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Tax Lien & Tax Deed (3) – Real Story
Continuing from the last post, among the thousand-plus assets, vacant land, agricultural land, and non-standard assets hardly attracted any bids. Even if there were bids, they were minimal, ranging from a few hundred to around twenty thousand. In any case, there weren’t many buyers, and it wouldn’t be easy to sell these assets later on, with little prospects.
As for residential properties, it was a different story. They were all swarmed by non local buyers, with bidding escalating quickly. They were snatching up properties priced below $100,000 or $150,000. The issue was that even properties of similar type and in the same area, already renovated and on the market, were priced at $100,000 to $150,000. Yet, these buyers, without even seeing the properties, managed to bid them down to $80,000-$90,000 for ones priced at $100,000 and $120,000-$130,000 for those priced at $150,000. The guy sitting next to me and I couldn’t help but laugh simultaneously. I could tell he was probably a contractor; he had that look about him, maybe working alongside his dad. His attire, skin color, and demeanor matched the contractors that I’ve grown accustomed to over the years of being involved in construction. So, I struck up a conversation with him.
I asked, “Is this your first time here?” (Of course not, I’d bet).
He replied, “No, our family is in this business” (as expected), “We come every year.”
Quickly, I laid out all my questions: “It’s my first time here, so forgive me if I ask too many. I’m curious, are there really any profits lift in the assets auctioned earlier?”
He said, “None, not even a dollar.”
I asked, “Is it always like this? Every year? Then why are there so many people here bidding at this ridiculous price? I heard this county is off the beaten path, yet there are so many people?”
He said, “It wasn’t like this before. We come every year. There aren’t many who specialize in this; these few here” (then he gestured to a few standing nearby and those sitting in front), “are other local contractors in this county. It’s been like an old boys club for years, not much competition; everyone leaves enough profit for each other when bidding. Everyone makes money. But around the time of the pandemic, suddenly, there was a flood of people. They can’t all be in this business, so I can’t understand these bids now. Anyways, we won’t touch these assets at these prices.”
My homework was confirmed. I continued, “You all have your own construction workers, right?”
He said, “Yes, I have about 5 or 6.”
Then I asked the crucial question, “So, how much do you typically budget for renovations on a $100,000 property?”
He said, “Up to $30,000-$40,000, tops. Not more.”
I said, “So, the people who won the properties earlier must be losing at least several thousand dollars?”
He shrugged, “Their culture is often pooling money together as a family to buy, then they all live together. So, maybe they don’t care about the initial loss.”
As expected, my gut feeling was right.
I persisted, “Are all of these thousand-plus assets like this? No opportunities at all? Do you have any other channels for sourcing?”
He said, “This is our main channel for sourcing; if we don’t win here, we really don’t know what to do.”
I thought, “😂”
Concerned, I looked at him and said, “Aren’t you worried then?”
He replied, “Quite, let’s see if we get anything today.”
At that moment, my maternal instincts kicked in. “Oh, you naive boy, how are you going to manage the business? With several workers, your fixed expense per year is at least hundreds of thousands. Can you even afford to eat?” (There’s a big surprise in the last episode of this series on this topic; let’s just say reality always has more drama than movies lol).
I couldn’t say more and just continued to listen to the bidding, occasionally chatting with him when bidding on land and making notes when properties were auctioned.
The only asset that seemed promising to me was a house with an estimated value of around $580,000, but it was auctioned for $380,000. Once again, the rule was verified. As long as it exceeded $200,000, there were hardly any bidders. Out of over a thousand people, only two bid on it, and it ended at $380,000.
After about three hours, the young man next to me began raising his number to the auctioneer.
I quickly took out my notebook, not just recording the bids but also noting down his action prices, which were basically similar to the ceiling prices I had estimated beforehand, confirming my approach and once again confirming that this path wasn’t feasible.
He bid on over thirty properties, all stopping at half of the bidding, which meant that would be the breakeven price. After that, the two of us often shook our heads and smiled at each other amidst the continuing bids, shrugging our shoulders.
During this time, after observing the areas he bid on, I took the opportunity to ask him about the pros and cons of each local area. He summarized the overview of all the areas for me, crossing off quite a few places 😂.
After about six hours, the auction for the properties I was interested in was over. I didn’t even bother raising my numbers much, and as expected, the guy next to me had no successful bids. I was absolutely drained. I packed up and prepared to leave, exchanging contact information with him, mentioning that I lend money (I’m now very confident that if I were to start a business in the US, it would likely start with lending). “If your projects need funding, you can contact me,” I said. He mentioned he also lends, albeit rarely, and doesn’t need funding, but he can refer colleagues who do.
After driving for several hours from morning till afternoon and knowing I had to drive back for several more, I felt tired. As I stepped out of the convention center, I contemplated whether to rest a bit before I head back home. Then I saw the bar across the street that I wanted to visit with my kid last time when we were in town. I decided to have a quick meal there to rest before returning back home.
Upon entering, my guess was spot on. Inside, there were just a few people, all from the auction earlier, and they were sitting in front of me, near the wall, including some from the “old boys club”. I had specially observed some of the properties they won, so when we made eye contact, we naturally greeted each other. I took the chance to sit with them, hoping to cross-verify some of the information the young man next to me had shared. And boy, did I hit the jackpot! I will share the info in my next post.