(If you missed Part 1 of this story in the last email - click here)
The whole reason I had gotten interested in tax sales in the beginning was that I'd been buying some cheap properties from a local broker,
Jonathan - and noticed all these properties were owned by the same company.
I finally asked Jonathan where this company was getting all of its properties, and found out that they had gotten them from our county tax sale.
So I figured, "let's cut out the middleman", and I set off to buy at the tax sale (unsuccessfully) like I was told you about last time.
It was only later I discovered that the company selling these "cheap" properties, had gone out of business because they had lost so much money,
and in fact was selling their properties to me at a big loss.
And in the meantime, I've observed that a lot of big tax sale funds, who drive up the prices at tax sales, have a three year lifecycle that pretty much
goes like this:
Year 1: Hire bidders to attend tax sales and pay them 1% for every dollar
they invest at the sale. Bidder pays whatever is necessary to
win enough properties to invest the amount required.
Year 2: Company gets deeds to many of the properties they bid on. On
the surface everything seems OK - the assessed values are about
what they paid.
Year 3: None of the company's properties have sold for the amount expected
because the bidder had carelessly bid on run-down, or even demolished
properties that could never sell for what was invested. Company goes out of business.
Unfortunately in Year 4, there is always a new company to take its place, with lots of "dumb money" to spend!!
Trying to outbid dumb money is never smart...and of course you can't make any money at an auction if you don't buy anything.
But I was not far away from figuring out how to overcome this issue (and others that tax auction bidders face).
Jonathan was soon to call me with a request that led to me "seeing the light" - a solution to all these issues.
Watch for that next.