Secret Niche For Effective Retirement Planning With Real Estate Tax Liens

Stephen S. (00:01.614)
Welcome to the show where we interview the nation’s leading real estate entrepreneurs and welcome back if you’re joining us again for a second or hundredth time This is your host Stephen Schmidt and i’m here today with John Berlet And today we’re going to be talking about John’s experience in the real estate world specifically when it comes to tax deeds and all of the all of the

incredible depth that we could get into with that. So John is a professional who has been in the retirement planning and advisory space for over 30 years and has a wealth of knowledge that he’s here to share with us today. So we’re super excited to have him and just remember that at Investor Fuel, we help real estate investors, service providers and real estate entrepreneurs, 2 to 5X their businesses to allow them to build the businesses they’ve always wanted so they can live

the dreams that they’ve always had. So John, with that being said, welcome to the show today.

John Berlet (01:03.986)
Hey, thanks for having me, Stephen. Pleased to speak with your audience at Investor Fuel.

Stephen S. (01:10.348)
Yeah, well, we’re super excited to have you here, John. So go ahead and just tell us a little bit more about you and how you got to where you’re at today. Because I know when we were talking a little bit before the show that you are in somewhat of a relatively new space, but not new space. So tell us what your background is and how you got to where you’re at doing what you’re doing today.

John Berlet (01:33.106)
Okay, so I’m based out of Austin, Texas for 44 years, primarily focused on safe money, retirement income planning, tax planning, Roth conversions. I had a registered investment advisory firm and built a book of annuity business up to $52 million. Had a law firm and approached me and offered to buy my book of business in 2021.

and offered me a deal I couldn’t refuse. So I took that, bought a motor home, traveled 17 states during COVID. We were able to sleep in our own bed, which was really nice. And I did a deep dive in the new tax incentive, came out of 2017 Tax Cut and Jobs Act called Opportunity Zones.

don’t want to get on that subject today but that’s my background. I help people with their 401ks, their retirement and planning their income. I called it people in the retirement red zone, 50 and up, that are more concerned about safety and preservation than they are about accumulation at that stage in life. most of my clients had other money that was suitable for risk.

depending on their risk tolerance. And I had several real estate ventures over the years, partnerships, bought apartment complexes and that sort of thing. But I started buying tax deeds in 1993 in Travis County, Texas. First sale I went to, there was only two of us at the auction. And these are in Texas where we do business. All these tax sales are held by state statute at 10 AM the first Tuesday of the month. We have 254.

So there’s lots of territory to cover. Hard to get more than one or two counties back in 93 a month.

John Berlet (03:24.401)
So at the first tax sale I attended, there was a sage old real estate attorney by the name of Walter Winlint, who was at the auction and there was my first one. And there were 13 properties in an area called Lago Vista, which is on the Lake Travis near Austin, if anybody knows Austin. And he looked at me and said, whenever you bid, I won’t bid and if I bid, you don’t bid. I said, okay. So we bought everything at opening bid. now I know that’s not allowed, that’s called collusion.

but back 30 years ago and it was a wow wow west in Texas anyway so I bought three properties he bought ten and then I figured out hey I’d like to do this in my

Stephen S. (04:00.15)
Yeah, no kidding.

John Berlet (04:09.293)
self-directed IRA so I’m considered a pioneer in the self-directed IRA space according to John Hyre if anybody knows him he’s absolutely a guru attorney in self-directed IRAs and that sort of thing but I decided to start buying the next sale with my self-directed IRA which I opened at a company called Stirling Trust out of Waco and they were absorbed by somebody

but there’s several custodians that I work with today and have clients work with that are using self-directed monies and Buying real estate is probably most of your audience knows So that’s my background Fast forward a little over a year ago. I launched this new offering which is called core tax deeds core stands for cash out real estate

and we’re buying property at tax sales. About two years ago, I went back and looked at this space after being away because it just got so competitive at the auctions. People were driving up the prices throughout 2000s and were harder to find deals. And then I started looking and paying attention in 2023 and saw where the trend now had gone to online auctions.

for these tax sales. And they still hadn’t caught on. There’s only about 25 % of the counties in Texas have the sales online. The rest of them are still 10 a.m. at courthouse depths. But.

It really opens up the whole state where we can bid now all over. We’re buying in about 15 counties and we’ve had a lot of success in our first year. I’m happy to go into some of those details, but probably be more important to educate the audience a little bit about how tax deeds and tax liens work. Would you agree? You want me go there? Okay.

Stephen S. (06:09.805)
Yeah, you bet.

Absolutely.

John Berlet (06:14.961)
So about half the states are considered tax lien states. If someone gets delinquent on their property taxes, the ad valorem property taxes are one of the highest priority liens on the property. Thus, most mortgage lenders require the escrow property tax, because they know they’re inferior. If something goes array, then they want to be sure that’s why they require escrow. So about 50 % of the states sell

or have auctions and they bid the amount of interest they’re going to bid down or bid up on the lien position where you take the place of the taxing jurisdiction like the school, the city, the county. And very rarely does that lead to ownership. Something like 5 % of lien state bidders actually end up owning the property because those properties end up getting redeemed.

I’m a member of the National Tax Lien Association, which is an industry nonprofit organization. I’ve attended their conferences and strongly made up of lien buyers. I bought two liens in my lifetime, both in Colorado. It just wasn’t something that got me very excited. I like owning the dirt. In Texas, we’re one of five…

deeds states that have what’s called redeemable tax deeds. And here they have the auction. Usually the delinquent taxpayers two to three years delinquent and a lawsuit is filed. There’s three or four law firms that represent the taxing jurisdictions throughout the state. And proper notice is served. They do a pretty good job trying to find the rightful owners who’s delinquent and give plenty of notice. There’s a…

A judicial lawsuit takes place. Once the lawsuit is completed, then it will go to auction. And we don’t know which properties are going to auction until about three weeks before the first Tuesday of the following month. So it’s a pretty short window to do your diligence on where you want to underwrite and move forward on bidding on. But the statutes in Texas are like this.

John Berlet (08:31.011)
If the property is not homestead, not ag exempt, there’s a 180 day right of redemption. If it is homesteaded or ag exempt, there’s a two year right of redemption. So it gives homeowners sufficient time to come up with the amount of the taxes, but so many of the auctions are biddings going up so high, it really makes the…

Homeowner less likely to redeem if they couldn’t pay the five thousand and it goes for fifty thousand It’s harder to for them. They have to pay the fifty thousand plus the penalty in Texas it’s 25 a flat 25 percent penalty if they redeem it in the first week or the fifth month So it’s in effect. It’s a 50 percent first year yield should the property get redeemed

And they have to pay that penalty on anything we’ve spent to maintain the property. Legal fees, surveys, insurance, accounting. So it adds up. The penalties often in Texas, we have pretty high property taxes, number one, but the penalties tend to be more than the actual back taxes because the way there’s such a high penalty kicks in at the eighth month of delinquency.

So that’s a little bit how Texas operates. We like to bid in the space of non-homestead properties. Of the 14 properties we bought over the last 11 months, only two were homes. Both of them were unoccupied. One of them we ended up having to demolish. We thought we could save it, but after we bought it, you know, can’t go in and inspect these properties. You’re kind of doing a visual from the street. We do our best job, but…

Turns out we had a demo of that property, but we came out fine. It’s under contract right now for quite a nice profit. After the demo, we’re selling it just two lots in the city of Corpus Christi. Everything else we bought, the other 12 properties are non-structures. They’re just raw land, lots, acreage, mineral rights.

Stephen S. (10:49.422)
That’s what I was gonna ask is why do you prefer the dirt? You mentioned that.

John Berlet (10:51.013)
I need money.

John Berlet (10:55.491)
many reasons. One, the shorter redemption period, 180 days. Two, there’s less management cost, you know, with maintaining a structure versus maintaining the raw land. I’m totally convinced you make your profit when you buy it right. It’s a lot easier to know what the heck you’re buying when it’s land, dirt, a lot easier to underwrite.

less competition. By the way, we don’t bid in the metro markets in Texas. We stay away from Houston, San Antonio, Austin, Dallas. We find our niche in the tertiary markets. So dirt is exciting to me. I think if you buy in the right location, it’s just like a structure. Location is 90 % of it.

Stephen S. (11:51.394)
Yeah, 100%. So now, how does this protect you and your investors who are looking for secure places to park cash?

John Berlet (12:00.689)
I’m sorry, what was the word? Protect?

Stephen S. (12:02.978)
Yeah, like how does this, how does it protect you and your investors? Like how do you, how do you line this out? Because this isn’t like, you know, again, you’re not doing this for just your own personal investment, right? Like you’re doing this as a part of a much larger, a much larger play, right? Or project even maybe.

John Berlet (12:17.115)
Fund. It’s actually a fund. And I’m not clear on that question. How do we protect our investors?

Stephen S. (12:28.952)
So how do these investments versus something like a traditional like going and throwing it into an annuity with a company that’s been in business for 160 years, like why do you like this play versus like a more traditional like putting money in the market, et cetera? What do you like about this? How does it protect you? Like what are just some of those differences and why you chose this as your avenue, I guess. Hopefully that’s more clear of a question.

John Berlet (12:50.609)
Yeah, and it’s clear when you say the stock market crypto real estate risk. I’d like to clarify the fixed index annuities that I showed have no risk. They’re very safe instruments, but how does it compare to other at risk investments? Oil and gas, et cetera. Here, what we buy is we get a deed day one.

Stephen S. (13:06.411)
Right.

John Berlet (13:20.101)
what’s called a sheriff’s deed. So we get all right title and interest, the prior owner held in the property. They were served notice, suit was filed, and they’re the owner record. In many cases, they can’t be found by the way. They’re deceased owners and the heirs don’t want to be found or can’t be found. And, know, Texas is very unique in many ways, but

As far as airship, there’s structures. Who’s in next step, depending on if it was community property, which most of the Texas property is. they’re protected because they get, our investors get 60 % of the profits until they’re made whole. So they get issued member units in our Reg CF offering.

What we have is a crowdfunding offering that’s listed on a platform called Silicon Prairie. I’ll give that information if anybody’s interested to look it up. It’s invest.coretaxdeeds.com. They’re a broker dealer and they all the offering documents, the agreements, subscription agreement, everything can be found on that portal has to be…

filled out and money goes through the investor portal before it gets released to us, our company. the investors get issued member units and depending on how much they invest, the minimum is $5,000. We have some bonus incentives at $15,000 and at $50,000. We just closed out our first round of properties April 5th. In fact, we broke into the top 10. I’m real proud to announce this.

Nationally, in the amount of capital we raised the first week of April between April 1 and April 6. There’s a company called King’s Crowd that tracks how much equity capital is being raised on these REG CF offerings nationally. And we came in at number 10. it’s quite exciting for us. We raised $138,000 in one week on this REG CF offering portal. I’m happy to go in and discuss.

John Berlet (15:48.325)
those equity splits and that sort of thing, if that’s appropriate at this time.

Stephen S. (15:54.05)
Yeah, absolutely. Go for it. Can you tell us exactly what an equity split is for those that might not know?

John Berlet (16:00.229)
Yeah, so when we buy, we bought 14 properties. Four of them right now are under contract to sell and will close by honor before May 1st. We had one property got redeemed. The property that got redeemed in February spun off a little over 10,000 in profits. So let’s just use 10,000 as an example. And that.

Everybody that was invested as of December 31st last year participated in our first profits if it came in in January you didn’t get any of this 10,000 distribution so the 10,000 split 40 % went to the management team which I run and four other investor Partners who helped me go to auctions underwrecked property they all put in between 25 and 50,000 to be in the management team the

Reg CF is for passive investors who are not active. They want their money to be active. They get 60 % of 10,000 on the redeemed property we had. So 6,000 was split up based on however many member units they were issued, which is correlated to how much capital they invested. Once they get their return of their bases, they’re made whole, then we go to a 50-50 split on the profit.

So we have an incentive to get them made whole, our investors, passive investors, sooner rather than later. Sooner they get whole, the more favorable the management team gets on the profits 50-50. Right. Make sense? Yeah. Okay.

Stephen S. (17:42.51)
Yeah,

John Berlet (17:47.986)
That’s how their profits are shared. And the management team takes a total of 6 % in fees. We take 2 % when we buy the property, 2 % when we manage, if it’s a year, two years, three years, however long it stays on our books before we sell it, and then 2 % on the sale. So with the exception of the 6 % management fees, our legal fees, marketing fees, and accounting fees.

then we get to the profits, which go 60-40.

Stephen S. (18:21.144)
Hmm. Okay. So now from my understanding of taxis, which is, I would say more minimal in that side of, you know, real estate investing than, than other sectors, niches potentially, but it really does seem like there’s a, it seems like there’s a complexity to it that once you actually get into it, that’s really not there. It’s just kind of needing to know what you need to know.

But once you’re in there, like is there really any downside to investing in these types of deals or how is it? Is there something that can go wrong in a deal? Has something go wrong for you before? What does that look like compared to like obviously you go buy a house, you know, it’s got a cracked foundation. You didn’t find it in your… What does that look like though, specifically with tax deeds and especially with land even?

John Berlet (19:11.953)
Yeah, a great question. So that’s involved in-depth underwriting experience. think what I could think of the worst case scenario, it hadn’t happened to us, but if you bought a laundry mat that had some kind of toxic disposal on site, if you ran into some property, you bought some dirt that was an old gas station or had some kind of toxic waste on it. We did just buy a six and a half acre parcel in March.

in South Texas in a real small area called, shoot, can’t, I’ll think over here in a minute, but it’s near a royal city. It is a royal city near Rio Hondo, Texas in the valley. I think within 10 miles of the border down by Boca Chica where SpaceX is located. So we bought, this used to be a Taiwanese shrimp farm. Consisted of 400 plus acres.

And it’s on Google, can, YouTube, can Google it and see the history. They went bankrupt. They produced some kind of a poisonous shrimp 25 years ago. So they’d raised a lot of money, bought this big place and put in a very high end, I a lot of money they spent, millions of dollars, put it in a shrimp farm, the Taiwanese shrimp farm, and they got sued and went bankrupt.

They started selling these properties in little tracks. They had investors from Taiwan. All I know is the names on the prior owners Asian names. So I think they’re from Taiwan, but it’s called the Taiwanese Shrimp Farm. They may have been from anywhere in Asia, they were Asian. Each little five to 10 acre farm was titled in those people’s names. The one we bought six and a half acres for 80

$8,500. According to the city manager’s secretary, there’s now talk of someone coming in there and putting in an algae farm on this property. And I’ve been studying now up about algae. I never even heard of such a thing, but there’s a lot of uses. Were you aware for algae?

Stephen S. (21:33.738)
No, I… That’s so interesting. I’m like, This went from we’re talking about land to a shrimp farm to algae farm. Like, this is incredible. This is such an awesome twist I wasn’t expecting.

John Berlet (21:34.705)
Yeah.

John Berlet (21:48.946)
Well, let me tell you another story. That one we just bought in March. We bought in August last year up in East Texas near the Shreveport Louisiana State line, 15.6 acres, August tax sale. Paid $20,100 loaded with pine trees ready for thinning and lumber use. And I had no idea.

Stephen S. (21:53.431)
Yeah.

John Berlet (22:16.049)
that 80 % of the mineral rights had never been severed from the dirt, the surface. It’s very rare, but turns out we end up buying, we end up owning 80 % of the mineral rights and there was three horizontal gas wells producing. So we got in payout status for five months, had a little over $6,000 worth of royalty checks coming to us.

And when you know that’s the one of the 14 properties that got redeemed in the last minute, like the fifth month, they had two weeks left to the 180 days was over, but they came, they paid us 28,000 and some change. We paid 20,100 plus we got five months and we probably going to get one more month operating, producing mineral wealth income off that parcel.

So that’s one we, know, I hope it never got redeemed, but it did and out of our control.

Stephen S. (23:20.246)
Now, what would that have, if that hadn’t got redeemed, what would that have looked like as far as the opportunity with that for you guys?

John Berlet (23:27.291)
Well, the dirt alone was valued well over 300,000, 15.6 acres. There was some potential income off the pine trees. That area of Texas is huge and it hadn’t been thinned in over eight years. But the value of that mineral rights, I don’t know how to put a number on that. We didn’t get that far. First thing I did was hire a land man who helped us determine

that the mental rights had never been severed. We just bought in the same county last month. Wait, this month? the month. Today, no, this month we’ve just bought a commercial corner on a highway, a hard corner, one acre piece that’s ripe for a convenience store in a place called Victoria, Texas. But last month or two months ago, we bought six and a half acres, actually,

seven and a half, six and a half and a one acre another track that went with it. And we’re still having the land man research whether we got any mineral rights on that property.

Stephen S. (24:37.71)
Wow. Wow.

John Berlet (24:39.089)
So all kind of interesting stories we bought. I can remember on a personal purchase, I bought a lot for $1,100 in Austin, Texas, sold it to the Catholic Church for 38,000. So you do the ROI on 1,100 and 38,000, it’s off the charts.

Stephen S. (24:58.766)
Right. No kidding. Yeah. Now, I mean, it sounds like a lot of these are smaller deals. Like, do you have any that are like enormous?

John Berlet (25:12.271)
Well, no, I just told you our biggest one, that mineral, I mean, yeah, the 15 acres. We bought 2.6 acres, five acres, so smaller parcels. We bought of the four, I keep saying five, but one of the contracts fell apart. Four that are under contract to sell, two of them are…

Stephen S. (25:16.224)
Okay, so that was your biggest.

John Berlet (25:41.114)
owner finance, we’re taking 20 % down 9 % a month with two year balloons. So we’re going to have a pretty big windfall after two years, but those will generate 2,600 a month in income in the meantime. And then the other two are, one’s a cash deal. And the other one is that house I told you we bought that we demolished. It’s showing the contract to close on or before May 1st.

Stephen S. (26:10.99)
So let’s say somebody wants to get into this space. Where would you tell them to start?

John Berlet (26:17.509)
Then go to our webs if they want to do it themselves type person or they’re for.

Stephen S. (26:23.382)
Yeah, like if somebody was wanting to like actually like do this like actively like let’s say they said man I didn’t know this was a thing I’m gonna go out and I’m gonna do this full-time but I got to make hundred fifty two hundred grand a year You know within a couple years of doing it because it sounds like you have to do a lot of volume to like get larger numbers versus You know when you’re out like flipping properties, let’s say you go flip 20 properties and you know off

Even if you’re just wholesaling, for example, on wholesale commissions, know, 20 properties, you might be able to make that right. But how many, how many of these deals tax liens, especially because the waiting period, how long do you think it would really take for somebody to do this like full time? It’s like the only thing they did.

John Berlet (27:03.451)
Well, here’s the deal on the on doing it yourself full time. There’s a lot of companies out there selling courses and training and weekend seminars and they do a good job educating the people on the upside, but they don’t really, from what I’ve gathered, spend a lot of time telling you how much work it is. It’s hard work. You don’t want to make mistakes because you have to pay by 2 p.m. cash on the barrel at the auction.

Stephen S. (27:11.778)
Right.

Stephen S. (27:23.395)
Right.

John Berlet (27:30.994)
There’s no financing typically involved. It’s money on hand cash, cashier’s check by 2 p.m. the sale day. if I were someone wanting to do it myself, had the time and interest, nothing like trial and error, go to your first auction, observe, get some of the online training that’s available. Again, every state is so unique, different.

Stephen S. (27:40.621)
Right.

John Berlet (28:00.697)
Learn your state statutes. This would be my advice. In Texas, if they’re in Texas, you can spend a lot of time underwriting the property that gets paid, pulled from the auction at the last minute. A lot of the gems, know, the really gem stuff gets pulled and you spend your time going looking and researching and underwriting properties you’re really never even gonna have a chance to bid on. Cause it gets paid. I mean the…

Stephen S. (28:03.128)
Right.

Stephen S. (28:28.322)
Right.

John Berlet (28:29.957)
the morning of the auction often. Certainly Friday before the Tuesday auction, a lot of stuff gets paid. So we have a proprietary system that I’ve implemented that lets us zero in on properties that are unlikely to be redeemed or pulled, excuse me. One, unlikely to be redeemed, but two, unlikely to be paid before the auction. You following? Yeah. So yes.

Stephen S. (28:32.942)
Hmm.

Stephen S. (28:37.826)
Right.

Stephen S. (28:56.034)
Yeah. And so if somebody wants to shorten the learning curve and they just want to invest, then, because we’re coming up on the end of our time, so how can people, if they want to learn more about you, if they want to cut that learning curve out, don’t want to have to do it themselves, manage it, find the deals, buy the deals, all of that, where would they go to connect more with you and to learn more about you, John?

John Berlet (29:18.417)
Okay, so of course LinkedIn, I’ve got a presence there, but our website is coretaxdeeds.com. And then the offering portal, there’s several links on the website that go to the offering portal, but that’s where all the offering documents, all the disclosures, all the disclaimers, all the reasons why you wouldn’t want to invest, all the risk associated with the offering is at invest.coretaxdeeds.com.

Stephen S. (29:46.318)
And that’s that’s where they can go read through all the reasons why they shouldn’t invest with you because you legally have to say it

John Berlet (29:52.582)
Correct. I am a food judiciary, so I place my client’s interests before my own, always have, and it’s served me quite well and served my clients well.

Stephen S. (29:59.95)
You bet.

Stephen S. (30:03.662)
You bet. So let me ask you one last question then, and you can spend as much time as you want on it. But if you had to go back to the beginning of everything you’ve been doing, I know you said you bought your first one in 93, but if you had to go back to the beginning knowing what you know today, what would you do different and what would you do the same?

John Berlet (30:20.793)
I would start day one buying with a Roth IRA. If someone doesn’t have a Roth IRA, shame on you. The Roth is the best gift Congress has given us. So this sort of thing that has such a high upside, such a high ROI, why not use a Roth? If you make too much money to contribute to a Roth, that’s not an excuse. You can convert. You’ve got any qualified money.

You can convert as much as you want to bite off pay taxes on now, but get a Roth. As you can tell, I’m a huge Roth component proponent and everyone should have one because there’s a five year clock. If you’re not aware from when you make your very first Roth contribution, you have to have it five years for all the profits that come out tax free. And I like to ask people this one question. If you were a farmer, probably a lot of farmers there in Kansas near you.

Stephen S. (31:10.446)
you

Stephen S. (31:17.4)
for sure.

John Berlet (31:17.681)
Would you rather pay the taxes on the amount of the cost of the seed you plant or would you rather pay the taxes on the entire value of the harvest? What’s the answer?

Stephen S. (31:27.278)
Mmm. The CG plant.

John Berlet (31:30.769)
Good answer. I’m surprised how many people say the harvest, but with a 401k, 403b, 457, any kind of qualified retirement account, you’re gonna pay taxes on the entire harvest. So pay it on the seed, grow tax free, you can’t beat that.

Stephen S. (31:49.954)
Love that. And then use it to purchase tax seeds.

John Berlet (31:52.944)
That’s a good option. actually think you should have diversification. I personally have a little crypto, not a whole lot, but a small amount. I’m not big on stocks, but real estate has served me very, very well and I have a significant amount of annuities that generate guaranteed lifetime income. I’ll never outlive it. I mean, if I do die early, it continues to go to my beneficiary.

Stephen S. (32:19.374)
Sure, you got it. Well John, thank you so much.

John Berlet (32:20.697)
Hey, it’s been fun talking about tax deeds. I love tax deeds. Happy to entertain a phone call. Any perspective investor or anybody just has questions.

Stephen S. (32:31.734)
Well, while you heard it here folks you can you can visit and learn more about John at core tax deeds comm or on LinkedIn and Everyone, I hope you enjoyed today’s show and we will see you on the next episode John. Thanks for being here today

John Berlet (32:44.849)
I enjoyed it. Thank you.

Stephen S. (32:46.542)
See you later.