What is Vulture Investing

The not very attractive moniker for this form of investing gives some indication of just what investors might expect. Vulture investing is the process of investing in tax liens or other distressed real estate properties. With the increase in foreclosures and the low interest rates from traditional savings accounts and bonds, many investors have looked to new and less traditional methods of earning money.

Real estate always has value

Vulture investing, some would say, preys on the downturn in property prices that have accompanied the recession. As many buildings, both private homes and commercial real estate, fall victim to economic forces, there are still investors willing to put money into the real estate market. This is the case whether it is to buy up those distressed properties, or to benefit from the tax liens placed against them.

According to “Time” magazine, “the math on housing prices around the world since the 1920s…says that repeating patterns of collapse and recovery offer hope for home buyers, if they have a long-term perspective.” For investors, there is money to be made, no matter what the economic conditions are.

Making money on tax liens

According to “Forbes” magazine, more than $400 billion in local and state tax due on real estate annually, of which some $6 billion goes unpaid each year. This often leads to tax liens being placed on those properties, and for investors in 28 states (plus the District of Columbia, Puerto Rico and the US Virgin Islands) those liens can be taken over for investment purposes. The taxing body gets its money, and the investor receives the delinquent tax money plus any penalty and interest owed by the taxpayer.

According to “Forbes,” a typical investor makes 4 to 7 percent  a year on such investing. While those rates may sound low compared with the gains some can make in the stock market, it is well above those rates earned from certificates of deposit (CDs) or 10-Year Treasury Bonds, both of which make less than 2 percent.

Buying and reprising

For other investors, they choose to purchase and resell property outright. For example, “Time” magazine noted the case of Real Capital Solutions whose investors purchased (at a steep discount) a condominium unit near the skiing area of Beaver Creek, Colorado. The project had fallen apart due to the recession, but investors were able to resell the condos at a 50 to 60 percent discount to their original asking price.

Noted in “Time” , “It is vulture investing that doesn’t thrill developers who are still trying to hold on to delusional precollapse prices, but it’s part of the clearing process.

Key ingredients to vulture investing

The keys to successfully becoming a vulture investor is significant resources and time. Both play to the need to be able to invest significant capital, particularly if purchasing property outright, and time for those investments to pay off. This is not a get rich quick scheme, but for those investors looking to make money in the real estate market in good times and bad, it can yield significant profit.