A quick tip for tax property investors: forget tax deed sales and buy directly from the owners. Learn to do that, and you can avoid all the headaches you’ll find trying to buy property at tax deed sales. If you’re new to investing in tax deeds, you’ll quickly learn what those headaches are, probably after attending only one or two sales. Save yourself some blood, sweat, and tears– here are the four main reasons you should completely avoid tax deed sales.
1. You need lots of cash, up front, at the auction. When you are the winning bidder of a tax deed, you’re expected to pay cash, right then and there, for your new property– and it’s rarely ever for just the amount of back taxes owed by the delinquent homeowner. This is because…
2. You’ll be bidding against lots of other bidders, including agents representing big tax sale firms that can afford to bid more than you can. Forget getting a property for a song. There will be lots and lots of other people bidding against you, and you’ll likely see any property you’re interested bid up to close to what it’s worth on the open market.
3. You can’t inspect the property you’re bidding on prior to buying it. You can drive by, and that’s about it. There’s no way of knowing what problems lie within, unseen from the outside. Leaks, mold, trashed interior, poisonous vapor issues, insect infestation– you name it, and the property could have it. Many of these properties are abandoned, so it’s not at all unlikely you’re going to find an unpleasant surprise on the inside. Also…
4. In most cases, you won’t take possession of the property right away. Most states have a grace period of at least a year– some up to five years– during which the owner can show up and pay the taxes, penalties, and interest, and “rescue” their property from tax sale. This means that during that time, even if the property was perfect when you bought it, any of the unsavory issues from #3 could occur.
You can avoid all these problems by simply avoiding tax deed sales all together, and contacting the delinquent homeowners prior to the point where they will lose the right to redeem the property. Approaching that point, the owners of these properties become more and more motivated to sell, as the time where they will lose everything draws nearer.
Many investors don’t take this route, because it requires that you actually deal with people, instead of just holding up a paddle at tax deed sales. This is usually because most have dealt with owners in mortgage foreclosure in the past, and found it very difficult to get in touch with these owners, or found them hostile if they were able to get them on the phone.
This is generally not the case at all with owners in tax foreclosure. You’ll find that often, these are absentee owners and/or heirs that are simply tired of the burden of maintaining a property that they don’t live in. When you do run into people that are still living in the homes, you’ll often find they are happy to sell to you, and at least get something out of the property before the government forecloses. Investing using this method is so much easier than competing at tax deed sales.
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