Went to my first Tax Auction - Here's what I found out...

[François DesCotes]

Hey Folks!

I went to my first Denton County, TX Sheriff's Sales yesterday and it was an interesting experience. Thankfully my county is not huge so it was not a complete zoo. I am told that the Dallas County Tax Sale is a lot more attended and more cut-throat. There were about 20 people massed by the staircase inside the courthouse building, and it's a mix of race, gender, economic situation, and motivation. I say motivation because I met a very nice gentleman who was there to buy not for himself but for Habitat for Humanity.

What struck me the most was, despite the fair warning from the Sheriff about making sure that you knew what you were getting into before bidding, some people were not well-prepared. Three people started bidding on what could to be a $300k home that was auctioned for an HOA lien. It eventually went for $88k. I was baffled. I am obviously missing something because I thought that they also "inherit" the mortgage lien, which someone thought it to be at $230k. However I sliced and diced it, this would not make a good rental.

Unfortunately, I was not able to talk to the winner as he left right after he won. I did talk to a very nice couple who had been bidding up to the last minute, and asked them what their strategy was. I explained to them that I was new to the real estate investing world and that I would love to buy them a cup of coffee sometime so that I could pick their brains. To my astonishment, they had no idea it was an HOA lien sale and not a tax sale. They did not know the difference it made in their strategy. They thought they were getting a $300k house for cheap. With my freshly acquired knowledge from BP, I explained that there is probably a mortgage on this house built in 2014. I even showed them the BP posts were I got this knowledge. Their attitude was that even if they spent $100k and made a huge mistake, it would be worth it for the learning experience. I'm not that loose with my money. They also told me that they had bid on several houses over the past few months but never won. I couldn't help but feeling that they were just inflating the price for the investors with a plan. I don't want to be that guy.

Folks, the moral of the story is to please do your homework before you get yourselves in trouble. On the bright side, I have introduced them to BiggerPockets and I will also acquaint them with a wholesaler I just met (on BP) and who showed me some fantastic opportunities.

I'd be delighted to hear your thoughts about Sheriff Tax Sales and your horror/success stories. Strategies are even better...

Thanks!

Keep your money moving!