When should I complete my research before a tax sale?

Question

Hey family,

I attended my first tax deed auction in Fulton County, GA on Tuesday.  Here are my observations. Majority of what was sold was land. Most of the land ended up selling for $5k -$25k (shocking). There were 10 single-family homes on the original tax sale list and on the day of the auction there was only one left.  The winning bid on the single-family home ended up going for 55% of the value of the home ($101,000). Please see my questions below.

1. When do you begin to do your research on the properties that you want (mostly driving and intensive research)? 30 days before the auction or the weekend of the auction? In other words, do you complete your general research as soon as you get the tax sale list and reserve lien searches and onsite inspections for the day before the auction?

2. Secondly, if you had 25k to invest, what would be your strategy? Go after land first? Attend 5 auctions a month? My end goal is to acquire enough properties to have 5 to 8k of cash flow each month so I can quit my job.

I am trying to develop a strategy to approach this. Any guidance will be greatly appreciated.

Adam Walter · Answer

@Ronald Stanley  First of all, each state and area handles the sales differently, so what works in one area might not be best for others.  I am in Southwest Ohio and attend/buy in the Cincinnati area tax foreclosure sales.  I normally do as much due diligence that I can do in the office a week or so prior to the sale.  Once I narrow down the properties I'm interested in bidding on, I physically view the properties a couple days before the sale.  The reason I wait so long is that many times properties are withdrawn from the sale a few days before.  Sometimes, I will even look to see if a tax payment has been made which usually indicates that a payment plan has been initiated and will be withdrawn.  It's disheartening  to do a lot of due diligence and go to the sale to have it withdrawn.

Right now, in my area investors are paying crazy amounts for foreclosures sales.  For the previous 8 years, I haven't missed a Tax Foreclosure sale in Cincinnati.  The past 8-10 months, I've gone to maybe 30% of the sales because people are buying at such high margins.  I'd rather wait until the craziness subsides than to do all the work at low profit margins.

John Underwood · Answer

I start 30 to 60 days before the auction. I update my spreadsheet, look at everything online and eliminate stuff I'm not interested in.

Then I drive by about 1000 properties to evaluate them in person. I rank them and put down a max bid.

To invest 25k I would look at good buildable lots and land and maybe a few low ARV house or Mobile homes with land.

There is less competition in smaller counties and therefore better prices.

Jay Hinrichs · Answer

Back in the day in the country our family was active in we might own 300 to 500 parcels at anyone time.. And it was SOP to pay the taxs when we sold them since the annual tax payment was so low it cost more to book keep it then to just pay the penatly at sale. so we routinly had 100 plus on the tax sale every year with many investors rubbing there palms together to grab the Hinrichs inventory.. only to have my Dad redeem them the night before or the morning of when we came to the auction ready to buy the 100 plus parcels we bought a year  big time games right. ?

Ned Carey · Answer

@Ronald Stanley       "It seems like you and your partner together look at two homes a day on the average"Actually I had a typo above (which I have corrected).  We don't look at 700 a year it is 7,000 a year.  We also do that in the two months before tax sale. It is more like 100+ per day between the two of us. That is extreme, I doubt anyone else in my area does that much. They may evaluate that many but not drive by that many.

Regarding your question to John, Now I simply look or evaluate, at as many as I can. The goal is to get properties at less than the "as is" value. If it is not something I want, I just wholesale it to other investors.

In the past I would sort the list by; the streets in the areas I knew well, the assessed value, the lien amount, the lien to assessed ratio, whether it was vacant or not and whether it was homeowner or not.  This sorting might be by a single variable or multiple variables. I would then scroll through the list looking for opportunities. Since the beginning, I simply wanted a great deal, not necessarily a property I would want to own. If it was a great deal, I knew I could make money on it one way or another.

Jay Hinrichs · Answer

Also Ned to put this in context BALT is very Dense and its majority row housing.. to do that many homes in Fulton county GA would take years LOL its too spread out.

Also for the OP  you have folks talking TAX  certs and TAX deeds to very different sales..  Tax certs come out by the thousands  Tax deeds by the hundreds..

the reason the houses are gone is pre foreclosure buyers beat you to them..  ( Our Area of Expertise)  CA OR  WA is this way  very few homes go but thousands of bare parcels go .. and there are many who make a living buying them for cash and then selling them on terms.. thats the whole Land Geek model or any of the other land tax sale gurus model.. And one my family started in the 60s.. Once these sales all went on line though pretty tough to pluck a diamond out of there like we used to do as a matter of course.

I like John U model he does not care about title insurance and given his area there is not a big likelihood of redemption so all he needs is his tax deed or whatever they call it there .. so he has ownership  NO DEBT rent it and dont worry about title insurance  once the ( I think in SC its 10 years) runs title is clean at that point..  I could be a little wrong on the years.. but his model is one of the best I have read about on BP.

Bruce Lynn · Answer

@Ronald Stanley   You can also go to the regular foreclosure sales.  Those might be quicker to flip, as you can normally get title insurance right away for the next buyer, unless GA has some kind of redemption period for regular foreclosures.  Title company is the best place to check...and I would say check with 2-3 just to make sure.  Should be the same at all title companies, but some are more knowledgeable than others.   Also if you have investor friendly title company you use, check there as well as they may be more familiar with the process, costs, ins and outs.   For example we have some redemption periods in Texas only 6 months, but still normally takes 2 years or a lot of money to get title insurance.

Just as many of the other tax sale experts that have answered here, when I am out looking at tax sale properties, I am also driving for dollars.  You might checkout some software Deal Machine that can assist you with that.  I may find just as many off market properties to go after as I do tax sale properties.  So many alternatives to just doing tax sales.

Steve Borawski · Answer

@Ronald Stanley

I just started doing this about 5 months ago in Ohio, so the state is different. Our tax sales are very random and are not all at once. Many get pulled at the last minute so I wait until a week before to do my research. I also check the docket for each the day before the auction because several get paid the day before. I drive the property a few days before and get out and talk to the neighbors. Yep I knock on doors and say hay I'm looking to buy the house next to you. I don't say it is at auction but many already know and don't care. You can get some great info from them about the property. Like one had a fire in the kitchen and another had all the copper ripped out.  Hope that helps.

Cheers

Ronald Stanley · Answer

Thanks Ned. I was doing the numbers for the amount of the homes you look at it. It seems like you and your partner together look at two homes a day on the average. That lets me know I have to expand my search to multiple counties instead of just one. Can you expound a little on the criteria you use for the homes you physically go to see and end up bidding on? Do you rank the homes by Cap Rate, Cash on Cash Return, or ROI?

John Underwood · Answer

I rank the house based on condition and area. I rank from 1 to 10. The sweet spot for me is 7 and 8's. The 9's and 10's are usually too nice looking so they are less likely to go unredeemed.

In try and stay under 25 to 40% of ARV as a general guide. The nice the property and better areas I will go higher.

When using other investor or families money I try and be more conservative to make sure I get enough interest to be able to pay them 6% regardless of how much interest I get.

Ned Carey · Answer

@Ronald Stanley

1) I start my research as soon as possible.
Here are some important considerations. There were 22,000 liens on the Baltimore city list when it came out. (I am bidding on Tax Liens ant a one time annual sale) By the time of the sale it will be down to 8-12,000. This means a significant number of what I look at will eventually get removed. So If you only have a modest amount to invest and are only going to research a small number of liens it is best to wait.

In my case I need to start as early as possible because I want to bid on everything we can. In order to evaluate enough properties,I need to start right away, even though I know many I look at early on will be removed.

My partner and I look at 7-9,000 properties a year. That winds up being about 2500~ bids and we win anywhere from 200-1,000. The number we win has been dropping due to the competition increasing the last few years.  Now looking at that many properties can be done in Baltimore because of the densely distributed distressed housing. There can be as many as 5-10 row houses in the sale on 1 block.

Because of the age of the housing stock and the risk of properties being in very bad condition we, physically drive by 90+% of what we bid on. If you are bidding on land that probably is not important.

2) Strategy? I don't know your area. I would think bid on as many as you can. If that means multiple auctions, so be it. Land can work if you get it cheap enough. A common strategy is to sell land with owner financing. It makes it easy for people to buy and afford and there is the cash flow you wanted.

@John Underwood want to comment?

When should I complete my research before a tax sale?

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