This weekend, I’m packing up my worldly possessions and departing for the long trek to Salt Lake City. I’ve mentioned this in passing on webinars and emails recently, along with the fact that I’ve been studying for both the real estate agent exam and the Series 65 exam. This has caused a fair amount of confusion amongst viewers and readers.
To catch you up to speed, after leaving my day-to-day role at my software startup, Prolaera, last summer, I decided that I would reboot my tax resolution practice and build another boutique firm. I spent an entire month doing nothing but evaluating various business models, service options, and other important considerations for starting a new business. What I ultimately decided on was to integrate my personal real estate investing strategy into a tax practice, and build a hybrid tax/real estate brokerage/financial advisory practice all centered around a specific strategy for acquiring rental properties.
The tax resolution aspect focuses on doing only lien withdrawals, subordination, and discharge work to help facilitate real estate transactions (the lien work only model).
Moving to another geographical areas wasn’t originally part of the concept. However, as I started the search for my next rental property purchase, the local market conditions, driven by spillover from Seattle’s blazing hot real estate market, started to look less and less desirable to me. I’m not a fan of rapidly increasing prices, low inventory, and multi-offer situations. That’s just not a game I like to play when it comes to real estate. So I started contemplating a relocation.
As you may have seen last week in the market area selection video I unlocked for a few days, I think it’s very important to be strategic about the decisions you make in your tax firm. Since I happen to have the flexibility to change my geographic location without disrupting anything else in my life, I made the choice to do so. After researching several other markets, including Vancouver, WA, Klamath Falls, OR, Boise, ID, and Bozeman, MT, I ultimately decided that the Salt Lake City area was the best fit for me for the next few years.
Why Salt Lake? I have a long laundry list of reasons. Here is a short sampling of the bigger reasons:
- A balanced real estate market with plenty of inventory in “blue collar” neighborhoods with homes priced well under $300,000 – my preferred type of rental property.
- An incredibly active tech startup scene, providing opportunities for angel investing and startup advising in exchange for equity.
- A highly educated but relatively low-cost labor force, with a high concentration of successful inside sales personnel in particular.
- Referral relationships from the prior incarnation of my tax resolution practice. These relationships are now cold and stale, but it’s better than nothing.
- Year-round sun and excellent outdoor activity opportunities will help with seasonal mood issues associated with Seattle’s gloomy skies and make life better for Pearl, my dog.
- Untapped potential for growing the real estate brokerage brand I’ll be joining.
- Excellent tax resolution market potential.
- Multiple ice facilities that support all ice sports, including curling, speed skating, and luge/bobsled, which simply are not available in the majority of cities, but are super fun!
…and on and on. Once I started evaluating the options, Salt Lake became the only logical choice for me to spend the next three to four years before I retire.
There is obviously a lot more that goes into the choice of business model, and a lot more details on exactly how I’m going to implement various aspects of the model. In August of last year, a dozen elite tax professionals gathered in Los Angeles for an early, insider’s sneak peek at this new business model. These tax professionals came from as far away as Maine, Florida, and Washington, DC, and paid up to $1997 each to attend the day and a half workshop (plus their travel costs).
At this workshop, I explained precisely why real estate agents and real estate investors are such a great target market for tax resolution and other services. I provided a step-by-step blueprint for how I’m going to launch my new practice, including what staff and systems I’ll add in, when, and why. Attendees also received an early version of the marketing system that I’ll be using to launch the business with (here’s the more established Seattle version with 258 members).
Of greatest interest to many attendees was my explanation of how I was going to work with real estate agents and mortgage brokers to help them get paid. See, if a real estate transaction fails to close because either the buyer or seller has a state or federal tax lien against them, then nobody gets paid their commission. It behooves the loan officer, title rep, buyer’s agent, seller’s agent, and everybody else that gets paid at closing to do what it takes to make sure that a closing actually occurs. Bringing in a tax professional to clean up the occasional tax issue helps them all get paid.
Think this isn’t a big problem? Combining IRS data with US Census household data, we can estimate that somewhere between 7% to 11% of American households have a tax debt problem. Combine that with real estate churn, and approximately 3% to 5% of real estate transactions per year have a tax lien issue that could potentially hold up closing. These are obviously just estimates extrapolated from statistical data, but my conversations with mortgage brokers and real estate agents have anecdotally confirmed these estimates.
Not impressed? According to the Salt Lake Board of Realtors, there were 13,313 single-family home sales in Salt Lake County in 2017. Let’s say that the 3% is overly optimistic. To be conservative, I’ll say that only 1% of these transactions require any sort of tax cleanup. That’s still 133 transactions. Even at only $1,500 per transaction, solely for lien work, that’s still $199,500 per year in fees, just from lien work (and NOBODY is specializing in this!)
Two hundred grand a year in just lien work — the least time consuming type of tax resolution work that there is!
Add in the fact that a lot of the real estate agents have tax issues… Mortgage brokers occasionally have tax issues… There will be referrals from them to other tax work… Some of these home buyers and sellers will be interested in real estate investing using no or low money down strategies…
Add this all together, and the $200k/year in lien work is just the tip of the iceberg.