BiggerPockets Real Estate Podcast - 56: Syndicating Deals, Investing without Tenants, and Tax Liens with Ankit Duggal

Episode Date: February 6, 2014

Dealing with tenants can be a pain… which is why on today’s show we’re going to go beyond tenants and look at some “no-tenant” methods of investing in real estate. Specifically, we’re going to talk with real estate investor Ankit Duggal about his journey from real estate agent to syndicator to house flipper to landlord and finally to tax lien investor. Ankit has a great story and offers hundreds of great pieces of advice on this show perfect for both the new investor or someone looking to add some new skills to their investor tool belt! In This Show, We Cover: Getting started at a young age Transitioning from Agent to Investor How Ankit financed his early investments using other people’s money Your three circles of influence for raising money The three team members you need before syndicating Investing with close family members What is a tax lien and how (and why) to buy one. Earning 18% on your money through Tax Liens Why tax liens have almost no risk How to do your due diligence on a tax lien And lots more! Books Mentioned in this Show The Real Estate Game: The Intelligent Guide To Decisionmaking And Investment by William J. Poorvu Built to Sell: Creating a Business That Can Thrive Without You by John Warrillow Links from the Show: Buildium Brandon’s 7 Year Plan BP Podcast 007: Making Appraisals Work For You with Ryan Lundquist Tweetable Topics I’m not “money-driven” – I’m “lifestyle-driven.” (Click to Tweet!) Educated yourself as an investor. That’s the first step in any investment. (Click to Tweet!) I don’t believe in ‘get rich quick.’ You gotta put in the time and effort. (Click to Tweet!) Connect with Ankit Ankit’s BiggerPockets Profile Ankit’s BiggerPockets’ Blog Posts Ankit’s Website Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast, show 56. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online. Hey, what's going on, everybody? This is Josh Dork and host of the Bigger Pockets Podcast. here with the delightful Brandon Turner.

How's it going, Josh? What's up, Brandon? Oh, everything's delightful. It is, isn't it? It is. Things are always delightful here. I always love it when you're in a good mood. Sometimes, you know, sometimes you get a little grouchy.

I've never not been in a good mood. Oh, come on. We're going to take a poll. Hands in the air, everyone, listeners. Have you ever heard me in a bad mood? I don't see any hands. See? No, see any hands.

See? Come on now. No, no. Things are good. things are good. I'm getting my rental property a little more stabilized, getting them rented out, finally the dark days of December and January are ending. Nice. That's awesome. That's awesome. Well, all is well over here. We're crushing it on the podcast. The site is really starting to pick up. We're in the process of hiring folks for BP.

Things are going well, man. It's 2014 is off to a pretty okay start. Nice, nice. I agree. Yeah. Yeah, yeah. Well, why don't we jump into our quick tip and then we'll start getting into the show here. Quick tip. All right, guys, for today's quick tip, we are going to remind you if you're not already doing so to please come and follow us on Facebook at facebook.com slash bigger pockets. The reason to do so is not just to boost Brandon's ego. Which it does. I do like likes.

We do like likes, in fact. But, you know, we sure. a lot of great content on Facebook. We put out all of our best articles. We share a lot of our best forum discussions. We do weekly polls to help you think about

and learn new strategies and ways of doing your real estate. And, you know, ultimately, the idea is to help you find better ways to help you grow your business. And if you're following us on Facebook, that content will follow you in one of the big places that most of our users like to hang out. So please come

like us on Facebook at Facebook.com slash BiggerPockets. And just to rub it in or to rub that point in a little bit, we've got, we're averaging almost 20,000 people per show listening to the Bigger Pockets podcast. Yet we only have like 10,000 Facebook fans. So by the end of the week, I want to see 20,000 Facebook fans. That's what I want to see. There you go. Wow, Brandon just just threw down the gauntlet. Yes. And we know who you are. We know who our fans are. So if you are not yet a fan of us on Facebook, Brandon is going to personally come and talk to you until you lose your mind. I was hoping like a wrestling match, but whatever.

All right. So that's today's quick tip. Moving on. All right. So for today's show, we've got a, I don't know, I think it's yet again one of our best shows. We cover some amazing content here. So let's get into it. All right, guys. So today's show features Ankit-Dougall. Ancett's the owner of R-E-R-L-C, a real estate investment company based in New Jersey. New Jersey. Ankit has experience in everything from flipping to landlording to working with tax liens. And we're going to really dig in to all that stuff today.

Ankit's also a writer on the Bigger Pockets blog and provides a lot of really, really great content to us all. There's a lot of really high-end stuff in this show. and some of the content that we're going to cover is actually going to blow your mind. I know that Brandon and I were super excited afterwards and I learned a ton from this show. So definitely check it out. If you're a novice or experienced real estate investor,

you're going to get something out of this. Definitely listen through to the very end because there's great information all the way along. Of course, if you have any questions, please jump on our show notes page at biggerpockets.com slash show, 56. That's biggerpockets.com slash show 56 and ask any questions you've got for Ankit in the notes and the comments below the show notes. And he's going to be there to answer them and help you out. So

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OnKitt, welcome to the show, man. It's great to have you. Thanks, Josh. How are you today? I'm fabulous. Absolutely fabulous. You don't care about Brandon, though. Not at all.

We don't want to care about Brandon. Nobody cares about Brandon. Brandon, how are you doing today? I am doing really well. I can... Wow. Hey, I... Don't even know what to say that.

All right. Hey, let's jump into this and go back to the very beginning. So how did you... Well, very beginning plus, like, I don't know, 18 years or so. How did you get first started with real estate? All right. So actually, my first start in real estate was I started as a real estate agent. So I became a salesperson.

started selling real estate. And that started this love and hate journey in the real estate asset class. And today, you know, it's a very loving relationship to this business. But yeah, real estate started off as basically being a realtor and selling houses. So how much love, how much hate was there for being a realtor? Oh, I am not the best person to deal with when it comes to first time homebuyers. So I really couldn't love that part of the business at all. And that's how it started. I guess that's how a lot of people start. But I was lucky enough that pretty early when I was about 19, because I got my license when I was 18, I started working with investors to buy flip projects. And that part of real estate, I truly enjoyed the investment side of the

business. I truly, truly had a lot of fun with it. And so I can never, I don't know if I, I give a lot of props to people who are regular realtors and who work with first time homebuyers. It's a very difficult thing in the world. Yeah. Hey, I'm wondering, you said you were 18 when you got your your license and your 18, 19 year old, you know, kid basically doing real estate as an agent. How did, I guess, did people take you seriously? I hear that question all the time. Oh, that's nice, Brandon. Well, no.

Thank you, thanks, Brandon. I was very mature 18 year old. Wow. I mean, he just got on the show, man. Be cool. Be cool. Yeah, I hear that question all the time in the forums is, I'm worried people won't take me seriously and whatever I do in real estate because I'm 18, 19, 20, 21 years old.

What are your thoughts? Well, I think it's a hard, it's a tough line to cross because I looked very young, so it was even more difficult at least for me. If you looked at least older or had some facial hair, I looked like I was 15 when I was so it really was really difficult. But it came down to eventually as you learn your markets and as you learn your product class and you can speak intelligently, somebody will look at you and say, yeah, you actually know what you're talking about.

And that's been the biggest saving grace for a young person is if you're hungry enough and you learn more, you have no problems competing. Yeah. I think that's wise right there. I also, when I shave my beard, I look like I'm like 13 years old. Oh, that's why you keep the beard going? That's exactly why I keep the beard going, because, yeah, you don't want to see me without that beard, so very cool.

So, all right, so you mentioned you started working with investors who were doing flips. Is that when you got into flipping it all, or was that later? No, so actually I started working with investors back in the good days of the market, right? The 03s, the 0-4s, when everything was working. Great. And then I started flipping actually in 08 when the market started going down. Okay. Yeah. So I noticed, like, I'm a big history buff, so I love reading about like the RTC, the Resolution Trust Company. So I kind of saw the same thing happen when 07's market started collapsing. And so I said, okay, you know what? I'm going to start buying distressed properties. And in 2008, end of 08, I bought my first flip project and, you know, made my first flip using that. And we turned to 30% of profit. And that was like one of my best flips still today. That's cool.

That's cool. So you did that while the market was collapsing. You still managed to succeed. Do you have any reason why? I mean, like, bought it at a very, very, very, very deep discount.

And, you know, that's what something, even if a market's going sideways up or down, if you can buy it at a deep enough discount, you can still make money. It's a great tip. That is a great tip. I,

uh, yeah, I flipped also like on the way the market was, was collapsing. And I, that's how I became a landlord. is I just kept acquiring these, you know, flips that as the market dropped, I kept losing my equity. So, I don't know. You became a de facto landlord? Yes, yes. But I don't regret that.

I mean, like, it totally made me excited to be a landlord and I still have them today. But, yeah, that's not easy. So congratulations on you doing it. You're excited to be a landlord? I love that, Brendan. I was excited to be a landlord. I have a feeling we're going to hear something else out of you, aren't it? So, yeah, let's actually go to that. So what happened next? Flipping and then you kept flipping? Yeah, so it kept flipping.

I actually did fairly well in flipping. In the course of two years, we did about 40 somewhat projects in buying and flipping. And, you know, a little bit of it was timing, a little bit of it was luck. You know, a lot of was getting distressed, was getting liquidated in 2009, 010. And then we got really good at syndicating deals and putting together capital from private equity guys. And so it did about like in our, in our area, about 20 million in flips. On average, we turned about a 15% to 18% profit line on that whole portfolio. But I started realizing after flips were done, you know, you kept selling everything and you never built

anything, right? And the problem or the best part of the real estate business is it's this residual wealth gain. And that wasn't happening when you're flipping. And so I always wanted to get into buying and holding. And so I decided to become a landlord. back in 11 early 12's market. And so we moved the business model, let go to quite a few people in our organization, and started becoming a landlord. Hey, Ankit, so I'm fascinated. I want to get into that, but I'm curious.

I mean, that's a substantial amount of real estate that you did in that short period. How did you finance that? And, you know, you said we, obviously, you know, you need a team to do that kind of business. How did that all come together? Sure. So started the first flip we ever did, we syndicated the whole project. And so for the listeners who are out there who know what syndication is basically pooling a couple of people together to buy the property. Right.

So we syndicated that first project. And we really try to do that first project very correctly as much as we could. I mean, don't get me wrong. We had a lot of buffer in there and we screwed up a lot. In that first project, it's part of life. You know, we had a contractor that ditched us and our budget went over by like 30,000. But at the end, we still made a profit on that deal. I know, right?

But we bought it so safe that we still made a 30% return overall. And then as we built that first track record down, then we went back to the same people and then their friends and started syndicating the second project. And then as we flipped that and made a record. And so it became a ball that we kept building off of. And then eventually we came across one or two high net worth guys who were willing to invest a bigger chunk of capital. And we got lucky in the sense that we also signed a deal with the private equity group.

And they funded a big chunk of our investment capital as well for a portion of time. And so it was, I believe, a little bit of luck and a little bit of just working a lot really hard and making sure the deals that we put together were the good deals. Oh, go ahead, Josh. I was going to say, Ankit, so, you know, I mean, you start out syndicating real estate. I mean, that's something most people don't really get into. And so I've got a couple of questions along those lines. First, you said we a couple times.

Who is we? Sure. And then how, you know, how is it that you decided to go about doing it in that particular way? And for those who are listening, I mean, you know, we haven't done a ton of coverage on syndications. We've kind of glossed over it. Maybe we could chat about that a little bit. Yeah, sure. So when I started the business back in 2008, it started actually in an office the size of a closet.

I would call it. Honestly, I was like my own assistant, but I had a business partner at that time, Amir, who me and him started doing the business together. He used to do a lot of mortgage work. I used to do a lot of realtor work, and that's how we kind of met during undergrad. And then as we started this firm together while he was in law school and I was in MBA school, and we started building that together. And the reason we started syndicating is in Jersey, the cost of real estate's really high. You know, you're talking just to buy a distressed property, you're talking $250,000. And by the time you're investing another 50 to 100 in it, you're at 300. So the only way we knew how to make this work, you know, we're two young guys, 23 to 25, you know, between us two.

And we needed a way to raise money. And the only way we knew how to do that was to say, okay, we have people who we know have $20,000, $30,000. Why do we put all of them together? Not knowing what we were doing was call syndication at that time. And so what we did is we started studying more into the idea. And we really developed, and luckily at that time, Amir, who was my partner, that former partner, is he really knew the law side of the business really well. And so we started putting together operating agreements properly.

And we really started building the syndication platform. And we brought our investors with us along the way and gave them a very high profit margin, right? So when we started, we were giving away nearly 70 to 75% of our profits. And at one deal, we gave away 80% of our profits to the first line of investors. And then over time, we started building our syndication and build our track record out. And that's what a lot of investors, I guess, don't understand when they start off is that they're like, oh, I want to make that $40,000. And that's great if you want to do that. But if you want to build a syndication business or have people trust you with money, your first line of investors who really kind of like take an entrepreneurial risk with you, you should give them that 70 or 80 percent.

And as you get better over time, you can then scale back. Interesting. And that's really good. And that's what allowed us to build a decent business. because unlike everybody else was asking, you know, 40% or saying, okay, U.S. investors are only making 30 or 20% we were saying, well, we're a new shop. We'll give you 70 or 80% of the profits. Wow. And where did you end up finding these people to come in on the deals with you? So the first round of deals that we had was through connections of friends and family.

We never try to take in friends' money or family's money in the first round. That was like in one of the articles that I wrote that actually talked about the first circle. We try to go right into the second circle because we just didn't feel comfortable having family money in there. So a lot of it was actually initially our friends, our friends of friends who were working professionals, you know, 30s, early 35s, who had, you know, put aside that $30,000 or $40,000 into a CD and who needed to do something with it instead of just putting it in for like a 1 or 2% interest rate. Yeah. Hey, can you actually touch on that real quick? I remember that article. You wrote that probably almost a year ago now about the circles of people in your,

in your influence. And I thought that was awesome. And I'll link to it in the show notes at Biggerpockets.com slash show 56. But just kind of a refresher. Can you kind of explain what you mean by circles? Sure. So there are, and when you're going to raise money syndication-wise,

there are a few reams of circles that I call them. The first line of circles are basically your initial context, your family, your uncle, your aunt. These are people who know you really well as a person. And they'll be very comfortable giving you money to obviously to a certain extent, depending on how much they can afford, but they're like, okay, we love Josh,

we love Brandon, we're going to give them money, and they're going to go invest in the first round of deals. And they will trust you more so than the deal. The second round of people, the second circle of people, are basically their connections, their friends, their cousins, and you're basically going to them next

and saying, okay, I've done well, but this first round, they trust me, they're making the introduction. I've done a good deal also at this point, and so I want that second. second round of capital or the second circle of capital to come to me and give me money. And so that's that second layer or your second circle. And your third circle is your family offices, you're truly third party people. People who are professionally managing money or have

money are such as high net worth who don't know you. But by this point, you have now built out a track record and you have a team and you have some history. And you go to these people as your third round and you're then able to work with them on bigger projects, which is where we are somewhat now in my business where I am at this point and starting to do bigger deals. And this is the circle that I go to. Yeah. Hey, can I talk a little bit about that? Because this is an issue that I'm in the first circle, right?

Like a lot of people I've raised money from have been the family and friends. That's pretty easy for me now. You know, I got that down. How do I make that jump to the second circle? How do I, I mean, you can't just go put an ad in the paper. Well, I mean, maybe you can now with the new laws, but probably not. So you can't just go out and advertise generally for this stuff. So I guess how do I make that jump from the first circle to the second circle?

Well, if you're doing a good job on your money returns from your first circle, they shouldn't be no problems with them telling their friends about you. So the second circle is just like, you know, if your uncle made a 10% return a year with your 20% return, you can just ask your uncle and say, hey, I'm trying to put this next deal together. Do you know anybody in your circle who, you know, you think would be good in this type of investment, or we would want to hear about this.

And they're going to be the people who are going to talk to you. What's happened with me, at least, was our, my experience was people did fairly well in our first circle that they were, they were already talking about our returns to their friends. And so I was getting a call before I even asked for that name or number. That's cool. That's cool. That is great. Hey, so, Ankit, you know, you've got a master's at NYU on real estate, correct?

Well, I'm going to have my master's at NYU. This is my last class and I'm finishing this year. Okay. So, you know, the syndication stuff is obviously slightly more complicated than the average. You know, I'm going to go out and buy a property on my own. And so my question to you is, you know, for those folks who are thinking about this, you know, everybody, you know, there's the debate, the guru, the non-gourou, you know, to going through bigger pockets. I'm assuming that it's well worth the price of admission to go ahead and get a master's in real estate finance. I'm assuming you're just so far ahead of the game with your knowledge base after going through all that than you were previously.

That's correct, yeah? Well, I mean, so the Masters in Real Estate Finance is amazing. The program is amazing. I have nothing to say about that but really good things. In terms of raising money and syndication, that's been something. that I really just picked up practically more so than at the program. I picked up a lot of refinement at the program. You know, I knew that what the basic process of, but now setting up complicated waterfall structures, setting up different entities and how they link, yes, that program

taught me that level. But that first baseline level of taking mom's money or uncle's money and his friend's money putting it together was something that I kind of figured out on my own, you know, with the partner at that point. And then we move forward. from there. And yes, the education is amazing. It's an amazing program for that specifically. But if you're looking to do bigger deals and bigger structures, yes, you do definitely need to get an education of either an MBA in real estate or a master's in real estate. Gotcha. Gotcha. And then in terms of the other, you know, the syndication stuff, and our intent was actually not to cover the syndication as much as we are, but, you know, it's kind of a

fascinating topic. So we've dug in here. But, you know, you absolutely need a really good real estate attorney on your side in order to start getting that stuff together. Yes? You definitely need a good, you need a couple of returns. You need a couple of things on your team. You need a really good accountant, right? You need a really good real estate attorney. And then you need a really good SEC attorney or somebody who understands private placements.

Those are the three attorneys or three professionals if you want to do syndications well that you need to. to really get in your door. Now, you don't need, and it also depends how much you're raising, right? You don't really need a PPM document for the first $500,000 deal. If you're putting it together a million-dollar-plus deal, then yes, you need a private placement. You just need something to really make sure your investors understand what you're doing, and you need to make sure that your investors understand the risks you're taking with them. And that's the biggest thing that comes out of it, because nobody really reads that PPM.

Yeah, well, hey, for those who don't know, what is a private placement PPM? Yeah, what does that mean? A private placement memorandum is this thick, legally protected document that cost you $7,000 to put together, if not $15. And it basically is your business plan, to say it in the simplest form. It's the business plan associated with what you're investing in or what the deal is specifically. What are the risks? And what is the next level that you want to, you know, what are you trying to put together? Like, what are the returns?

What are the risks? Yeah, yeah. So, you know, you said $7,000, $15,000. So somebody who's just kind of green and saying, you know, I've got no money. So I'm going to go and syndicate a bunch of money from people who I know in their circles of circles. Yeah, it's not something that's necessarily going to work unless, you know, unless you got a family attorney who handles that stuff. I mean, you need to put some money up front in order to start doing this stuff the right way legally. Yeah?

Yes, definitely you need that. especially if you're going after the second circle or the third circle right off the bat. If you're going after the first circle, they'll understand. That's why the first circle, you know, it's them trusting Josh, is them trusting Unkins, it's them trusting Brandon more so than the deal. And they understand that, hey, there's a risk element. But in that circle, you don't need as much in terms of the legal protection. You need a simpler documents, which your real estate attorney can provide to you.

And you don't necessarily need to spend that $7,000, $15,000 to get a PPM. That is, of course, if your first circle of people are people who aren't likely to sue the crap out of you for not returning what... Hopefully not. Hopefully not. Hopefully Aunt Sally or Uncle Jack is not that type of person. But I'm with you on that, okay. I mean, I'm one of these people who, you know, I think, you know, I'm averse to asking friends and family for money. I'm really, really against it. I have an issue with it personally. I'm not because, you know, I'm not. because I don't have trust in the things I might be, you know, asking for money for, but it's just something I wouldn't want to personally do. And, you know, I think your level of risk potentially increases with that. I mean, if you, if you don't return on your friends and family, you know, friends and family, it's, you know, payback's a bitch, so they say.

As they say, right. Awkward Thanksgiving dinners. Yeah. Yeah. That's an awkward, that's an awkward family dinner moment. And that's why I've never taking money from families. It's very, very, because an investment, as much as you can be a great investor, we all have to realize that it's not a 100% game. It's still a 75% or 80% success rate game. And that's if you're good. So you're going to achieve some losses. That's part of the equation. If you think every deal you work on is going to be 100%, let's kind of put that off the table. And so you don't want to take that money in the door, especially if it's family money. And then you're

like, oh crap, this deal is not going to make money. And now I got to face my uncle at a dinner and he's going to look at me and say, so you're really smart, don't you think you are? I borrowed on one of my early properties. I borrowed money from my parents to do it. I shouldn't say borrowed. That's kind of a wrong way of thinking about it, right? Though, I mean, I offered them the opportunity to invest with me.

And the investment turned out really good. I mean, things are great. They're making a monthly return. But still, every single, every conversation we have, like, Where's my money? Yeah, it's always so, when are we getting that paid back, you know? And I'm like, I don't. It's coming.

It's coming. It's coming. I never had a deadline on that. I mean, I just said. That's one of those things, man. That's why you get into bed with family. It just gets complicated.

Yep. Unless you can make sure family understands all the risks. That's the only way. But, you know, at the end of the day. But they're still going to crawl up your backside, aren't they? Well, Josh, I mean, I don't know. Is that the only person what you think about? Some of those families are cool.

Yes, you know. My family's cool, but I would never, you know, I, I, I know too many people who have families. And I've, yeah, it's, it's a problem. I think a lot of the question comes down to, I mean, how much do you really want it, though? I mean, if you're starting out and you really want to get started and you've done your education, is it worth the awkward family conversations to, you know, get a, you know, create a business and a financial future for yourself. If that's all you've got, is it worth it? I don't know. I mean, it was for me. I chose it. That's a personal question.

Yeah. Brandon, I want to come to your Thanksgiving dinner, man. Hey, Brandon, I, you know, I put some money into this project. Oh, Uncle and Sally, you did too, didn't you? I only, and there's actually a thing, right? My parents are different than my uncle. And, you know, my parents ultimately, like, it's almost like another circle, right? I mean, like, we're so close that it's different than.

my uncle. I don't think I would take money from my uncle, because that would be awkward. I would take money from my uncle's friend, but not from my uncle. I don't know. Is that weird? No, I think everybody's got that. Everybody's got that. I mean, you feel very comfortable with your own parents because they kind of like supported you for 16 to 18 years of your life. So, hey, dad, you know, you love so much. Can you kind of give me some more money? Yes, exactly. There you go. So, well, cool. All right. Well, hey, I guess what do we move on from the syndication, kind of go further. down your line of your story. Next, after that, you said you got into landlording.

So why don't we touch on that? How did that transpire? Right. So back in early 11, I had an epiphany. I guess I call it an epiphany at this point, where I started realizing that, you know, if you're continuously selling your assets that you get, it's very difficult to build a long-term business. And everybody who's been successful.

And I define success as people like Sam Zell, guys who built out of major, like equity, like equity residential, you know, how did they become what they are today? Because you can learn a lot from these type of people. And a lot of them built it based on, you know, having assets and controlling assets. It's called AUM, assets under management. And so I started saying, okay, if I keep flipping every good deal that I buy, then what am I going to be left with when there are no more good deals to buy? Yeah. And so at that point, back in 11, I really started shifting gears and started building more of a landlording business and that's when

I basically sold the flip business out to private equity group. My partner at that point left and then a private equity group basically started building that landlording business with me as one of the people in the business. And so we built a business out over the course of about a year

and a half to approximately 30 million in under management. And that was a decent because I was managing a portion of that portfolio. and that was about about 30 units and those have had very and that's when I started becoming to the point of my no toilets and you'll read about that eventually as well and we'll talk about that but as I got to the point of you know when I was it got the first like five you know so excited oh my God you know I got a I got a multifamily property I own it and yeah I got a call from a toilet tenant to fix a toilet no problems I'll go find a plumber and then I got to call at midnight that oh the heat's out okay no problems we'll go find another person. And then as you started extrapolating that to bigger and bigger unit sizes, and even though you put in support staff to help you, it was still a very interesting process

of being a landlord. Okay. That's exactly what you and I were talking about at the at the bigger pockets meetup we did in New York was that that's where I'm at right now. I've got too many to functionally handle. And so I mean, I'm exactly where you are. So how did that happen then? I mean, what did you do next to solve that problem? So what we did next to solve the problem. So what we did next to all the problem is... You flush the tenants down the toilet. Exactly. I started flushing every tenant as I could down the toilet. No, no, not exactly. But what I really started doing was I started putting in systems as much as I could, you know, an automated call center who would take in the messages for emergency repairs.

I got a few managers involved in the local markets who would get paid as soon as a call came in the call center would call them next and not call me if it was an emergency. and they knew what the emergency was that I defined. And so I started to create this process and systems. And then, you know, I worked with Williams Paid, I think, which is one of the vendors you guys have talked about for collecting rents with. I started building out a building system

so that we could have property management more automated on the software side and had an admin. But even after all of that, you still were getting bogged down in the day-to-day. And that was something when I started looking in 13, and I was like, this doesn't make any sense. Like, I'm spending 90% of my time dealing with operational headaches and not really doing real estate anymore. And that's not how a business, you know, a business that can be built out any further. And that's when I started really looking into this no toilets, no tenants, no headaches type of equation.

Hey, okay. So you're saying despite all the systems, all the work that you did, you're kind of a bright guy, despite everything you put together and cobbled together, you still had headaches. Yep, you still had headaches because now you didn't have headaches necessarily of the tenants directly, but now you have headaches of your team that you have to manage.

Yep. Right? You know, if your team screws up on a billing or not filing an eviction on time, now you're really responsible for that. Or if, you know, a boiler goes and nobody, you know, even though they call the plumber

was supposed to go out and he doesn't come out until 9 o'clock in the morning, guess who's got to show up the court and still deal with the tenant's aeration? or provide them a credit. That's your job still. And so at the end, you still had this flow-down effect of crap, as I call it, and the crap still flew down to you.

Yes, the cash flow is good, and it's not like it's an amazing line of cash flow that you can retire off of it yet. And the only way to do that in the multifamily business is truly build out a much bigger portfolio. And I think, Brandon, you and me were talking about this when you had your seven-year plan and you had a certain amount of units that you want to achieve. And until you don't achieve those units, It's a very, at this tipping point, we're always going to be stuck trying to build a business and then run the operations, build a business and run the operations of it.

And yet you still get clogged down. And with tenants, the problem is, everything has to happen today. And everything is an emergency. And everything's a problem. So. Yes. So what happened, man? You decided, you know, burnout hit you pretty fast.

And you decided you're going to move into a different direction. So what was that final tipping point? And then where did you end up going? Sure. So the final tipping point was actually when I was out in Colorado, actually, your home state there, Josh. And I was snowboarding for actually my vacation at Breckenridge. And I was getting these calls and I'm like, I'm on vacation.

Why am I still getting calls from my team to deal with a problem? And at that point, I said, okay, I can never walk away from this business. right that's what this means i'm still involved and i still have to take care of the headaches until i can build this out to like a 200 unit or 500 unit business and i really said okay do i really want to do that or do i want to find something else that is a little more passive a little less yield but i can live a life right so i'm not necessarily the most i guess money hungry driven guy but i'm more of a lifestyle driven guy i want to have enough money that i can have a good lifestyle and enjoy everything yeah and so yep exactly

And so for me, that was my tipping point. And at that point, by 13, I was really interested in tax liens, and I'd already started researching them in 12. I kind of made my first test investment not knowing much. And in 13, I really started getting heavily into tax liens. And that's when I built another business with one of my new partners for Unbar Group. And we started buying tax liens. And really started investing in that asset class aggressively and still worked forward with it.

All right, Ankit. So tax liens. Let's start at ground zero. What is a tax lien? All right. So a tax lien is simply when a homeowner and investor or anybody who hasn't paid their property taxes. In Jersey, and I'm specifically talking to Jersey, it's very different from state to state. Basically, when they haven't paid for the first year, then it comes back and it gets sold at an auction.

And you can buy a tax lien. And the reason it gets sold is the municipality still needs that money to take care of the schools, the snow cleaning, the garbage pickups. And so they will sell those for money to the other third party investors who can then earn a yield. And in New Jersey, it's 18%. That's where it starts. And so I said, hey, you know, that's a great little business. So what's more about that that we can really look into? And so that's how you, that's what a tax lien is. So who's like a collection agency?

Well, they're not exactly a collection agency. No, I know. It's actually, no, the way I look at it is you're helping the municipality because if, and it's a collect. good because because some people, let's say, fell on hard times and they're not able to pay their taxes, you know, and the municipality couldn't function without it, especially in urban markets, then you're really giving them the influx of cash that they need to take care of the schools, take care of the roads, take care of what needs to be take care of for the public good. That's number one.

And number two is, you know, a municipality, if they take the tax lien back, they can actually foreclose, and specifically in New Jersey I'm speaking about, within the first six months of taking it back. And but as an investor, I can sit back and still listen to the story. story of the person and say, okay, you can't pay right now. Let's work out some kind of payment plan with you down the line for getting to the point of redemption. And that's where I justified that we're not a collection company. You're actually trying to help out more of both the municipality and the property owner or the investor at that point. Now, you said 18 percent. Where does that

number come from? Like, who pays you that? Is that the municipality that's paying that or is that the homeowner? Right. So in every state, there's a statute. A statute provides the amount of interest that the homeowner would have to pay back the new investor who purchased the lien. And so the 18% is actually paid to you once the homeowner or the property owner pays all their tax. And they'll say, hey, I owe $10,000. Okay, it's $10,000 plus 18% on that. Okay. And so when they, oh, go ahead.

Go ahead, Brennan. Well, so when they pay it back, that's when you get your 18%. Yep. Okay. And if they don't pay it back, what happens? Then in every state, you're able to start a foreclosure process and take over the property. Okay. So let's talk about an example. So we've got, say, this $10,000 example, somebody owes $10,000 in back taxes. They don't pay. So the municipality grabs, issues out this

tax lien, offering at 18% interest on top. Now, is that, and then you come into the auction and you buy the lien and say you get it, what does it cost you to buy the $10,000 back tax? lien. Sure. So you come in, and this is a great thing. Let's go through the example. The 10,000 lien comes out. The city will then advertise it in a newspaper or in one of the websites that are out in the open markets of the world or the actual people who want to be interested in it can actually learn about it. And in this area, it's about four weeks before any auction has got to be advertised. And so if an investor wants to find out where the liens are, well, either you can look in your newspaper for your county or you can actually just go on and buy the list from websites that are

out there in the open market, right? Once it comes up, then you show up at the auction with a lot of other people potentially, and you're going to buy this $10,000 lien. And so the way it starts off is it starts off at 18, and you're not bidding up the lien, which you're bidding down the interest. And so to buy the lien, if you truly nobody competes against you, you buy it at 18 and you pay $100 for the state tax, for the transfer and the recording fees, and that's your cost to buy specifically. So you're saying, like, you know, you say, I'll pay. 18% Josh says I'll pay

16% Right I say I'll do 10 Right And then nobody else bids lower Then I get it for 10%. Then you get it for 10%

Exactly And then you get it for 10% Means I say he gets it for 10 It's a $10,000 lien Is he paying Does he then

You said there's a $100 transfer fee But is he paying $10,000 to the municipality That is correct At the close of that option Okay so he pays 10K He doesn't play the interest

On top of it Nope. And then he gets the rights then to continue paying the new taxes that come up on the property at 18% without any competition. Okay, hold on. So he being Brandon, say Brandon's. He being branded, yep. So Brandon's paid, got this lien at 10%. Brandon bought for $10,000. That $10,000 goes to the municipality to pay the back taxes. Going forward, the owner, who pays the taxes going forward? Who pays the taxes going forward. Is Brandon now responsible or is that the owner? No. So Brandon has the right at that point to pay either the owner has to pay the next

quarter's tax bill, right? So the next quarter tax bill comes out, the owner has 10 days to up to 15 days to pay the bill. If they don't pay the bill, then Brandon as owning the lien in the certificate and can say, well, okay, the next bill is $2,000. I'll put another $2,000, but my $2,000 now is going to earn 18%. So your first $10,000 is earning $10. And now your next $2,000 is earning 18%. And now if the homeowner actually does want to pay out the whole bill, that's when you get redeemed. And that's the way you make money in this business is that if you keep buying more and more

liens, you can buy a lien at 5% at the auction and still wind up with a double-digit return down the line. Because of the future subs. Okay, so that's what your post was last week about why do people buy 0% tax liens? That's why. Right, exactly. Okay. Yeah, I didn't fully understand that way I read it because I don't understand.

tax liens very well. So now it makes perfect sense. Yeah. I get this. So I've got a follow-up question. So I bought this tax lien. It cost me, well, Brandon bought it for 10K with the 10% and forget the 2% on the next quarter, but he's got this $10,000 lien. Now, does the homeowner pay Brandon in full or do they do, you know, can you create a payment plan? How does all that work? So that all depends on your state and what your state allows to do. In certain states like New York or Connecticut, you're able to actually create a payment plan. In my state, you're not. So the homeowner wants to pay off the lien. He has to pay off everything. The $10,000 plus the 10% owed to me. Got it. Got it. And now how to... Or to Brandon, I apologize. Yeah, yeah, yeah. So you've been doing

this for a little while now. My question goes to, you know, what percentage, at least in your experience, of those end up getting paid versus not getting paid, A, B, how long does it typically take to collect payment? And C, obviously, when there's non-payment, it turns to foreclosure process, and we'll get into that later. So let's talk about A and B first. Sure. So A, the industry average, and you can look up to the National Taxing Association, but the industry average is about 95 to 97% of liens get redeemed. That means they get paid back to you. Really? Okay. Wow. I did not expect that. I was thinking you were going to say like 50% or something.

Yeah, I did too. No, no. Because nobody wants to lose, obviously, their house for a tax lien, right? You know, especially the taxes, usually the lien is at typical basis about 30% of the distressed value of a property, right? At third, that's your exposure. That may be, right? So nobody's going to give up 70% worth of equity in a property. And no bank is going to let you take a property at a 30% structure either. So that's why 95 to 97% of the time, these liens get redeemed and you get paid back your money. So the question is, how long does it take? And that's a state-by-state question. In certain states where they have what's called a shorter redemption period, like a Texas or another location where then it's like within the six months, they have to pay you back. In my state where I invest, there's a longer redemption period.

There's up to two years. What do you mean by that? Okay. So a redemption period is basically you sold the taxes at the auction brand. and bought it, right? Now, Brandon, obviously, is not going to sit and wait forever to get his money back, right? Brandon needs some, you know, you need some time of timeline. And so the way the statute set it up is the timeline is this redemption period. And every state gives a homeowner a certain amount of time to say, hey, get the money together, get the interest together, and pay off this investor, or

this investor can now start the foreclosure process. Okay, I see. Yep, I got you. So the follow up, you had said that the banks don't want to lose the property, over unpaid taxes and I get that. So, you know, does the bank ever come in and help out the homeowner and say, listen, Brandon, you owe 10K, we're going to issue you some kind of loan on that 10K? Or how does that end up benefiting anybody where the, I could see the bank's interest in not wanting to lose a property over a $10,000 tax bill? So how do they come into play?

Right. So every bank or every mortgage note allows the bank to have a right to preserve its interest, right? And its interest is the property. And so what the bank will typically do is say, and they'll usually have their service or the guy who kind of takes the payment or handles your foreclosure process, call the county and say, hey, is this property delinquent on taxes. And if it is, then they'll just pay it in the sense of they'll call and say, okay, what's a delinquent? The game basically is, it's pretty simple. Banks are so inundated with these foreclosures right now, especially in certain markets, that they don't. don't have the time to normally follow up. So they won't pay, they won't pay the bill every quarter.

And B, they'll usually just call once a year and say, okay, what's due on and we'll just pay it. And then they'll pay it at that point to take the property or to control their interest. That's number one. Or number two happens is, hey, the bank is actually going to foreclosures themselves. They're taking this property to the sheriff's auction. And once the property is at the sheriff's blog, and let's say either somebody buys it or nobody buys it and the bank takes it back, then the bank has to actually pay off the taxes first. The tax lien, the greatest thing about this investment that I liked about it was it's very high in priority. You get paid before anybody in the line of payments and they have to pay you off before they can transfer, sell,

or do anything to the property. Okay. I guess that actually brings up a couple questions I really want to touch on. So I'm trying to decide what I want to do first. But let's go. Let's go this. You said the number 18%. Let's say you were to get an 18% tax lien on a property. Nobody else bid, let's say, and you got 18%. Is that mean, 18%? Thank you. Does that mean 18% annually? Or does that mean you just get 18% period on that investment?

So if, if, you know, you got paid back in six months, you actually got 36% investment, your return. How does that work? Sure. It's an 18% annual payment. So it's basically an annual payment every year you're earning that return on that portion. Okay. So if it took two years, it took three years, you're still making 18% per year on that.

Exactly. All right. All right. Plus potentially any penalties that, state or the city may give out, plus whatever you spent on legal expenses that need to get paid back to you if you did start the foreclosure process. Really? Yeah.

Wow. Wow. That's good. Brandon, can I interrupt your line of thinking here? Go ahead. Yeah, go ahead. Go ahead. So I was going to say, you know, I see all these positives.

It sounds like they're great. Where's the negative? That's exactly my question. I was going to answer. Where's the negative, right? That's what I was looking for when I started. So the negative is twofold, right? One is you don't know when you're going to get paid back, especially in long redemption states, right?

So in my state, it takes 24 months. So if nobody decides to pay the taxes for the next 24 months, I have to kind of wait and continue paying into it to continue preserving my right. And then I have to start the foreclosure process, which may take another six to 12 months in my state. So for 36 months, my money may be tied up in this deal. That length of time that you don't know is the negative, right, for some people. Yeah. The second negative is you're not getting paid. the income on a quarterly basis.

It's not like you're getting a check sent to you every quarter, right? So you get all your money at the end when somebody pays off all those taxes. Those are predominantly the two big negatives that you get in this type of a business. Hey, can you circle back a second? You had talked about preserving your right as the lien holder. Can you walk us through an example of what that potentially looks like? So you buy this 18% to your redemption lien. what

how, under what conditions would you need to potentially put more money up in order to stay in the game, so to speak.

If you wanted to continue the foreclosure process, that's the place where you would have to continue putting money up. Okay. Because what happens is you bought,

let's say, Brandon brought that first year lien at $10,000, right? Next year, the taxes are coming up again.

And now, Josh buys the lien at $10,000. And the way the tax lien business works is the person who has the latest lien in the sense of the lien that's the most closest today has the right to foreclose on as but they would still have to pay off the prior lien so it's no way that you know i can foreclose and say yeah brandon you get no money as josh but you would have

to give josh you know you have to give brandon his money plus his return back so he'll still get his he'll still get his payment but you have the right as this as the new guy who comes in to actually take back the property. Right. In the sense of you waited the process. Let's say Brandon bought years once taxes. You bought years two taxes. And year three is now coming up at this point. Brandon still hasn't invested in Josh. You bought another year. Now you can say, well, Brandon's pretty much out. I'll pay Brandon back his return. And Brandon now can't really foreclose unless he pays Josh off. So it's a counterintuitive. Both people can pay each other off. It just depends on who wants to preserve their right. I continue paying into the lien because you're earning interest on it. So if you have

money that's sitting aside doing nothing in a CD, then it just makes sense to invest the next 10,000 and earn the 18% if you bought it at 10% the first year. Yeah. Hey, so what happens if you're not one of the 95% or whatever it was that gets redeemed, the eviction, I mean, the foreclosure process. How far do you take? I mean, do you take it all the way to actually owning the property then? Oh, I mean, you know, if you get that lucky, then yeah, you would actually take it all

the way to getting to the property and actually foreclosing on it, which in certain states is a couple of months process in certain states it's a year-long process. But the beauty about it, and that's why I love this asset class so much right now, is because of the fact that, you know, even if you'd invest it three years worth of liens, right, and so that's $30,000, the value of this property, as long as you've done your homework and, you know, that's something every investor should do is just because you're seeing this thing is really safe. You should still do all your due diligence, right? And let's say the value of this property is $100,000. You're 30 into it. Let's call it even foreclosure cost you're 35 into it.

Even if you liquidated it at 70, you're still making a really good amount of money. And so, but that's, you know, if you get that process and you get to go through, you know, filing the complaint and doing all the processes and getting to the other side of it, yeah, you're going to wind up with a really good payday. So you get the property and you dump it to an investor for 70% value because you don't want to hold on to it. You don't want more toilets. Yeah, maybe not. Or if you own a commercial building and it's a triple net type investment, then maybe you keep holding on to it, right? It really depends on your strategy, right? And that's, I think, one of the other things, me and Brandon were talking about is that every new investor, every investor who's building their business need to really look at it as a business.

Okay, what is my strategy? What am I trying to do? And what am I trying to get out of it, right? And have that plan of attack. So when you're looking at an asset, you know how to attack it properly and really build out and really build a business to that plan or that investment to that plan. Yeah. Okay. Yeah, I agree.

And going back to something you said, just because now I'm really, this podcast is blowing my mind just so, you know, totally. I hope people are enjoying this as much as I am. So now I'm wondering, you said due diligence. What do you mean like when you do your homework, what does that exactly look like on a tax lien? Right. So the due diligence or a homework on a tax lien, unlike a property, obviously, you know, you won't get to go inside the property, right? It's kind of like buying a property at a sheriff's auction. You won't be able to get inside of it.

Now, so the way you can do your due diligence is fairly simple. A, you got to make sure the value of the property is good, right? So you got to make sure that if you're buying something, it's truly worth $100 plus $1,000. You've got to do your comps right off the bat. Then the next thing you should do is go drive on it and say, okay, is it boarded up? Is it not boarded up? Is it falling apart? Is it nice?

It's got just overgrown weeds in it. So that will tell you a couple of things. If it's boarded up and this property is really going to fall apart, do you want to put your money against a really bad piece of property that you don't know what it's going to look like two years from today? right? So that visual check. A lot of people that know in this business, they'll just do the Google Maps, right? They'll say, oh, I'll go into Google Maps and take a look at what the property looks like. Don't do that. It's not, because Google Maps is at least a year plus old, and sometimes when you get to the property does not look exactly like what Google Maps may show you.

Hey, real quick, a story about that. I went to a sheriff's sale here on my area a couple years ago, and I mean, I know it's a little different tax lien, right? But they handed out this piece of paper, like this pamphlet of all the properties that were being auctioned off. And so, One of them went for like $30,000. And this young couple, like, grandpa showed up there and bought this young couple a house for $30,000. And they were so excited. They were hugging. And I was like, man, they got a really good deal on that.

So on my drive home, I drove by the property. And it was destroyed. Like the house was gone. There was no house there anymore. Oh, wow. Yeah. And the people didn't know that. They just bit on a house because they thought they were getting an amazing deal.

And, yeah, somebody had raised the house completely. So, yeah. You got to do your due diligence, right? That's what that teaches you. It's an expensive $30,000. Yeah. Poor grandpa. We're grandpa.

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Head to Costsegregation.com before April 15th. So yeah, you want to, now, when you're bidding on lots of them, you can't drive by every single one. Can you and do your numbers or do you? Yeah, I actually do. I actually do my numbers on every single one because that's the discipline of being an investor. You have to do it. Or you need to hire a staff or have some. there who's going to help you do that properly. And I, you know, I have done real estate investments

from the hard asset side for a very long time. And for me, driving through a piece of, you know, a 10 or 50 properties is a lot easier and just saying, okay, the area makes sense, drive by check, everything's good. It's a lot simpler. It's a lot quicker, especially if you know how to filter your list. If you get a 2,000 lean list and you don't have a strategy, then it's really difficult. If you have a strategy of what you want out of it, it becomes a lot more manageable, especially if you get it down to 50 or 100, 150 that you want to bid on. All right. So I'm going to get nosy.

What's your strategy? How do you typically go ahead and filter if you're willing to share that, of course? Yeah, sure. No, not a problem's at all. So the way we've done it, and our strategy is we look for high-yielding assets in urban markets that are backed by density properties. And so what I mean by that is like a multifamily or a commercial asset than a piece of land or a single family. That's our ideal.

and we'll buy in quote unquote the ghettos of the area because we feel like it's even it's fairly secure because the way we value it. So we'll filter first by the property type, right? Is it a land? Is it a two family? Is it a four family? Is it a commercial building? Is it industrial? So we'll use the property tax code to really look at that and look at the property tax card and say, okay, what is this property?

What is this property? And we'll use that as a first level of filter. Then we'll say, okay, what is the value of this property? from the equalized value scenario. So we take the tax assessed value, we equalize it and say, okay, this property is worth S. Okay, how big are the taxes relative to that? Once we filter those two layers down, then we'll do our Google, you know, we'll do a Google map check. Because obviously, driving is expensive and time consuming.

So we'll look at our next list and say, okay, is truly the property looked like crap even on Google Maps? So then maybe we won't go out there. After that, the fourth layer of filter comes in through the MLS, because we have access to it. at this point as in our firm. And we basically use that as our filter to say, okay, we just have this pot, kind of like it keeps falling through this rain bucket, and now you have this pot of maybe 100 or 150 liens,

and we drive on it then as our last step and say, okay, out of those 150, what makes sense for us to buy, based on our strategy still? Gotcha. Gotcha. And how many are you buying of these? I mean, is this you're buying dozens a day, dozens a week, dozens of a month,

dozens a year? We're buying about a dozen a month. That's our goal that we're aiming at right now. And as we get further along the process and keep continue raising more money towards this idea, then we'll hopefully be buying way more than that. Okay. And so you're not just using your own money. You're syndicating basically tax liens.

That's cool. That's cool. I don't think I know anybody else doing that. So very neat. Yeah, no. We're syndicating tax lien money as well. And then we started off with our own money. And then as we built the track record the same way we did something else,

you know, we started syndicating tax lien money. Very cool. That's great. All right. So let's talk about, you're in New Jersey. You said 18% is the average, is the percentage, tax percentage that the auctions typically start at. Where are you ending up getting your liens on average? What percent?

On average, we're actually, because we, so there's another part of this market, right? And that's what I, it's an interesting part of taxing. It's such a weird little asset class. there's the auction market and there's what's called orphan liens right orphan liens are these liens that get left over that nobody bought at the auction And so an REO kind of, huh? Kind of like an REO, you know, it came out at the, maybe it had too many. So like one of the, one of the townships we look at in our market, you know, had about in December 2,900 liens that came out, right, for people to buy.

By the time the auction was done, there was still about 450 liens left over that nobody had bought. So we will actually specialize first in going to those liens and talking to the tax collector and developing our relationships with them to get that list in the door. And from there, we'll able to buy our liens with, without any competition that we like at 18% relatively. Wow. You smart guy, you.

No, remember, lazy guy, right? So I'm trying to figure out the ways around. Yeah, yeah, no, that's great. That's great. I'm just trying to do it in a more sophisticated manner that I'm saying, okay, you know, I'm going to compete against some really big boys because at the auctions, there are really some big boys that play, right? You know, you have the fortress capital groups out there.

You have Tower Financial. These are really big capital people who are coming in with 50, million dollars to spend and they have their acquisition teams together. So if you're not at their level yet, how do you compete? And so in any business, there's always a niche. In any asset class, there's always a niche. You've got to find your niches first and then build out of that niche. And so what we started doing, and that's how we started, was this what we call orphan lean or OTC market. And so we buy them. It's a little more painful process of getting it approved to government regulation. But, you know, we're buying ours at 18% with really no competition out

there from a lot of people. All right. So prior to doing that, though, or post doing that, you know, when you're not doing that, when you're actually buying at auction. We're buying at auction. We're getting at about 10% on average. 10% on it. Yep.

Going in is about 10. And by the time we keep buying the next quarter and the quarter and the quarter and the quarter, we're winding at about 15% per year. Okay. And you'll, you'll, so that's your average after you keep paying into the, to the to keep your position. I'm assuming you'll sit and see auctions that that'll drop from 10 to 5 to 3 to 1 to 0 is kind of what your article is about. Is that true?

That is correct. Yep. You'll see not only that, but in our state, you'll actually see people paying a premium to the face value of the lien. So if the $10,000 lien ends back in a, let's say it's in a suburban township, in a really good market, you know, in a really nice piece of single family property, you'll sometimes see a go for like 15 or $1,000. $20,000. Above. Above, right? So it'll be total. So it'll be $10,000 plus a $5,000 premium. So that means that lien is earning 0% for somebody. And they're putting up an additional $5,000 to the city and saying, okay, I believe so much in this idea that I can give up this much money and take a longer time to earn a return because I'm going to continue paying the subs. I'm going to continue

paying the next quarter's worth of payments. Gotcha. Gotcha. All right. So you're buying direct, you're buying at auction, and are you also buying via some of these online platforms? No, actually, we haven't started buying via the online platforms as of yet, because we have plenty of product that we can just buy at the auction and at the actual OTC markets that we don't really need to go there as of yet. Hey, this might be a stupid question. I'm just wondering, when you say auction, is there a guy, you know, like, is it like, a guy with the gavel in an option, or is this a totally different process?

No, so you've obviously been to a sheriff's sale auction, right guys? Yeah. So the ideas are still the same. They'll announce that, okay, next up for bid is tax ID number, blah, blah, blah, blah, blah, lot, blah, lot, you know, lot five, lock eight, property located at eight five court LLC or eight five court in Clifton. And then they'll start, okay, bid starts at 18 percent, and then it goes 18, 15, 14, 14, 10, five, four, half, four, three, two. and that's how it usually goes. And there's somebody out in the front who's actually recording this and noting it,

but it's just a bid process that goes around based on interest rate. Okay, and how do I find out when my local areas, I know it's different for every state, but if I want to get into this, how do I find out where my local sale is? Right, so it's fairly easy.

If you're not scared of getting on the phone and actually talking to your tax collector, it's fairly called them up and say, hey, I'm a local investor. I'm looking to get into tax lien buying. When do you guys hold your sale and what do you need? And usually the tax collector will then at that point say, hey, you know, just send me a letter.

And this is a tip to you guys out in the market. If you don't know this, it's a fairly free way to get a list, right? You don't have to pay for it if you don't want to. Write a letter to your tax collector saying, I'm an investor, include a and say that I want to get the next tax lien list that comes out. Include a prepaid envelope in that letter and send it to them. And what happened is when that lien comes out, they will send you back a list photocopied into that envelope. And that's how you can get a free list, basically, floor that's coming out.

Or you can always try to watch where your tax collector advertises in which local newspaper and just go off of that and just call them up and or buy that newspaper when it comes out. Quick tip. Yeah, good quick tip. What about then, are we talking counties or cities or both? Right. So you're talking in certain states, and it's also remember,

it's in your state's going to be different and compared to Josh's state, right? So in my state, it's cities. in like a Florida or other locations, it's a county level thing. Okay. All right. So that's something I could look into. Yeah, it's fairly easy. This is like a lot of people think taxons are very complex.

It's not that complex. I'm like, you know, I try to keep it as simple as possible. I'm not a very smart guy. I'm just a hardworking guy. And, you know, it's easy enough to do it. You just have to do a little bit of legwork out front. There you go. There you go.

All right. Ankit. So two other questions that popped to mind here. So you've got this lien. The homeowner says, you know what, it's time to redeem this. I got the money together. Now, are you, you're not beating them on the head with phone calls or letters or anything like that saying, hey, where's my money?

When are you going to pay me, right? I mean, is there any of, okay. How do they know that they need to pay you money? Yeah, the tax collector is following up with them, right? And they're sending, you know, you get those lovely tax bills every month sent or every quarter sent to you. When you're delinquent, you're getting that tax bill sent to you every month by the tax collector still and saying, oh, you're now delinquent X amount of dollars. And now you're delinquent X amount of dollars.

And so the tax collector is basically doing the collection work for you. Okay. Now, are they going to say, is the tax collector going to say now that you're late and now that somebody owns your taxes, essentially, you need to send payment to Brandon Turner at 1, 2, 3, you know, Bumble Street in Montesano or, or. I mean, or how do they know, you know, where to remit payment? How does that work? No, so it's fairly easy. The tax collector will actually do all the processing on their end, right? And it also depends on certain states, right?

So like in Connecticut, you can actually process it yourself if you wanted to and reach out to the owner. But if your tax collector is going to do it, they're just going to pay that money directly to the tax collector. The tax collector is then going to fax you a document saying that, hey, this person's redeeming, can you verify the amounts? You sign off on it. They basically will send you a purchase and finance order. You sign that as a physical copy, and then they send you your check. So it's pretty hands off. I mean, this is literally the most hands-on part is the research up front.

Right. And the due diligence, right? That's the hardest part of this. And it's like the crunch of the time, right? If you're buying at a sheriff's auctions to begin with, this is not as time crunch. If you're doing a weekly auction, then that's a lot of time crunch. This is like three to four weeks of time. You still get to do everything.

It's just a lot of volume that you're going after. But once you've done the research and you've done your due diligence, it's a money-making game that you just keep adding dollars to. And then eventually as you build a big enough portfolio in five years, this thing keeps just kind of paying you off, right? And then, oh, all of a sudden you're getting a check in the mail, and you're like, whoa, when did this redeem or, oh, that money came out and I got to put the money out again. And then it becomes this cycle that you're just working off. No, that's great. So quickly, tax liens versus tax deeds. What is the difference?

Sure. So tax liens are basically when you own a lien on the property. You don't actually own the property as of yet, right? Whereas the tax deed is the government has now sold the property for the amount of the lien to the new investors. So now you as the investor are responsible for taking care of the property, fixing up the property, moving it forward. So in Detroit, like we were talking to somebody actually at the BP meetup who bought, I think,

one of their properties for $2,000. It's basically that's a tax deed. he actually bought the property from the tax collector through an auction. Okay. So in a tax deed, then, do the people still live in the house or are they already foreclosing gone? You're still responsible for making sure that, you know, they're getting out at that point. And you're basically taking the property for the amount of the taxes, potentially at a discount of the tax value. But you're now responsible for everything that you would be normally responsible for as buying it in an auction or having it as an REO in your hands.

Gotcha. Okay. Okay. Is there any situation in which you're not getting paid back on the purchase of a tax lien? No, never seen it. Statutorily, it's not allowed. Even in bankruptcy, your principal is always going to come back to you. And this is one of the investments that I would actually go to my family members and say, hey, give me the money, Uncle Sam or Aunt Sally,

because I know it's not going to be an awkward conversation. It's going to be a conversation. When's the money coming out? and I want to tell you up front to a certain extent it's going to come out between now and 36 months. That's when it's going to come out. Interesting. Yeah, so I mean, yeah, less awkward conversation. Less, less awkward Thanksgiving dinners for sure.

Yeah, very cool. Well, last question I have before we kind of get to the fire round is, let's say I'm a new investor and I want to get started. What do you think is the first step in doing tax lanes? Like, what do I do? So your first step in doing tax liens, a really good question, actually, because I was struggling with that myself is really the same thing you would do. real estate, figure out your market. Where do you want to invest first? If you want to invest in your own local market, then call your tax collector, do some research, understand the legal statutes. And it's not hard. People say, oh, it's legal. I can't read it. It's not that

difficult. You just have to go and analyze it. And if you can't do it, then guess what? Put up an ad on Craigslist. Hire a law student and I have him read the statute and analyze it for you. It's another good tip, by the way. Oh, thank you. Thank you. I appreciate that. And so once they have read the statute to you and given you that information, then you really know, okay, what is the returns? What are the penalties? How long is the timeline? And that would be the first step. Educate yourself as an investor. That's always the first step in any investment. Good, good. That's a tweetable topic right there. I'll have to throw that up on Twitter later. All right. All right. Well, that probably wraps up the tax lien stuff. So why don't we move on to the... Fire round. Okay.

Yeah, there we go. All right. All right, these questions I'll come from the Bigger Pockets forums. Number one, you have the keys to a property. What do you do first when you're going to go rehab it? All right. When you get the keys to the property, the first thing you got to do is have your scope of work and get your three contractors in the door to give you bids. All right, good.

There you go. All right. what are your best tips for prepping for an appraisal? The best tips for prepping for an appraisal are get your comps together beforehand. Make the appraiser's job as easy as possible. Remember, the appraiser is only getting paid $500 or $750 for doing this work. If you can make his job a little bit easier, people are lazy. They'll actually give you the appraisal evaluation closer to what you want,

especially if you're in a very distressed market or a market that has both distressed and non-neutral. distressed, comp's kind of like treating close to each other. Yeah. Yeah, that's actually a tip Ryan Lundquist on show 7, biggerpockets.com slash show 7 said. So I always thought that was an amazing idea. So that's great. Cool. All right.

Next one. How do I find a good city to invest in? Ah, the hardest question that I think is there out in the market. So it's a mixture of a few things. A good city to invest in that I feel is, it has good demographics, right? And what are you investing for is the question you have to also answer. If you're investing for cash flow, then you really need to find a city with some growing household size, some growing tenant base, and a high rentership rate, right? And this is all data that you guys can get through the lovely U.S. government, through U.S. census.

And it can give you a good breakdown saying, hey, you know, these cities have a rental rate of X and these cities have this many housing units. And you can do this fundamental analysis. and yes, this is my, I guess, NYU education talking at this point. And I apologize, this goes over a little bit of people's heads, but you can use the fundamental analysis to really give you an idea of where to invest. And if you're doing it for flipping, fairly easily. Look for places that have good household growth and good job growth going on and low unemployment rates. And those can be great cities to target for your next investment market.

But you still have to dig in deeper than that, but it'll give you a good starting point. Yeah, yeah, that's great. That's great. Perfect. That is good. Not so quick, but certainly. No. It takes maybe like an hour or so, but you can get it on.

Yeah, yeah. And if you're not willing to put an hour of time in to find a market, you probably don't want to be investing in real estate. You don't want to be in real estate at that point. Come on. That kind of kills the get rich quick part. You know what I'm saying? I don't know.

I don't believe in Get Rich Craig. I think it's get rich slow and always your thing. Of course. You got to put in the time and the effort. That's all this is. Yeah. All right. What is the best way to bring up a rent increase?

Best way to bring up a rent increase is don't make it a surprise. You know, make sure you, if it's already going to be something you're going to want in your lease, make sure it's then negotiated out front in the first lease. And if it's something that you're saying, hey, you know, this lease is coming due and the rents have gone up 20%. Sit down with your tenant like three to five, maybe six months before the lease is coming due and say, hey, listen, the market's up 20%. I'm going to do an increase on you up to X amount of dollars as long as it's allowed by law. And you should expect that.

So that way they're not shocked and they're not like, oh my God, what just happened? That's great. Great. Good advice. Good advice. All right, cool. Let's move on to the final section of the show before we wrap up. Famous Four.

All right. The Famous Four. These are the questions we ask everyone. You want to lead us off, Joshua? I do indeed. All right, Ankit, Famous Four. let's start with your favorite real estate book. My favorite real estate book is the real estate game.

Who's that fine? By William Porvey, a Harvard Business School professor. Really good book. It's really a good frame of mind and gives you a really good background on how each asset classwork, especially if you want to try to build a buy-and-hold type business. Sounds like a lot of get-rich-quick nonsense in there. Yeah, a lot of get-rich-quick nonsense right in there. I bet you that book sells for $997.

And the boot camp goes for about $3,000. But if you bring a friend, it's actually 50% off. Nice. That's awesome. That's awesome. Those Harvard professors. All right. What about your favorite business book, non-real estate?

Sure. So my favorite business book, non-real estate, it's called Built the Cell. Yep. By John Varlo. It's an amazing book that really shows you that you should be working a business and building a business that you can eventually sell out, and what process and system does that really entail? Nice.

Good. I haven't read that one either, so I love getting new suggestions on the podcast. Yeah, it's nice. It's nice, for sure. I was getting a little tired of the same. I still haven't read, of course. First, yeah, poor dad and four hour quick. Yeah.

All right. All right. They're still good. All right. Josh. Josh, yes. That is me. That is my name.

I am Josh. All right. Ankit, what do you do for fun, man? Obviously, you're an analytical real estate machine, but surely you have some joyful times outside of business. What do you do for a hobby? Yeah, sure. So, I mean, that's what all this is meant for, right?

It's to have fun out there. So the fun parts of life are surfing, snowboarding, and actually I'm trying to get my private pilots license for flying a single-engine Cessna right now. Oh, nice. Yeah. It's awesome. That's on my list of things I do too. Yeah.

I'm going to kill myself one way or the other. That's what it's going to be. Oh, man. That's awesome. All right. Last question I've got for you is what do you believe sets apart successful real estate investors from those who fail? It's truly hard work and concentration, right? Really spending your time and spending your efforts in one direction and doing a lot of work in it.

And that's the part of success. That's 99% preparation. So keep grinding, guys. That's all you got to do is just keep working hard. Awesome. Hustle. And that's it. All right, man.

Well, listen, this is fantastic. Absolutely fantastic. And I know I've certainly learned a lot. And I don't know. I think Brandon and I might be buying our first tax link. Hey. I really want to now. That's cool.

You should. You guys should. I definitely think you should. Especially Brandon, you especially if you want to get away from no toilets, no time. Oh, I do. I'm going to desperately. Yeah.

Well, listen, man, it's been an absolute pleasure. We definitely want to thank you for the time. Also want to thank you for all your awesome posts on the Bigger Pockets blog. If you guys have not yet followed any of Onkett's posts, we'll put a link to them in the show notes. He's got a ton of really good stuff. And lastly, I guess the big question is, where can people find more information about you? Yeah, sure. So I have an About Me page and you can reach out to me anytime and it has my cell number and you can give me a call.

I'm always available to talk and help out and I've helped out other Bigger Pocket members and I'd love to give and help the new investor generation get out there and really build their business. So where is the About Me page? And just as a point of correction because that's what I do, it is bigger buckets. You know, but it's all good, man. We don't want people going to the wrong site. Yeah, I got you. So the About Me page is actually within my page at biggerpockets.com. All right, we'll link to that. You'll link to that. Or you can about me.com slash uncit underscore RER.

Perfect. Very cool. And thank you very much, Enkitt. This was awesome. And I think this was our first show we've ever done that we did not screw up in the middle of it and I had to edit. That is true. That is true. I did have to disappear.

Nobody would know, but I actually had to disappear twice because my daughter is homesick. And I had to take care of her briefly for a couple moments. So I did have to slip away. But it turned out perfect. So fantastic show, nicely done, all of us. Thank you so much, guys. I appreciate it. See you around.

See you on the site. All right. Take care, guys. All right, everybody. That was show 56 with Ankit Dugel. We definitely, definitely appreciate him taking the time to help us out. that was fabulous. It was fabulous. If you enjoyed the show, guys, please just leave a comment on the show notes at the link I just mentioned. And let us know, let Ankit know. Ask him any questions you've got. Jump in. This is all about helping you out. We're all trying to educate everyone here. And so don't hesitate to get involved in the conversation. Otherwise, if you like this or any of our preceding 55 shows,

make sure to jump on iTunes and leave us a rating and a review. And we definitely appreciate that. Finally, along with the quick tip, make sure to follow us on Facebook on some of the other networks, Twitter, LinkedIn, Gplus. And as I say, every show, do yourself a favor and join Bigger Pockets if you haven't already. And don't just join the site.

disappear. The value is still there. You're going to learn a lot. But once you start integrating and getting involved, you're going to make connections like Onkitt and our other participants of the podcast. And these guys are going to become your friends, your colleagues, your connections. You're going to start working with them. So get in there, start interacting, start making friends and building your business up. That's all I got for you. I'm Josh Dork and host of the Bigger Pockets podcast. My co-host, Brandon, is going to take us out of here. All right. This is the Bigger Pockets

Podcast Show 56. This is Brandon signing off. You're listening to Bigger Pockets Radio. Simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place.

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