If you understand what you’re doing, both bank owned properties and tax sale properties can be very profitable. In this video we discuss some of the advantages and disadvantages of investing in tax sale properties when compared to bank owned properties.
Transcript:
Hi there! It’s Casey Denman here with TaxSaleAcademy.com. In this video, we’re talking about buying bank-owned properties versus buying tax sale properties.
I got a question last week from a student of mine asking the similarities and the differences between the two. I sent them an answer back and I thought it’d be a great opportunity to do a quick, little video. So that’s what I got for you today.
The first thing you should know is that both methods can be very, very profitable. I’ve purchased lots of bank-owned properties and lots of tax sale properties and they can be extremely profitable if you understand what you’re doing. And that line right there, “if you understand what you’re doing” can be applied to just about any type of investment. It doesn’t matter if you’re going to invest in bank-owned properties or tax sale properties, you need to learn how to successfully do so before you attempt to do it. Otherwise, it can be very, very unprofitable.
First off, let’s talk about the advantages of buying tax sale properties versus buying bank-owned properties. The first one is that there’s less competition in just about every case. When you hear the words “real estate investor,” the first thing that pops into a lot of people’s mind is bank-owned. The two kind of go hand-in-hand.
Everybody and their brother understands bank-owned properties. Whereas tax sale investing is a sub-niche of real estate investing and there’s less people that know about it. And if they do know about it, there’s certainly less people that understand it. When you buy a bank-owned property, a lot of times, you can have a realtor do most of the work for you. All you have to understand is that you buy at this price and you sell at this price.
Whereas tax sale investment requires a bit more knowledge; a lot of that we teach in the Tax Sale Academy as far as how to research these properties, what to pay for these properties, how to buy these properties. There’s a lot more that goes into it and people, let’s face it, are just lazy. They don’t want to learn this kind of stuff. So, in turn, that means less competition at tax sale auctions compared to buying bank-owned properties.
The second advantage is that there’s less capital needed to begin. A lot of my students have started tax sale investing with less than $500. And believe me, you’re not going to buy any bank-owned properties for $500. You have to remember here that a reason the bank owns a piece of property is because they lent money in that property, the borrower defaulted, and then they foreclosed that mortgage and now they own the property. So obviously, if the property had money lent on it, it’s going to be a lot more than $500. Whereas when you buy at a tax sale, it doesn’t really matter what the value of the property is. It just matters whoever is bidding on that piece of property at that time or what the back due taxes are. There’s your second advantage.
The third advantage is that there’s a larger concentration of properties in one place. Let’s say for instance your county has a yearly tax sale. Well, at that yearly tax sale, you’re going to have lots and lots of properties to choose from compared to bank-owned type investing whereas you’re going to have to go a lot of different avenues. You’re going to have to talk to a lot of brokers, search a lot of MOSs and that kind of thing before you might come across something that suits your needs. Whereas the tax sale auction, there’s going to be lots of properties in one place for you to invest in.
Then the fourth thing is you don’t have to deal with a bank. Banks are notoriously difficult to deal with. And I’ve heard situations before where people have submitted full priced cash offers closed within one week. And then the bank will get to them, I don’t know, four, five weeks later and say, “Yeah, we don’t want to accept your offer because we think it’s worth more money now. Yeah. So go ahead and carry on. Go somewhere else and invest in someone else’s piece of property. Or if you want it, you’re going to have to pay more than what our initial asking was for.” This doesn’t make a whole lot of sense. Banks are difficult to deal with. They’re just a headache. And when you invest on tax sale properties, you aren’t dealing with banks.
And the fifth advantage of buying a tax sale property compared to buying a bank-owned property is that the process is usually easier overall if you understand how to successfully invest in tax sale properties. If you’re a tax sale investor, you do it day in and day out and you have all the properties you’re interested in investing in in one place. You go in. You buy the properties right then and there. You pay for them a lot of times right then and there. There is no closing date, there is no inspection period, there is no dealing with a bank. A lot of times, it’s just easier overall, especially from the mindset of a tax sale investor; somebody who has been there and done it before.
Now, let’s talk about the disadvantages of buying tax sale properties compared to buying bank-owned properties. The first one is the title is clouded. When you buy a piece of property from a bank, they’re usually going to have to give you a clear and marketable title. The same cannot be said when you buy a piece of property at tax sale. Now, at the Tax Sale Academy, we teach loads and loads of ways of dealing with clouded titles, so it’s not that big of a deal. But it is certainly one of the hurdles that you have to overcome or have to learn to overcome.
The second disadvantage is that you don’t have the ability to inspect it. When you buy a bank-owned home, a lot of times, you’ll be able to at least walk through the property and sometimes you’ll be able to get an inspector out there to inspect the property for you. At tax sale auctions, just about 99.9% of the time, there is no inspection period, there is no open house, there is none of that fun stuff. You’re basically just guessing what is on the inside of that house. So certainly, it is a little bit of a risk here.
The third disadvantage is that there is lower valued properties. There might be a lot in your area. For instance, there might be just a load of vacant properties that come up at tax sale auctions. These are properties you can certainly make a lot of money n inspector out there to inspect the property for you. At tax sale auctions, just about 99.9% of the time, there is no inspection period, there is no open house, there is none of that fun stuff. You’re basically just guessing what is on the inside of that house. So certainly, it is a little bit of a risk here.
The third disadvantage is that there is lower valued properties. There might be a lot in your area. For instance, there might be just a load of vacant properties that come up at tax sale auctions. These are properties you can certainly make a lot of money in or there might be a lot of entry level homes that come up at tax sale auctions. With that said, you’re not going to see the mid-income to high-income homes that actually come up at tax sale auctions. And when they do, they just don’t come up very often. It’s just very rare to see a piece of property valued at more than $1 million at a tax sale auction, but you are going to see a lot of that with bank-owned properties. Now, of course, with that said, it goes back to the advantage of buying tax sale properties which you can get in for less capital.
Now, the fourth disadvantage of buying tax sale properties versus buying bank-owned properties, that is there’s more to learn. Like I mentioned earlier, if you buy a bank-owned property, you can do so through a realtor. And all you basically have to do is sign the contract, buy it at this price, sell it at this price, and that’s about it. That’s all there is to it. When it comes to tax sale investing, there is certainly more to learn. You have to learn the whole process of foreclosure as far as taxes goes. I mean, there’s more to it. It’s more involved.
Now, with that, it does weed out a lot of your competition, but it does require you to learn more. Of course, once you have this knowledge, you can take that knowledge, put it in your pocket, use that knowledge to your advantage and put a lot of profits in your pocket as well.
So there you have it. There are the advantages and disadvantages of buying tax sale properties when compared to buying and investing in bank-owned properties.
I hope you enjoyed this video. If you’d like to see similar videos, head over to my website at TaxSaleAcademy.com, which you can do by clicking the blue link right here next to my head. Again, it will take you to TaxSaleAcademy.com. And once you get there, download your free copy of my e-book, The Tax Sale Investing Blueprint.
Have a wonderful day, folks! Bye-bye.