Tax Deed Investing: Due Diligence is Key
Tax deed investing requires due diligence. Indeed, tax deed investing is for the active investor who should know HOW to do their due diligence. If you read our first post on tax lien investing and our second post on Tax deed investing and have interest in pursuing tax deed investing, there is one additional step that is paramount: the due diligence.
The old saying goes, the bigger the risk the bigger the reward. Well, tax deed investing is similar to this, but keep in mind the risk can be mitigated by doing proper diligence. The reward, of course, is a great deal on a property. These great deals tend to be possible because for many, the unknown circumstances surrounding the investment scares them away. So if you take the time to dig into the property and the history, you can reduce the unknowns and therefore reduce the risk around a tax deed investment.
Lets look at some of the basic due diligence around investing in tax deeds.
Understand what you are buying: Often raw land (or vacant city lots) are being sold, DO NOT be one of those who get caught up in cheap prices without first understanding what you are buying. Today you can go online and search each counties tax records and identify (the parcel number) and see what the property consists of. These tax records will give you basic lot description and then tell you whether or not there are improvements to the property.
Do a fly over: Using the internet you can see a bird’s eye view of the property using tools like Google maps. (Remember these views are not true time pictures, they may be a year or two old) however it still can serve as a great tool to see what exactly the property consists of and the surrounding area.
Do a drive by: Most often these properties are vacant and you should walk the property if possible (do not break any possible trespassing laws). The more up close and personal visual you can get on the property to understand its conditions the better. This helps you understand how much, if any, expense you may have to fix the property up.
Find out what the minimum bid is going to pay off: The minimum bid is a total of all the expenses on the property. Identifying what these expenses are is an extremely important in the due diligence process. You must be clear that all the expenses tied to the property are indeed identified and paid off with this minimum bid. Once you own the property and there are remaining bills attached to the property address, you may become the responsible party to these expenses. This is where your great deal can become a liability if you miss this important piece of diligence. You can avoid this by having a title search done on the property.
Title search: You will want to have a title company or attorney do a title search to see what if any liens may be on the property. If there is a loan on the property (often there is not, as if there had been, the lender would most commonly have satisfied the tax lien at the beginning of the process). If indeed there was, it is important to verify that the lender was notified of the tax deed sale. If they were and they do not show up to buy the property, you can do so and get the property. If they were not notified, they may have some rights to come back and get the property back from you. (This is a rare case and is an important step; most educational classes do not even share with you). Any other tax liens that may appear should be cross referenced with the items identified in the tax sale as a payoff to insure they all match. Additional items found on the title search that do not appear on the county records to be paid from tax deed purchase may be your responsibility.
As you can see tax deed investing can be very lucrative. Many deals are purchased for 10, 20, 30 cents on the dollar. The key to a great investment is doing your proper due diligence in advance of the tax deed auction. It is advisable to go through the due diligence process on a couple of properties and then visit a tax deed auction and observe to learn the steps and become acclimated to the process. Indeed, there is advance due diligence and there is no guarantee that all your due diligence will result in a winning bid at an auction. For those who persevere and obtain a great deal will find great rewards for their efforts.
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