"Simple Real Estate" - Investing in Tax Liens

[Andrew LeBlanc]

Yesterday I attended a free seminar put on by "Abundance EDU". There I ended up paying 2340$ US to join an affiliate company (Simple Real Estate) that aids in purchasing tax liens in the US; their site and support team will help me analyze the homes attached to these liens, and lower the risk of acquiring a property in poor condition.

I'm 25 and work full time. My parents (who did not attend) are telling me that this may be an overly aggressive investing strategy, and that I could be spending a lot of my time and money in a system that could be flawed. 

I need advice from people who have invested in tax liens in the US! Should I pursue this?

Thank you.

[Paul Birkett]

Hi Andrew. I spent a lot of time researching tax lien investments but I have no knowledge or experience of the company you are discussing. There follows my personal views on the tax lien space and it should not be taken as legal advice or anything other than my personal views.

In my opinion there are 3 key ways to win in the space:

1. You have a lower cost of capital than your competition. If you have Canadian debt at 2% and everyone else is paying US 5% then you have a cost of funds advantage (but a forex risk which we will ignore for the purposes of the discussion).

2. You know things that other people don't. You may know that the target property has development potential and the current owner is deceased and their family will sell - or some other special knowledge that is not obvious

3. You have more capital than the competition. You are able to buy a lot of liens and wait it out for as long as it takes for them to be redeemed or for you to get the property.

The people who really make it tend to have 2 of the 3 advantages above going for them. In my experience, there are 2 types of investor who dominate the space:

Type 1: Well financed speciality hedge funds with low cost of capital: These sophisticated investors have teams of experts who focus on knowing everything they can know about each lien and have the funds to be able to bid the price down to zero or even pay a premium to get a lien. They can afford to do this because of 1 and 3 in the list above...and they try to get some of 2 too.

Type 2: Local seasoned investors. These guys have typically been buying for a long time and focus on their geographic area. They are the ones who know more than anyone else in the room (typically) and often have close relationships with the other buyers in the room. They have advantage 2 from the list. 

If I were you, I'd ask myself which competitive advantage do I have and am I a Type 1 or Type 2 investor. If you don't have any of the advantages and you are neither Type 1 or Type 2, how will the service you have purchased compensate for these disadvantages?

Great that you are taking action and getting a financial education - whether or not tax liens turns out to be for you, don't give up - keep reading and you will find another great investment strategy