Introduction to Learning From Worst Case Scenarios with Nelson Mullins, Part 4
Matt Abee and Randy Saunders are tax sales experts with the national law firm Nelson Mullins. They recently joined the CEO of Tax Sale Resources, Brian Seidensticker, for another podcast in a 4-part series devoted to tax sales that illuminates some of the hidden pitfalls investors should beware of to avoid worst-case scenarios.
Knowledge is Power – But Be Location Specific
Often, even highly knowledgeable and experienced investors encounter problems when they venture out beyond the state they are familiar with and invest in another state. That’s because rules governing tax sales can vary dramatically from one state to another, even if they are states that border one another. However, this also applies to venturing into other counties within a particular state. The rules and procedures can also vary significantly from one county to another.
Consult a Local Tax Sales Attorney
One of the easiest ways to efficiently understand the nuances of any state or county is to contact an attorney who specializes in tax sales. Many are willing to consult with you for free for an hour. But even if you need to pay for an hour or two of their counsel, the amount of information you gain—and the problems that help you avoid—is worth the cost.
Fine-Tune Your Business Strategy
Develop a confident business model to deliver your expected return on investment. Select a state that has a bid process that suits you. Choose a county that follows procedures that may make investing more accessible. Find out how much capital you need and what kind of interest rate you can earn on tax liens you buy. How long does it take to recoup your capital so you free it up to deploy for another investment? If you’re investing to acquire the deed, identify the particular types of properties you wish to own. What’s the retail market like for reselling or renting properties you may possess? Explore contingency plans to anticipate what to do if things are unexpected. Answering those questions will give you insight into minimizing risk and maximizing opportunity.
Here’s One Simple Example
For instance, Kentucky requires investors to hold assets for a year to have time to develop a payment plan for those who have defaulted. Then, you must service the interest payments because the state or county isn’t responsible. Those rules will add to your expenses, time, and effort to invest successfully. So that’s an example of a state that is not that user-friendly if your goal is to acquire the underlying real estate. However, someone with an extensive portfolio who isn’t focused on developing property could do well by investing in liens and collecting interest payments if they have an efficient process for servicing the liens. In neighboring West Virginia, the opposite holds. There, it is better if your goal is to acquire properties – as long as you are strategic about which counties you invest in and have a good exit plan for renting or selling them. So, choose a state that fits your specific investment strategy and goal.
The Bottom Line
Develop a business plan, take advantage of the knowledge and experience of a local tax sales attorney, and gain access to the most recent data to help you do appropriate due diligence in support of your strategy. Next, determine which state or states will allow you to invest more efficiently and profit based on their unique rules and procedures. That can help you tremendously in terms of avoiding worst-case scenarios. Remember that this blog is only a summary and overview of what was covered in the podcast. To listen to the complete in-depth conversation between Abee, Saunders, and Seidensticker and learn more, click here.
