What Should Tax Lien and Tax Deed Investors Learn from BlackRock Real Estate Purchases? By Tony Martinez
In April 2021, The Wall Street Journal reported that investment firms like BlackRock were buying up single-family homes. And in some cases, buying up entire neighborhoods. In fact, private equity firms like BlackRock reportedly account for 24% of homes purchased in Houston. The story fell under the radar until a viral tweet mentioned that BlackRock was paying 20% – 50% above the asking price, blocking “regular” homebuyers.
Many real estate investors think these private equity funds are helping feed another real estate market bubble. So, why are private equity firms buying up real estate, and what does it mean for tax lien and tax deed investors?
First, it’s important to note that BlackRock is a large firm that invests in many markets including publicly traded stocks and bonds, commodities, foreign infrastructure, leveraged buyouts, and many more. One common investment that BlackRock is into is Real Estate Investment Trusts, or REITs.
REITs are pools of investor money that are dedicated to investing in healthcare, commercial, residential, lumber, and many other properties. Residential REITs commonly focus on multi-family units and collect rent that they pass on to their investors in the form of dividends. Many investors like REITs because of their larger-than-average dividends.
After the 2007-2008 credit crisis crash, many residential REITs recognized an opportunity and started buying up foreclosed homes. They were able to acquire these homes below market value and rent them out. Over the last 11 years, the recovering and then growing real estate market has provided excellent combined returns of rent and capital gain (price appreciation).
However, REITs have certain requirements that are causing them trouble today. REITs, like any open-ended fund, are required to keep a certain percentage of the portfolio invested. They aren’t allowed to hang on to large cash positions, even if they want to. This is because uninvested funds can hurt returns through what’s called “cash drag”. After using REITs to buy up houses at a good value, the REIT is now forcing investors to overpay for assets.
Chances are that BlackRock isn’t too happy about this development and would rather buy at market prices. However, in the face of rising inflation, housing has historically been a good asset class. So, the long game may eventually workout for BlackRock investors.
So, what should tax lien and tax deed investors take from this? First, price matters. Liens and deeds provide investors a chance to purchase real estate well below market value. Investors can resale or rent the properties for profit. Second, keep money invested. As soon as your tax lien is redeemed, make sure you have a replacement to invest in immediately. If you sell a house, make sure you’re lined up for another deed auction as soon as possible. Like private equity funds and REITs, you want to compound your money and your returns so you don’t suffer from cash drag. Finally, real estate tends to be a good investment during inflationary times.
If you’re willing to embrace the role of landlord, or hire a group to do it for you, hanging on to your properties could really pay off, even if inflation occurs.
Tony Martinez is the Co-Founder and Co-Chairman of the US Tax Lien Association, which is an organization that is committed and dedicated to helping others achieve total financial freedom through the power of investing in Tax Lien Certificates. With over 20 years of expert experience, Tony is the world's #1 authority on the subject of creating enduring wealth through the little know strategy of investing in Tax Lien Certificates, which gives anyone the opportunity to earn guaranteed fixed rates of returns of 18% – 36% interest per year, and acquire valuable real estate for approximately 10% of market value.