Seth: Hey, everybody, how's it going? This is Seth Williams. You're listening to the REtipster podcast. This is episode 196.

Today, I get to talk with my friend, Ted Thomas. Ted is a certified expert in tax liens and tax deeds, which has a lot of parallels to the land flipping business. At the same time, it has some huge differences, namely in how deals are found. Depending on how you go about it, it could be much easier if you have the right strategy or much harder if you don't know what you're doing.

Like any real estate investing niche, this can be a very profitable business if you go into it with the right strategy and expectations. Ted is someone with more experience in this than anyone else I know, and he's going to help us understand some of the basics on how this is done.

Ted Thomas is a bestselling author who teaches people how to make great money in the tax lien and tax-defaulted property business, both online and offline. He's seen how this business has changed over the past few decades. This is not a new opportunity. This type of business has been around for many years, and a lot of experienced real estate investors understand it at a rudimentary level, but there is a lot more to know about it. So, we're going to get into some great information here.

I'll also mention that Ted and I recorded a separate series of four conversations earlier this year, where we dive even deeper into some of the issues we're going to talk about today. If any of this interests you, and I think it will because I found it pretty fascinating, be sure to head over to the show notes for this episode at retipster.com/196. That's where you will find links to those videos, or you can go to retipster.com/TED, T-E-D. You can find it there too.

So, Ted, welcome to the show. How are you doing?

Ted: Glad to be here. I'm doing great. That was a great introduction. I better be good, right? After all that?

Seth: Yeah, I know. I worked long and hard on that thing.

Ted: You did a good job.

Seth: Thanks. For those who are not already familiar with tax liens and tax deeds, let's lay the foundation here. These are two separate things, but they are inextricably linked. Can you explain what each one of these things is?

Ted: Sure. First of all, just think of a picture of the United States. There are 50 states, as you know, and they are separated into counties. Every county has a responsibility to collect tax on real estate. The reason they have that responsibility is that's how they pay their bills. They have to collect that tax.

So, a tax deed means the county has gone ahead and confiscated a property. All properties are taxable. If the property tax is not paid, the county has the power to confiscate the property and then resell it. When they resell it, they sell it at what's called a tax-defaulted auction.

Now, about half of the states, a little less than half, are pretty benevolent about this process. They don't just go out and grab the property and sell it. What they do in half of the states is they sell a tax lien. Now, a tax lien is nothing more than a piece of paper. You're not buying property. You're not kicking anybody out of the property. You're just buying a piece of paper. That's what a tax lien looks like.

So, it's just a piece of paper. What the county will do, they'll say, "Alright, Mr. Homeowner and Mrs. Homeowner, you didn't pay your tax. So, we're going to slap your hand and we're going to sell a tax lien certificate on your property."

Anybody can buy that tax certificate. You might think, "I don't want to pay anybody else's tax. I'll just pay my own." But people do want to buy tax certificates because they pay a premium interest rate. In other words, a very high, actually an outrageous interest rate. The lowest I've ever seen is 8% and the highest I've ever seen is 50%. Generally speaking, tax certificates pay 16% in Arizona, 18% in Florida, as high as 25% in Texas. In Illinois, they'll pay 18%, and in Iowa, they pay 24%.

So, you're kind of getting the idea. People will raise their hand, they'll buy this certificate, and they'll take it home and put it on their desk. Then they just sit on their rusty dusty.

So, a tax lien certificate is a passive investment. It's good for people who are old, young, anybody can buy them. You can't buy them from me or you. You have to buy them directly from the county. About 1,500 of the 3,000 counties will sell tax lien certificates, but all counties will sell tax-defaulted property.

Seth: Gotcha. I'm curious, why do some states do it one way versus the other? How come some states are tax deed properties where you're buying the actual deed and others play this whole game with a tax lien certificate where you buy that and then you earn a return on that for a number of years and then maybe you'll get the deed? Is there some advantage for the state one way or the other? Do they make more money? Is it less or more work? Any backstory on that?

Ted: It's more work if they sell tax lien certificates. But the reason the states do that is they're generally considered benevolent states.

Let's use Florida, for example. Florida's got about 22 million people, and they sell tax lien certificates. Of the 22 million people, over 20%, probably closer to 25%, are older people. Florida goes through great lengths to protect their older people. They're forgetful. They might not pay their tax. If they don't pay their tax, it's not a crisis.

For example, every May and June in the state of Florida, there will be 1 million property tax certificates available. They list those in the newspaper and anybody can buy one of these certificates. They have auctions. People go there and bid on the certificate. They pay the money. Whatever the tax is, they pay it.

Now, the state and the county have their money, so they're happy. And the clock goes tick, tick, tick, like on 60 minutes. When the people finally do come in and pay their tax, they have to pay the full tax and an additional 18%, which is the maximum rate. Those states are trying to protect their clients from losing property.

A tax lien certificate, 95%, 97% of those certificates will pay off. It's a very conservative investment. When I'm teaching it on a platform or in a book, I tell people it's a predictable, certain, and secure investment. I say it's the safest investment in America because when you invest in a tax certificate, you're really paying someone's tax.

Now, if those people never come in and pay their tax, then you're going to be awarded the property. You'll get the property without a mortgage or a deed of trust.

Seth: Gotcha. So, that's kind of what I was putting together as I was learning about this last time we talked, just this idea that this is a pretty secure investment. You're either going to get this return, assuming that property owner pays off their back taxes, or you're going to get the deed.

So, I'm trying to think, where could this go wrong? If it's really that safe, does that mean I could take out a HELOC on my house and start buying tax liens with it? Because it's as good as any investment out there? I don't know. What are your thoughts on that?

Ted: I would say it's better than most investments and it's secured. The challenge with it, let me tell you the negatives, and then I'll give you all the positives.

The negative is this: If you're kind of a person that doesn't want to work too hard... (I’m just going to reach over here and get a newspaper. I've got another desk. I'm coming back. I didn't disappear. I'm just going to get a newspaper.) Okay, I've got another desk where I keep all the stuff I use.

Okay, this is a newspaper from Jacksonville, Florida. It's just full of tax lien certificates. There's 30,000 certificates in here. So, let's not make it too simple. Some people do this: They go, "I'm going to buy that one. There's a hundred on this page." What you have to do is take the time and go walk on that property because it might be in the middle of a ghetto. You don't want to do that.

So, that's a risk, and people are lazy. You shouldn't buy any tax lien certificate or any defaulted property without boots on the ground, so you see it.

Now, the positive on these certificates is huge because you can buy them at auction. You can buy as many as you want. You want to buy one for $5,000, you get it for that. You want to buy a whole bunch of them, but you should look at them.

And now it's really easy to look at property because you can go up and use the GIS system, and then from there, you can use your phone. You could use a road warrior and drive around, look at them all, and do all that in a day. That's all the due diligence required.

Is it a good property? All right, why do you want to see if it's a good property? Because if the people don't pay, you're going to get the property. Now, think about what I just said. So, we're going to buy a tax lien certificate. If you buy the certificate, that certificate is secured by the property. If the people don't pay the certificate, you're going to get the property without a mortgage. Well, the certificate is only one year's taxes. Would you like to get this $200,000 property for one year's taxes? Yeah, that sounds good to me.

So, that's the positive of it. What people do is they get a little on the lazy side. They just start picking those certificates. Now, you take a place like I just showed you, Jacksonville, Duval County, 30,000. It wouldn't be unusual for a place like Miami to have 60,000 certificates available. The whole state's got a million.

Now, the same situation can take place in other states under a little different rules. But the idea is this is a premium investment that you can buy. Now, it requires you to do a little work. With a savings account, you just take your money, put it in the savings account, and you get 2%, 3%, whatever you can get. This certificate, you could earn all the way up to 18%.

Seth: So, let me just talk turkey here. How much money are we talking about? How much money can people make doing this? Basically, buying property is presumably very cheap or well below market value and then selling them at a price closer to or at market value. Do people make like $1,000 per deal or $10,000 or $100,000? What would be an example of an unusually high profit or a low profit or just an average profit?

Ted: First of all, when we're talking about buying property, we're talking about tax-defaulted property. So, when you're raising your hand, like I'm doing now, you're not buying a tax lien certificate. That was a piece of paper I showed you. Well, now this is a tax deed. This is a deed to a property. So, when you buy at an auction, you get the deed to the property. You own that baby. So, you better get down there and get that thing secured and do whatever because it's yours.

Seth: And by the way, I'll just interject here quick. So, this key difference we're talking about between tax liens and tax deeds and how roughly half the states in the country do it one way versus the other. And some states have kind of a mixture. I have a blog post with an interactive map on REtipster that shows how each state works. If you're looking for the states that handle it with tax lien certificates versus tax deeds, you can figure that out right there.

For one reason or another, some people might just want to cut to the chase and get the deed and not mess around for years waiting for that. And some people might actually want this as an investment with the certificate approach. So, I'll put a link to that blog post in the show notes, retipster.com/196, if you want to check that out.

But go ahead, Ted.

Ted: All right. So, now we're going to go... just for your information, all states will sell tax deeds. All counties will sell tax deeds. The special ones are the ones that are benevolent and will sell tax liens first.

So, if the tax lien certificate is never paid, you're going to get a deed to that property. So, they have to sell the deed. Now, if you wanted to be in the business, you wouldn't want to get into the business of real estate and do anything that you weren't going to make a significant amount of money. Doing $1,000, $2,000 deals, I'm saying, no, I don't want anything to do with that.

I teach people, our whole program is set to tell people, we want you to, after all expenses, brokers, title company, any contractors, after all is said and done, you want to make $25,000 to $50,000 a deal. I'm talking about serious money.

So, that requires that you learn to look at property. It requires that you go and look enough to say, wait a minute, what is this market? Am I buying $50,000 houses or am I buying $500,000? And then you look at the margin. Margin is a big word in the tax-defaulted business.

All right, here's what happens at the tax-defaulted auction. The county has set an assessed value on that property. They will tell you that assessed value. They will let you look at everything, but the county could care less about any of that. All the county wants from this property are the taxes. They just want taxes.

So, they will advertise that property at the taxes that are in default. Some states will allow the counties to let properties go into defaulted taxes for one year, two years, whatever. In California, for example, the taxes can default for five years before they finally put it up for auction. When you buy at a tax-defaulted auction, you're paying all those back taxes and even probably some taxes into this year. That's what you own the property for.

To answer the question, are you going to make $1,000 or $2,000? You need to make sure that you bought at this price, which let's say is $20,000, but the house is worth $100,000. Now, you have a lot of margin there.

What are you going to do about selling it? You might have to put a roof on it. You might have to do bathrooms. You might have to do whatever.

Nowadays, unlike 15 and 20 years ago, you can fix houses up for nothing. Nowadays, it's not unusual for a contractor to come and say, "I'm going to charge you $100 an hour." There are no $10 an hour workers. I mean, we're buying them and doing it every single week. I have clients that are successful every single week because I have so many clients.

And it doesn't matter whether you want to talk about Michigan, Texas, California, whatever, because we do the whole country. In Michigan, we just had a buying tour, and one guy bought a property for all costs into the property, $58,000. He sold it for $162,000.

Seth: Yeah. And one of the things, just a side note for all the land investors out there, one of the things I love about this is that there are basically no marketing costs for these deals. I don't have to send out tens of thousands of letters or texts or cold calls. There's none of that. You just go there, see very clearly these are for sale, bid on them, and that's it. You don't have to play this whole game of talking to motivated sellers, which is a huge job. It really is the business for most land investors and wholesalers out there. So, it kind of just cuts a lot of that out, which is awesome.

But I know in my limited experience, I've tried to do these a couple of times. And I'm pretty sure I did everything wrong. Maybe you can help me understand what I did wrong. In my experience, finding these deals with huge profit margins was pretty hard because there was a lot of competition, and I was only bidding on the cream of the crop, the best of the best that I really wanted and knew I couldn't lose on. I basically wasn't willing to keep going higher and higher and higher. So, I never got any deals.

But the last time we talked, you mentioned something, correct me if I'm wrong or if I'm misremembering this, but I think you said once the bidding price gets over $50,000, like 98% of the bidders are out of the game. They're not going to keep bidding. Was that what you said?

Ted: First of all, the beauty of the business is all auctions, the county will put it on their website, number one. You can look up every website. It's public knowledge. And then they'll make brochures. The counties will make brochures. I'm going to show you some of those now. This is a brochure from Dutchess County in New York. It wouldn't matter whether I picked one in Michigan or went to the website.

In that brochure, all the black dots you can see on the video, that's actually a picture of property. And then this is the description. The county will say, in this case, they had 166 properties for sale. You can go and look at those.

So, you always want to be able to make money on this property. So, you want to go and thoroughly look at that property, but don't just look at the property. Look at the neighborhood. You see, you can fix the property. You know how to get properties fixed. The average person can't fix the neighborhood. So, you look at that neighborhood because whoever's coming to buy from you is looking at that neighborhood long before they see your property. You want to make sure you get a decent neighborhood.

Now, I didn't say buy, you don't need to have an exclusive neighborhood, just make sure houses aren't burned down, you're not in the ghetto. You don't want the best house in the ghetto, you don't want that. So, you want a decent house in that neighborhood.

Now, you have to decide, you're going to buy this property and they're going to tell you in this brochure, the minimum bid. Now, the beauty of what just happened, see, I came from the foreclosure business. I wrote books on foreclosure, bestselling books on foreclosure. And I found out everybody went into that business. Everybody thinks they're going to make a ton of money. It's very hard to make money in foreclosure.

But this business, I know what my inventory is in this county at least once a year. There's 166 in this brochure. Now, let me give you an example that's much better than that. I'm going to kind of shock you. So, let's just get a little out of proportion. Let's go to Los Angeles County, 3 million people in the county. They're going to have auctions in Los Angeles County. This is how many properties you can look at. There's about six per page. This is one county. You can do all that research long before you go.

So, you're going to be able to say, if I can buy it for this and the value is this, remember the value and all the neighborhood, check my comparables. So, I tell people, don't buy anything until you know your exit strategy. Know your exit strategy, you won't overbid, and you'll only buy the ones you want.

Now, do you always get the ones you want? No, you're going to get outbid. So, some people go two times, three times, might go to four auctions before you get the one you want. So, the guy that I just talked about in Michigan, he went to two Michigan auctions, he got skunked on both of them. But I went to the third one, the neighborhood was, like I talked about, it was average. And it was late in the day. All the bidders had spent their money.

And guess what? He didn't buy the house for it. By the time you get done, he had $58,000 in it, cleaned it up. He sold it, made himself $78,000. How many times a year do you have to make $78,000?

Now, I'm not stuck on $78,000. I have clients that go well over $100,000. I have clients that only make $25,000. So, you always need to know what your selling price is before you bid. Now, you're not going to find that unless there's someone watching your broadcast like you're doing right now. And the favor you're giving those people, they have no comprehension how big it is.

I've been doing this for 30 years. I can tell you people buy burned-down houses. I can tell you people buy houses where there's a fascia there and the back of the house is gone. I can tell you people buy houses that are not there, just green grass, because they don't look, they don't pay attention, they have no idea. I have people that I watch go to the auction, I can show you videos on it, where the house is sold six years in a row, the same property is sold, and all six years it was the same property and people walked away rather than take it. They lost their deposit every time.

So, learning how... it's like everything, education is important. If you don't get educated, you're doomed.

One last thing and I'll shut up, there's an abundance of properties. They never sell all the properties at auction. They just don't do it. And the thing that you specialize in, I admire you for because I don't do it because I just don't have time. Every auction will have between 10% and 20% land.

Who knows anything about land? Talk to a broker. "Oh, I don't do land. I don't know anything about that." Talk to an average investor. "I don't do land.” They don't know a thing about land. Why wouldn't you do land? Well, if you go to the auction, land will sell at better prices than houses every day of the week.

Seth: Well, I'm wondering, in my experience, and I guess it's hard for you to give me concrete advice without seeing exact numbers and all this stuff, but I was basically trying to get really nice properties for really cheap. Once the values got bid up past like 60% of market value, I just kind of stopped and I was out of it.

So, I'm wondering, what are some strategies we could do as a land investor if I'm going to one of these auctions? Is it better to go to a rural county to do this as opposed to a county like Miami-Dade County? And if so, what should be some metrics I should keep in mind? Should I only go after properties that are worth north of 50 grand and be willing to bid over 20 grand? Or how much money should I have ready to go? And how much should I plan on spending to get the really good deals that make a lot of money?

Ted: You have complex questions.

Seth: I know. I'm sorry. I do this all the time. I ask like three questions in there.

Ted: First of all, let's just be practical business people. I used to teach only pay 20% on the dollar, only pay 20%. The market we're in today, the market's going like this. I mean, it's really going, it's moving, it's moving fast, and it moves the other way. Don't forget it goes the other way. So, don't get caught into doing this. Just put your hands in your pocket.

The market's moving like this. Try to think about looking at the property and work on margin. Here's how I buy property, and I buy it on margin. I don't want to buy small property. I'm backing into this to give you the big example, and I'll go to the small. The big example is this. I don't want to try to buy a lot of $100,000 and $200,000 houses. I teach people to do that, but I want to have less competition.

So, when I'm going to go to the auction, I'm going to go to a place like New York or Michigan or a state in Georgia where they've got some $400,000 to $600,000 properties coming up for auction. The starting bids on those properties are probably going to be $50,000 or $70,000 because all the back taxes are due, right? The bidding is going to go fast and furious to maybe $100,000. At $100,000, even at $50,000, half of the room is gone. At $100,000, 90% of the room. At $125,000, 95% of the room is gone.

Let's say it's a $400,000 house. I'm already at $125,000 or something like that. See, I will pay $150,000 for that house because look at my margin. $150,000 to $400,000, it's a margin, right? Now, I've already adjusted in my brain that I'm not going to sell that tomorrow afternoon. What I'm going to have to do, I'm going to have to put a roof on it, a couple of bathrooms, maybe three. I'm going to have to fix the garage. I got to paint it. I got to do a lot of outside. I mean, I'm going to have to put some money in it.

So, what if I end up in it at $200,000 and it was worth $400,000? Do I have a lot of margin? I got a ton of margin. Or I can say my biggest market is I try to get to know all the fixer-uppers, all your clients that are on there. I want those fixer-upper guys because they'll get me out of that property for the $25,000 or $50,000 I want right now. I can sell it quick.

Or if I don't do that, I make the next step. Who can I sell this to? And I'll offer financing. And the guy comes in, he says, I only got 25 grand. I want this big. I said, great, I'll give it to you for 25 grand. You're going to make payments of this, but I'll only give you five-year financing or 10 years. Oh, no problem. I'm going to sell it. Good. Sign them up. I'm in the business of turning the property. I'm not a wholesaler. I want to buy the property and sell it. But I always want to have enough margin. So, the answer to your first question was, is there going to be enough? I go and look, using the brochure, I always know how many they got in that county. So, I got enough. Now, I want to look at my margin. And if you try to buy for just 20 cents on the dollar, it's going to be a problem now. So, try to buy figuring out your margin. For example, let's take $100,000 houses in Michigan two years ago. They're all worth $160,000 to $180,000 today. Well, what the hell's wrong with spending $75,000? The rest of the market's not going to do that because they remember it was $100,000. If I spent 75 and I sold it for 150, so if I didn't do a good job and I only sold it for 125, I still made a bundle. So, I'm using margin.

Ted: What's my margin? Because I go out and look at the market. When I'm there, I got my boots on the ground. They're getting dirty. It's raining on me. My hat's wet. My clothes are wet. Nobody wants to do that. They want to sit here. It's a nice air-conditioned room. I feel so good here. I'm so smart. You're not. You've got to get your hands dirty and your boots dirty. Know what that market is. And then I know what my maximum bid is going to be.

Seth: But on that, it makes me think, so if my regular course of action needs to be get the list, pick out properties that look good to me, get boots on the ground, maybe visit myself or hire somebody to go get pictures for me or something, knowing that many of these, I probably won't win. That seems like a lot of work, right? Or am I wrong? Is there some way to... maybe a better question is what percentage of the deals that you actually research and bid on do you end up winning? And how do you increase that percentage?

Ted: First of all, you can do the whole business online.

Ted: I have guys that work for me that live in Utah and they buy in Michigan. And they've done anywhere from 10 to 20 deals in the past three or four years. Because everything that you and I just talked about, we can hire brokers to do that. So, you go on Google and go on the websites and find out the busiest broker, call the busiest one, tell them who you are and what you're trying to do and ask them if they'll start looking at properties for you. They want your business. They know what to do to sell properties. Then get them to go over and look at it, give you a print, and then ask them, if you had to sell tomorrow, what could you sell it for? Not in 90 days, not in whatever the normal time to sell a property, tomorrow. So, that's the maximum value for that property as far as you're concerned. So, you're going to buy it under that. So, now you've got a big leg up there. Number two, they're going to tell you, "Oh, this thing, the siding's really bad. Or in the back, there's like a sinkhole or the pool is broken and it's in the ground. It popped out of the ground. Or they're going to tell you all the outside decking has to be changed."

Ted: They'll look at it. Now, if the outside decking has to be changed, why don't you just think about this? There's not a bathroom in America that doesn't have to be replaced. There's not a kitchen in America that doesn't. So, you have to do all that. So, any real estate person, that's who I'm talking to now, any real estate person already knows that. Don't say, "Well, I can fix a bathroom for $1,500." Those days are gone. Kitchens for $10,000, you can't do it. It's not going to happen anymore. So, you can add all those costs. So, you can know all this. So, there's plenty of information available to you. What everybody did that got involved in technology is they found out there's probably 20 different sites that you could sell on that don't even cost you any money. So, what does that do? So, that puts you sitting right on your rusty dusty where you are now doing business. But I'm such a conservative guy.

Now, I might not look conservative or act conservative because I'm an aggressive investor, but I'm conservative. I'm not buying anything that I haven't walked on. If I haven't walked on it up to my ears in mud, it's not happening. I'm not buying it. And don't ask me how I learned that lesson because it's a sad story.

Seth: Well, so on that whole thing, like let's say you handpick, I don't know, 20 properties and you walk on all of them. How many of those do you typically get?

Ted: My challenge is when I get a list like this, I don't just look for one. I look for 30 properties because some people might outbid me. So, the most I'm going to get out of 30 properties would be 10%. And usually, it's just one or two. I've been to, I would say three out of four auctions, you won't get what you want because people are so lazy.

Now, you would not do this and none of your clients would do this. If you look at the pictures in here, some of these properties really look nice. You can't see them now, but they really look nice. The county isn't going to send you one with the roof that's fallen down. They're just going to send you a picture of it. But the county will tell you right now, they're not giving you any warranty of a physical condition and they're not giving you any warranty of the title.

So, if you don't look at the property, it's altogether different when you get there. So, I always try to pick an auction where I can look at 30 in the hopes that I'm going to be able to bid on as many as three. And I'm hoping to get one, but I'm looking for a big profit. I'm not looking, if you're looking to make less than 25 or 50 grand, I wouldn't do the deal. Personally, I wouldn't do the deal. Now, I know a lot of people want to buy property for pennies. I'm not in that business. I don't want any junk.

I'm never going to... Look at this. No broken fingernails. I don't even own a hammer. I don't even own one. If you ask me to find a saw, I'd say, "What is that?" If you ask me, I can't do it. I have to call a guy. I said, "You got a toolbox?" He goes, "Yeah, I got a truck full of them." Good. Bring your truck. I don't know how to do any of the work and I promise you I won't learn.

Seth: So, you've mentioned a couple of times here, this idea of showing up at the auction in person, but at the same time, you don't ever really have to do that. You can do this all online. So, what are the advantages of showing up in person? What's that going to help me do? Should I ever do that? And what would be the motivation for me to go out of my way to show up in person?

Ted: Well, all of us that think we're smart, we want to go to the auction. We really want to go there. I mean, it's a massive ego trip to win the auction. I mean, it's really a big effing deal. It's exciting.

So, going to the auction, you'll get a sense for the room. Let's say there are 200 people in the room. I can tell you from experience of doing that. Now, I started this 30 years ago. So, the first 20 years, there weren't electronic auctions. That's just recent stuff. In electronic auctions, the bids always go higher because people have no feel for it. In the room, people push the price down. So, it doesn't go as high. So, the buyers of the future are going to be the people that buy online.

I'm an old guy. I'm 85 years old, and I have to touch it. I'm a conservative guy. If I can't touch it, I don't want to buy it. I would not marry the woman without looking at her.

Seth: Does that change whether it's a tax lien versus a tax deed? Is a tax lien less risk and you're willing to roll the dice on that because you're not putting as much money into it right then and there? Or is it the same thing either way?

Ted: 90% of the people that buy a tax lien have never looked at it. What do you do? I won't buy anything. I'm not doing anything unless I look at it or I have someone look at it.

Now, remember, looking at it today is a lot easier than it was at other times. For example, you could use a GIS mapping system, go over it. You could send a broker out there. If you're going to buy a tax lien, you send a broker down there to look at it. And he says, "Yeah, yeah, of course, there's all nice buildings on that street and whatever."

Now, you just have to pray that it doesn't... He looked at it today. You have the auction in the morning. If it didn't burn down that night, you're in good shape.

But with a tax lien, you're probably paying such a low price that the value of the lot would still be good. So, your risk is way low. But when you're buying real property, real property is a risk business. I mean, it's high risk.

Seth: In your experience, and this probably depends on the value of the property and all that, but when you buy, say, about 100 tax liens, what percentage of those would end up paying off, like they would pay their taxes off versus they wouldn't pay their taxes and you would eventually get the property?

Ted: I'm going to tell you 100% of the time, you're going to get paid off. We tell people on paper, it's 97%. I've got clients that have been doing it for 15 years and never had one that didn't pay off.

I mean, actually, if you raise your hand and buy a tax certificate, you should get home and next to the bed and get down and pray that the people don't pay the taxes because you're going to get a property for just the back taxes.

Seth: But it sounds like that doesn't happen that often if people usually pay it off?

Ted: All the ones that happen, I make a case study of. And the case studies are so good that people get a $200,000 property for $11,000 to $12,000. It does happen. Some people, we don't teach it unless the guy's been around for a long time. Some people just look for properties that are not going to get redeemed, that are not going to get paid for.

Seth: How do you know which ones are going to be like that?

Ted: It's a long process. First of all, properties have joint ownership. If a husband and wife get a divorce, neither one of them are going to pay the taxes. If the property burned down, people are not going to pay the taxes. You're getting that. If people abandon it, if people die, they're not going to pay it. Those are the reasons people are not going to do it. If you buy a tax lien certificate and the people die, well, they're sure not paying for it, right?

Seth: Yeah. Okay. Well, that makes sense. I got you. So, really, unless you're doing that kind of homework, tax lien certificates should really be seen more as just a high-yield investment that probably won't turn into a property, but it might if you're really lucky.

Ted: I tell people it's the safest investment in America today because 97% of the time they're going to get paid. The other 3%, they're going to get the property. So, how the heck do they get hurt?

Seth: So, with all the people that you've worked with in the past, when you see people who give this a try and they just don't get anywhere with it, why is that? Or, if people try this and they somehow lose money, if that's possible, what are they doing wrong that's causing them to lose money?

Ted: Well, here's a scenario that takes place all the time. Let's pick Miami, Florida. They're going to have 30,000 to 60,000 tax liens every year. I mean, that's a lot of tax liens. So, we just go over the newspaper, and they pick, that's the one I want to buy, and it's $20,000.

So, what they do is they go online, they type in the one they want because every property has a number, they send the $20,000 in, it turned out the property was in the middle of the ghetto. Are the people going to come in and pay the tax?

No. Can you sell the property? No. And it might be 20 acres in what's going to be the redevelopment three years from now. The place they're going to bulldoze and put in the new stadium. The place that was the ghetto where they're going to bulldoze the houses.

Could the same thing happen in downtown Detroit where they're still bulldozing houses? You don't want to buy those. You just don't.

So, what I just said sounds like a gruesome thing, but here's the easy way to do it. A little bit of homework goes a long way. If you don't know what homework to do, hire someone that does know, buy a course, and learn how. I mean, courses are a thousand bucks, $1,500, $2,000. If you're going to do something, I mean, you wouldn't go out and do open-heart surgery without knowing something about it. You'd go to the hospital, so you wouldn't bleed to death on the way.

So, people are big-time egomaniac risk-takers. So, I tell anybody, in my mind, if they haven't looked at the property, they're a big risk-taker. Don't buy anything you haven't looked at.

Seth: So, with everything that you know about this, if you had 50 grand to invest right now, would you start by going out and buying a bunch of tax lien certificates? Or would you go after a couple of big tax deeds? What state, which county would you go to? Tell us your thoughts on that.

Ted: Well, first of all, I'd ask you how old you were. And then I'd ask you how you can handle risk.

And then I'd ask you, what's your objective? So, I get those before we get out of the room. Then you said, "Well, I'm 35, and I really think I need to start making some money for the future."

Learn about tax-defaulted property because that's never going away. That business will be there forever. It's in every single state. It's in every single county. So, if you decide you want to buy tax-defaulted property, you will have no less than 5,000 auctions. They're all online now, no less than 5,000 in 3,000 different counties. So, there's so much abundance, that'll be your problem. So, narrow it down to a state, then narrow it down to a county, and then get the list and narrow it down to the property you want.

Seth: Okay. I'm wondering in terms of the amount of money or just getting started in this, like, years ago when I got started, I just had a few thousand bucks and I was getting by with by the skin of my teeth and I made it work.

But in this kind of business, how much money or cash should you have on hand? Is 500 bucks enough or 5,000 or 50,000 or what would be a meaningful enough amount to justify your effort in trying to find these deals?

Ted: Okay. So, with 500 bucks, just spend it on your family and buy them a great dinner somewhere. Don't do that. But 500 bucks on a tax certificate that's making 20%, you're going to make a hundred dollars. You're going to wait around a whole year to make $100. No, you can go out and cut lawns and do that.

So, people say, "Oh, you can get in for 50 bucks or 500." You definitely need some money. So, I would buy a course on how to get money and how to get investors. And then when I got that, then I'd go probably the other way around. I'd first learn how to do it. Once I learn how to do it, then investors want you to do the work. So, that'll all make sense.

I wouldn't try to do it with less than 20,000 or 25,000 today. Why? It discourages a lot of people. But what happened is the market has gone like this massively. So, houses that were selling for a hundred thousand are bringing in big bucks today. As a result of that, you're going to need some money at an auction.

I have people still buying low-price properties. Who are you going to sell them to? Who wants to live in them? What are you going to do?

Now, if they're a land investor, they've got a big advantage because most of the market will not buy land. I know if you're a land investor, you say, "Wait a minute, all the people want land." Well, that isn't so. Go to the auction and you'll see the leftovers will be land.

Residential lots are almost the safest thing you can do if there's still building and there's still people living there. As long as it's a good subdivision, you want to buy those. Because what's happened is that all the utilities are already in, which gives a lot of value. So, you know what the value is, and it won't go below that.

Seth: So, one issue with the whole buying of tax deeds, and maybe this applies to tax liens as well, is when you get that deed, technically it's supposed to wipe out any existing lien holders. So, even if a bank had a mortgage on it, they're wiped out and you'd think this would be a good thing because you're getting a clear title, but it actually creates a problem because when a title company is doing the research, they can't verify or know for sure if all the prior lien holders were notified appropriately. So, while it kind of fixes title issues, it also creates title issues that will keep you from getting title insurance.

So, when a person buys a tax deed like this, should they plan to always take it through a quiet title action as well, which usually costs a couple thousand bucks and takes some months to get done? Or is there ever a situation where they wouldn't need to worry about that? And if so, when?

Ted: Okay. Another one of those four questions.

Seth: I'm good at those, aren't I?

Ted: So, let's start out with the liens. All right. There's a perception by the marketplace that the auction wipes out any. So, get the word "any" out of your mind if you heard anybody say that.

The auction is run by the state legislature, which authorizes the county treasurer to do their work. The county treasurer is then authorized to sell the property at auction. When the county treasurer sells at auction, the treasurer can wipe out a mortgage or a deed of trust. That doesn't mean the property doesn't have other liens. Municipal liens will still be on that property. Federal liens will still be on that property.

So, let's assume that you did your homework before you bought, and you found out there was no federal lien, there was no municipal lien, but it did have a mortgage loan. So, when the auction takes place and you buy it, the mortgage loan is now wiped out. So, now you're happy. Now, there are no liens on the property. So, that's the best way to own a property. If you're going to sell it, no title company or broker or attorney will do business with you unless you can give them a piece of paper called a clear title.

Now, it's a mythical piece of paper. If you can't give them a clear title, they're not going to buy it because they do not believe you. If you believe nobody in real estate will believe anything you say. So, with that said, you have to have a clear title. How are you going to get that?

Well, you can wait two or three years and a title company will say, "Okay, we believe you, you really do own it.” But if you don't want to wait the two or three you want to sell it, then you have to find an experienced—let me say that word again—you have to find an experienced attorney at doing what's called a clear title action.

A clear title action means a lawsuit that goes out and makes sure that all the previous lien holders don't have any claim against the property. That's a complicated process. It could take a couple of months, which is normal. I had one that took me 18 months, and I had a judge doing it. But the county was so convoluted and so messed up, the county didn't know what they're doing.

Now, I'm not going to get into county governments, but I've been at this business 30 years. I can tell you the counties are about 50 years behind the times. And so getting things done is just a very patient process. Don't get nasty, just be nice.

So if you want to buy a property, you buy it at the auction, you should always plan on spending $2,000 to $5,000 extra after you buy it to hire this attorney to do the clear title action. That could take a period of time. Or if you're a savvy investor and you're buying properties under $200,000, I can tell you right now, if you want an expansive market, a big market for under 200,000, find people that don't have good credit. They got poor FICO scores. The banks have rejected them. And now you can do an installment sale.

So in a place like Michigan, you can do an installment sale at 11%. Folks, if you can lend money at 11%, you're going to get rich, rich, rich. You can do it at 8%. You can't go over 11% because it's usury.

But the point is below 200,000, there's a massive market. They can't get insurance. They can't get mortgages. The banks have rejected them. Once the bank rejects them, they will come to you begging. Some of them will come and say, “I'll pay you more.” Happens all the time in Michigan, people will come and pay you more than you're asking if you'll finance it for them. So you don't want to pass up that option.

Now, if you take that option, you don't have to do a clear title because you already own the property. Long answer.

Seth: Yeah, no, that's really helpful.

Ted: I answered about four out of 10.

Seth: Yeah, no, I appreciate that. What I appreciate about this conversation is just like setting expectations, because I think that's what a lot of people, maybe the trouble they have when they get into this is they just don't know what to expect.

Ted: Well, it's hyped. There's so damn much hype. I mean, there's not a promoter in the United States that doesn't try to sell tax liens. Every promoter tries it. Then when they get you as a client, they want to sell you foreclosures, fixer-uppers or something. They don't want to sell you tax lien indeed because they have no backend to teach you.

Seth: Well, on that whole note of just proper expectations and we're going to wrap this up pretty soon here. So I don't know if I would say that anyone can do this, but like what kind of person should not be trying to work in this business?

Like even if they have the right expectations and they kind of know how this all works, like, should you not be doing it? I know we kind of talked about the amount of money to have on hand. Like that might be one person. If you only have 500 bucks, then don't bother doing this.

Is there any other kind of person who like shouldn't be playing in this game that comes to mind?

Ted: Yeah, definitely. If you're not willing to follow a lot of rules, you don't want to get in this game because this game is all rules. but I would tell people, if you haven't got a sufficient amount of money to work with, you haven't got a good job, so never quit your job. Keep your job. This is a part-time hustle, all right?

And learn this process. If you don't have any money, any business is gonna be a struggle. Any business is a struggle if you don't have money. So figure out first how you're gonna get people to give you money. People will give you money if you'll do things for them. So learn first.

Now, once you know how to do it, say, all right, will you back me up on the learning? Yes, you're gonna have to give a lot away, but so what? Once you've done your first deal, you'll be ahead of 99% of all buyers. Once you've done your first deal, you're ahead of 99%. Now you just have to refine it and get better and better.

Getting you through the first deal is the absolute hardest thing in the world. I tell people, when I started, you didn't need to do this because we could buy houses for $5,000. You're not buying any houses for $5,000 today. It's not happening. So you need to have a lot more money to get started.

Well, with a lot more money, that means you've got a lot more risk. So I would get educated first, look at it as a side hustle, keep learning, do a deal with somebody else to help them out, find out someone's doing deals and work with them, whatever. If you had a coach, it'll make all the difference in the world.

Now, full disclosure, I'm only in the business of selling coaches. That's all I do. I tell people, I'll give you all the courses in the world, but you're going to need a coach. And I can tell you, and I can show I'll show you examples of coach, person, all of the people that are successful. Because they got someone helping them.

It's not so simple as all the promoters are telling you it is. They're all promoting tax liens. People fall in love with it. I'm in my 33rd year of doing this business.

Seth: It's a long time. It's a lot of experience. If people want to dive into this a lot deeper, Ted, I know you've got a seminar that you run on Saturdays for, I think it's 47 bucks. It's a great way to learn a lot more about this. If you want to learn more about that, Ted and I, again, we had a much more in-depth conversation about this. It's four parts. You can find that at retipster.com/ted. You can also check out the show notes for this episode, retipster.com/196.

Ted, any final words you want to leave with us?

TedYeah, I would tell people go and what we did is we did, I think it was four 15-minute sessions or real close to that. Watch those. Now, before you spend any money, after you watch those, go spend $47 and spend the whole day with my team, the whole day. It's virtual. You can sit there. You can have breakfast. You can have your coffee. You can get ready for lunch. Just keep watching, and you can have your lunch with us, and you can go all day.

At the end of the day, you'll know whether you want to be in the business. Now, if you want to be in the business, we're going to try to tell you to take some course materials. All right, you decide for 47 bucks. That way, you didn't get a pitch. You got continuous education for 47 bucks.

Now, folks, I'm not an internet marketer. I don't give anything away. I do podcasts and things like we're doing now, but I don't give anything away. For 47 bucks, you pay your landscaper more than that to cut your grass. Get those six hours. You'll see tax deeds. You'll see them buying property. You'll see them selling property. Every conceivable thing that happens during that six-hour presentation.

All you have to do is go to your website and they'll get it.

Seth: Yeah, you got it. Again, that's retipster.com/ted, T-E-D. Hope you guys check it out. Hope you enjoyed the conversation with Ted today.

Again, Ted, thanks so much. It's great to have your expertise and learn from you. And we'll talk to you all again in the next episode.