Tax Sale San Diego CA

[Nick Boring]

Is anyone in the BP community planning on participating in this auction in March? I would be interested to know why or why not you think this is a good way to find a deal. I have a vague understanding of the inherent risks involved when purchasing at a tax auction, the big one that I understand is the inability to perform due diligence to some extent. I also understand not all liens might be cleared and you may also acquire some very unhappy/uncooperative tenants. Does the county require all-cash or are their lenders brave enough to finance something like this? Seems like this niche should be left to the pros. Very curious to hear everyone's opinions, I have heard several people talk about it in the past two days alone. Thanks for the info!

[Dan H.]

I have participated in the past and have bid on properties but have never won a property.  We are not planning on participating at this time due to other priorities but thought I would provide some information about our experiences:

Many/most of the normal properties get brought current prior to auction.  I view this as a flaw in the system especially with the level of vetting that we attempt.  

For example two years ago we looked at maybe 18 properties.  Many had something really strange with them such as 1) built on a stilts on a slope above hwy 163 with literally a stamp sized flat area of the parcel or a unit that was attached to another unit and the next door unit had a door that accessed a lounge area on the roof (the only door that accessed the area) 3) Had no access to the house and what once was used as access the owners had built a pile of trash to prevent access to the property (I suspect there had not been an easement there).  No idea how the purchaser would ever access the property.  Maybe a dozen were without huge glaring flaws.  Those properties kept being removed from the auction assumingly because someone had made a payment on the owed taxes.   A few days prior to the auction there were a few normal properties left.  We performed a preliminary title check on those properties and each looked fine.  However, by the time the properties came up for auction, there was only one left from our list.  We bid in on it.  I am not sure if the process has changed, but at the time a new high bid could extend the auction.  The property was a little remote for us and without being able to see the inside we were conservative in our bid.  We did not win it but something like $40K.  I realize there are investors local that can rehab much cheaper than we can, but I also wonder if the winner somehow knew the condition of the inside.  There is no way to know.

This was our second time participating and at least 4 times we have looked at the properties that were on the initial list.

Some thoughts:

• A Drone was helpful on multiple properties.  If fact, the auction is why I justified purchasing a drone and writing it off as a business expense.  After acquisition, we have also used it to take photos for our rental listings.  So it is a tool we do use in RE and, especially, my son uses it for some non-RE related photos/videos.
• Make sure you have a means to do preliminary title checks.  We have not encountered an auction property with an issue, but it is nice to have some confidence that there will not be any title issues.
• Be prepared to see some funky properties.
• Be prepared for many of the properties to be brought current and be pulled prior to the bidding starting.
• It ends up being time consuming, especially considering many of the properties will not actually go to bid.
• The prices seem a little high considering much of the condition is unknown.  I question if they are being purchased by insiders who know more than I do (maybe associates of the owner or at least have seen the inside).  It is also possible that it is being purchased by people more efficient at rehabs (or willing to take smaller profit) than we are and I expect we are more efficient than many (I would be surprised if a newby could do a hands off rehab at the price we can).

My view is that to obtain top bid, the property once it is placed up for auction should be unavailable to be brought current and removed from the auction.  The current process, assuming it has not changed, is too time consuming due to all the time wasted on properties that will not actually get bid on.  This discourages people from participating which could be hurting the prices (which seemed a little high considering the risk so maybe the price is not being affected but it does require more time on behalf of the bidder than it should).

Good luck