How to Buy a House by Paying Off the Back Taxes
One of the most interesting and aggressive ways of investing in real estate is through property tax auctions, also known as tax deed sales.
You’ve heard of investors scooping up foreclosed properties for dirt cheap prices, right?
Tax deed sales are a similar opportunity, but you need to understand the specific process in order to benefit.
In this how-to guide, you’ll learn:
- What property tax deed sales are
- How to find tax deed sale investment opportunities
- How to navigate the tax deed sale process
So, if you’ve been in search of a creative way to score deeply discounted investment properties, you will walk away from this article with the information you need to dive in and begin immediately.
How to Find Potential Tax Deed Sale Properties
At this point, you’re probably wondering how you can find these amazing opportunities.
There are two general approaches that most investors take to find tax deed sales:
- The traditional way of pulling in data from multiple services using data assistants, paralegals, attorneys, and real estate agents. This takes a lot of time and money.
- Leveraging a resource like PropertyOnion.com, which provides you with data (from a curated collection of private paid data plants and public sources) that has been organized to cut down on the exhaustive legwork of finding properties.
The method that you choose to find tax deed sales will directly depend on whether you want to do a lot of tedious research or have experts do it for you.
Regardless, you will work off of the same information that is provided to everyone through public record by the property tax collector. It just comes down to how much of your own time and money you spend to get to where you need to go. Here is the standard information the county releases on all tax deed sales:
- Property address
- The current owner and purchase date
- How much the current owner paid
- The appraised value of the property
- How much is owed on taxes
- Current status of the property (under lien, foreclosure, etc.)
Register to Become a Bidder
One of the first things that you will need to do to begin investing in tax deed sales at auction is register to become a bidder. Usually, you will do this with the tax collector or governing body that is conducting the auction.
It is wise to get registered upfront because you will often only have a matter of hours between finding a potential investment property and the auction itself. It is always smart to be prepared.
Most of the time, the tax collector will set the starting bid for the property. Usually, that starting price bid will match the amount of back taxes owed and fees owed by the current owner. Obviously, that amount is often well below the true value of the property.
However, when you win an auction, you will be required to pay that winning bid amount on the spot or within 24 hours at the latest. It is important you are fully prepared to make that payment when you show up at auction.
Be aware that these auctions can be very competitive and intense. You could bid against other individual investors just as easily as major companies and real estate developers. Always carefully manage your emotions and expectations going into the auction so you don’t overbid beyond your initial maximum bid.
Transferring the Deed
Once you have won the auction and the sale is final, the property tax collector will sign a deed. That deed grants you ownership of the property. From there, the county will need to record the sale in their public records to secure your ownership status and prove the sale took place.
Beware the Risks of Investing in Properties by Paying Back Property Taxes
Investing is personal.
The investments that you choose and the services you use to find those investments can make or break your own finances and your life.
As a leading trusted authority for real estate investors, we always want you to understand the risks associated with an investment strategy.
Tax deed sales are no exception.
Here are three primary risks you should be aware of before you sprint to the auction site with cash in hand.
You’re Buying Properties Sight Unseen
Let that one sink in for a moment.
You are not going to have the chance to tour the property or have it inspected to determine the property’s condition.
Since the property owner neglected to pay the property taxes, resulting in them losing the property, it is safe to assume that the property will require some level of repair, restoration, cleaning, etc. How much work is needed can vary dramatically.
You must be prepared for what you might find when you win an auction and have a plan for these renovations and repairs.
PropertyOnion.com’s educational articles and especially our premium member step-by-step ebooks give you many insider techniques to mitigate the risks of buying properties this way. There are ways to see what you are buying without actually stepping into the property or even driving by. Our premium members are given many methods for evaluating a property inside and out.
Additional Property Liens
Often, a property owner falls on hard times financially, resulting in multiple liens on top of the delinquent taxes. In a traditional real estate transaction, these liens are identified by the title company, and the seller is required to pay those off to protect the buyer and satisfy the debtor.
When you win a property at a public tax deed auction, it could have other encumbrances that hang on to the property. It’s important you know the difference between liens that are wiped clean by the tax deed sale and liens that require either payment or legal work to remove.
Of course, buying a title search from us or any other reputable service will give you a clear picture before you buy.
Laws Vary and Change
Just because you are experienced investing in properties this way in one market or county does not mean you will know how to do it in the next. The governing bodies, like property tax collectors, often change their process, rules, and laws.
They also make mistakes.
Turning a blind eye to the evolving laws and rules of each market leaves you vulnerable as an investor, so never assume that everyone does everything the same way everywhere.
Always, always, always do your homework before investing your hard-earned money. We help our members with their homework not only with our title search service, but also through discount access to our network of real estate attorneys (included with premium memberships).
Tax Deed Sales Are a Lucrative Opportunity
Despite the risks, tax deed sales are a smart and savvy way for everyday people and seasoned investors to get their real estate investments portfolios to grow at the pace they need to.
There is tremendous opportunity to make money as long as you align yourself with the right experts and always do your homework before investing.
Online tools like PropertyOnion.com are invaluable when it comes to finding investment opportunities the moment they become available. The more resources you have access to, the better your competitive edge will be.