Tax Deed Auctions: Can You Really Get a Steal?
It can be exciting when tax deed auctions hit the paper each year in my area (or each WEEK in some other areas).
You routinely see tax deed auctions where the starting bid on properties is incredibly low! Sometimes less than $1000 for a rentable house, and as little as $4000 for a house that may be worth $100,000 or more.
And yes, $100,000 properties do go all the way through the tax sale process and end up at tax deed auctions. That's a crime, because we shouldn't have let that happen! I'll explain more about that in a minute.
Taking a Deeper Look at Tax Deed Auctions
The low starting bids on properties at tax deed auctions are really the only thing they have "going for them". Just about everything else having to do with tax deed auctions makes the opportunity a lot less attractive.
Let's look at some now.
1. Competitive Bidding - This by far is the worst of the downsides of buying properties at tax deed auctions. Though the properties may start at $1,000 - $4,000, it's exceedingly rare that buyers win the property at these levels.
More than one buyer almost always tries for the property, and in the end the price is often near retail for the property in its as-is condition.
2. No Inspection - You may occasionally get bargains at tax deed auctions if you're disciplined an patient. However, you don't really know what you'll be getting when you receive the property, since you couldn't inspect it before buying.
3. Non-Marketable Title - Did you know that you cannot immediately resell properties you buy at tax deed auctions? This is because title companies will not insure them without an additional procedure called a "quiet title".
Here's a secret: You can use a company called Tax Title Services in some areas to get title insurance faster and less expensively than doing a quiet title. However it will still delay you and cost you extra.
4. Need All Cash - No "creative financing" with the county! Cash and carry. If you don't have it, you can't play.
5. The Human Aspect - If an owner can't afford to pay the taxes on your property, he's gotta go. I just don't want to be involved unless the owners' moving is of his own free will. Tax deed auctions occasionally require you to evict people from their homes - it's not pleasant.
How to Avoid All of Tax Deed Auctions' Downsides
A pretty tall order to eliminate all of those downsides of tax deed auctions, huh? It's really simple. Take the tax deed auction list when it comes out, and contact the owners of the properties on the list.
How does that eliminate most problems with the tax deed auction? It will never take place, for one thing!
Competitive Bidding - It's just you and the owner, nobody else there to push up prices and kill the bargain.
No Inspection - The owner is voluntarily working with you so you can inspect the property, inside and out.
Non-Marketable Title - You're not getting properties from tax deed auctions, you're getting a regular deed from the owner. No problem insuring that.
Need All Cash - You've got weeks to flip the property to another investor if you don't have cash. And you need a lot less of it if you should want to redeem the property yourself than if you bid at the sale.
The Human Element - You may choose to only work with non-owner occupied properties if you wish (most are vacant anyway). In any case, you're allowing the owner to exercise his free will - not imposing force.
Want to get all the benefits from tax deed auctions without the bidding, cash investment, and risk? Get started with my free guide, "Underground Tax Sale Strategies", which is available for free below. Work with tax delinquent property owners, and let the "regular investors" duke it out at tax deed auctions!