Valuing Tax Sale Properties - Look Behind AND Ahead (Part 1)
A few days ago, I wrote you about the zip codes you almost ALWAYS want to avoid when you're buying and selling property. I listed the top 185 or so of them right there in the post in case you missed it. The bottom line? You don't want to mess with houses, no matter how cheaply you can get them, when there are several (even hundreds) available in the area for less than $15,000 or so.
Properties you get before the tax sale WILL likely fit into this lowest segment of the market (nothing wrong with wholesaling this fixer stuff!) And you don't want to be fighting dozens of other properties in the bottom price range.
Why? Because when you pay the taxes owed and other miscellaneous costs associated with the transaction, out of your sales proceeds, you may find there's very little left...if you have to cover them out of proceeds that might only be $10,000.
Contrast that with a market has a house or two available in the $30's then jumps up to $50k. You'll put your house on the market for $24,500, watch everyone tear a path to your door, and walk away with a cool profit instead of worrying who will bring more money to the closing - you or the buyer!
Checking out Market Prices (the Past) and your Competition (the "Now")
As you probably know, "asking prices" are not always a great indication of the value of a property. After all, you can call up a Realtor, and "ask" anything you want for any property you want when you list it.
Common sense tells us that a few owners overpricing their property and watching it sit on the market, gives us no indication that values in the neighborhood are rising or that properties are actually selling for those amounts.
So we want real facts - and since we don't know what will happen for sure in the future with the properties on the market now, we have to look at the past. What actually sold in the closest mile (closer preferably) to the property will tell us a lot.
Use Zillow (carefully)
Zillow.com is the tool you'll want to use for this - but:
Please read the following statement carefully, three times at least: DO NOT LOOK AT THE ZESTIMATE FOR THE PROPERTY YOU'RE VALUING.
Your heart will probably flutter a bit when you see the Zestimate for the property. Many times a property that might fetch $7500 on a good day will have a Zestimate of $60,000 ot more. Here's the sweetheart of our "zip codes to avoid" list, Detroit:
Yes, it shows that Detroit prices are well below the national average - but they still hover around $37k it looks like! "Hey, I might not want to live there, but I could live with that" you might be saying. Here's a random area I focused in on for Zestimates, and it even looks better than the city as a whole:
Looks OK, at the $35-$50k range, we can make money it would seem, right? And it's not like there are nasty prices hiding in there, the lowest one I see is $38,000 on this map - perhaps the "sweet spot" for DeedGrabbing even.
But if you think you should start buying here, to enjoy the nice solid market - reread my earlier statement about Zestimates, and DON'T MISS tomorrow's post...it could save your investing life.