what? Who actually owns the property then?
Jill’s technically still owns it. I just have a lien on it. I can as a lien holder foreclose on it or I can sell that lien to somebody else who can go foreclose on it through a judicial foreclosure process usually. There used to be a thing back in the day and back in my day, where you could apply for administrative foreclosure so the county would do all the work for you. They would hand you the deed at the end. For like $25, it was the greatest deal ever. No one does that anymore. There’s too much liability. It’s too complicated. It’s a true lawsuit.
It’s a legal action. My whole point in that this is very complicated. It’s incredibly time consuming. I’ve seen tax liens, and lien lists for counties in the 30,000 to 40,000 to 50,000. Now I’m going to analyze 50,000 properties. I don’t think so. What do I do instead? I send out a mailer or send out a mailer to all the lien holders. That’s effective. Yes, tax investing in these things as part of your land business, it can be a great compliment if you surgically know about properties in a place where you’ve sent mail and do a bunch of deals and it can work.
Are you going to buy houses that way and then for $3,000 like late-night TV says you can? Nope. That’s pure fiction. There may be before my time. I think that may have been possible. There are always stories like that, but there are stories about people pulling the slot machine handle in, winning too. It’s the same thing. If you’re new, stay the hell away from this. If you’re retired and bored.
If you're new, stay the hell away from tax liens. If you're really bored and have nothing else to do, get involved in tax liens.
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That’s it. That’s what I was going to say is waiting for the bored or that’s what I’m going to say. Your experience and bored.
Your wife kicks you out around 10:30 in the morning because she can’t stand talking to you about whatever your problem is that day, get involved in tax liens.
There you go. That’ll eat up all your time.
There was a trend recently that proved to not work. I keep saying, I’m going to end on this, but I really well on this. Wall Street is like companies, because you can make a lot of money and tax liens just sitting at your desk, would go into a county and buy every lien. They wouldn’t even analyze it. Knowing that they’re going to get a 16% return and that backfired because nobody redeemed the liens because the property sucks.
Unless you really know about this and you want to spend a couple of years learning, I could write a book on this. That’s the truth. I will end on this. I could write a book on this. I haven’t written a book and we don’t do it anymore for a reason, because there’s a better way and it sends the mail out. Join us on Tuesday, we discussed the same type of thing. Is subdividing land profitable when you add it to your existing land business? Spoiler alert, yes, it is. You are not alone in your real estate ambition. We are Jack and Jill, information and inspiration to buy undervalued property.
