Transcript:
Welcome to the Tax Sale Podcast, where tax sale investing is made easy. My name is Casey Denman, I’m a tax sale veteran, the leading tax sale expert, author of The Tax Sale Playbook, founder of The Tax Sale Academy and I’m your host right here on The Tax Sale Podcast.
Thank you so much for joining me on today’s podcast episode. This is a completely free podcast and is brought to you through and because of The Tax Sale Academy. If you’re looking to learn more about investing in tax defaulted real estate, just head to TaxSaleAcademy.com. Again that’s TaxSaleAcademy.com.
Today I want to discuss buying homes at tax sale auctions. And this episode will touch on both basic and advanced training information. Something else to note is that while we’re primarily discussing houses, become they are more prevalent, this episode could also apply to nearly any real estate with a structure.
Alright, before we discuss tax sale homes let’s review the tax foreclosure process to get everyone up to speed. The tax foreclosure process will always begin when a property owner fails to pay their property taxes timely. These taxes pay for a number of amenities and services that every citizen uses daily, so when the taxes don’t get paid the county must take some sort of action. There are two primary courses of action to take – the tax lien process and the tax deed process. Now, without going into detail the tax lien process can conclude with the tax lien investor becoming the owner of the house. The tax deed process can conclude with the investor buying the house at a tax sale.
So, let’s go back to buying tax sale homes now. While I’ve investing in quite a bit of land throughout my career, I’ve also invested in many, many homes and some of the largest percentage returns came from the investments that I made in these structures. With that said, buying a home through a tax sale is NOT anything like buying a home on the open market. In fact, buying a home at a tax sale is an experience like nothing else. I’ve been able to purchase homes for as little as $20. I actually have a number of YouTube videos about this. Now, that is an absolute rarity. You, nor, I will likely ever be able to purchase a house that cheap again, but it does happen. I’ve also seen some extremely interesting things involving houses at tax sales.
Let’s go through a few major things to take into consideration.
We’ll talk about inventory first. I never push anyone towards houses or land – even when I’m asked what’s best for them. Because I can’t answer this honestly. The reason for this is that I don’t know what kind of inventory their area has. I’ve invested in some areas where they have NEVER sold a house. I’ve also invested in other, more urban areas where every single property sold, dozens and even hundreds of them were houses. The point is that you should not get your heart set on buying homes. I don’t want you to be so committed to buying the only home that comes up at an auction, only to overpay for it or overlook some of the potential serious issues. The type of inventory in the area where you’re investing will dictate the property type you invest in. Keep that in mind.
When it comes to buying really anything type of tax defaulted real estate, but especially a structure, one thing that I tell everyone is to keep in mind the reason it’s here. It isn’t here for the same reasons that people move on the open market – you know, because they want to upgrade, downsize, job relocation, that kind of thing. These properties are here because the taxes have not been paid on them. And for a good chunk of these properties, the taxes were not paid on purpose. Think about that. The owner of the property decided that the property wasn’t worth enough to him or her that they didn’t pay the taxes. Now, that’s not all of these properties, but it’s definitely a possibility. They might have decided to not pay the taxes because the structure is collapsing, because it’s on a sinkhole, because it’s got toxic mold or a number of other property related issues. Then again, it’s just as likely that the tax bill didn’t get paid for a number of issues NOT related to the property – death, divorce, abandonment, that kind of thing. So use this as a way to double and triple check that you’re research is thorough.
On that same token is that the condition of the property is not known. With very, very few rare exceptions you will not be able to inspect the inside of the property. In fact, in 99% of the cases if you attempt to inspect the property by walking onto it, you’ll be trespassing. Or worse . . . if that property is occupied by an angry homeowner who’s made a stranger is snooping. So, we do not know what the interior condition will be. And we can only make assumptions about the exterior condition from the street side. I’ve seen houses before that were hoarder homes, others were filled with water and mold, others that had been burned out, some missing walls, others missing entire roofs. There plenty of issues that could go wrong. So here’s a question I pose: If the homeowner could not afford or did not want to pay their property taxes, then why do YOU think the property has been repaired or maintained, even in the slightest bit? The answer is that it hasn’t been repaired or maintained. That’s on you. Do your best with judging the condition. I’ve got a few trainings on the clues you can look for, but at the end of the day you should always assume that the property is in poor condition.
With that assumption, we must always insure that we have sufficient margin and that our exit strategy is dialed in prepurchase. When you can’t see the inside of a house, there is plenty that can go wrong. It’s like buying an old car without checking to see if there’s an engine in it. Sure, it might look good from the outside, but the inside is where you’ll be dropping quite a bit of cash. Buying a tax sale house isn’t like the shows you see on TV. You know, where they say: ok, we’ll need $4,000 for the kitchen cabinets, $3,000 for this bathroom, $1500 for this and that and we’re done. With a tax sale house, you have to assume to worst. Intead of just kitchen cabinets, assume you’ll need a new kitchen. Instead of just a bathroom remodel, assume you’ll need new plumbing. Instead of just a little paint on the walls, assume you’ll need new walls. I get it, this is extreme. But you don’t know what you can’t see. So make sure you have PLENTY of margin!
The next one is something that concerns many investors and that is occupied properties. So, let’s say you purchased a tax sale house at an auction. So now you’re the proud owner of this house . . . that is lived in by someone you don’t now. That isn’t paying you a dime. And probably hates your guts. At least, that’s what you think. So, let’s discuss this logically now based on what truly takes place.
First off, if someone is living in the house you know that, at the very least, it’s in livable condition. And that’s a BIG, BIG deal for a tax sale house. From there you also have a few different options. You could try to lease the property to the occupants or you could ask them to leave. I’ve had tremendous success with a cash for keys arrangement – basically you politely ask them to leave and promise them a few hundred bucks if they do so peacefully, without destroying anything and in a timely manner. I’ve had occupants on their way out give me tours of the property, tell me what does and doesn’t work, provide me keys, garage door openers, and even leave the property broom swept and vacuumed before. Providing someone with some cash to move forward is a tremendous help to many people.
Now, obviously, things could go bad and you might need to evict someone. But an occupied house is definitely not ALWAYS a bad thing.
Alright, let’s talk about the last point today. I want to discuss maintenance issues. I’ve spoken about it before, but I had a lot once. A vacant lot that I was cited for a weed ordinance violation – that means my grass was too tall. I had another lot where I was cited for a sidewalk ordinance violation because I didn’t clear the snow off my sidewalk fast enough. Different areas have different laws and maintenance requirements. When it comes to homes, these requirements are stepped up quite a bit. And again, they are requirements, not recommendations. If you break them, you will be cited, which could turn into a criminal citation, fines and jail time in certain areas. Unsafe structures is fairly vague term I’ve seen used in many parts of the country – a few triggers include unstable walls, broken windows, unsecured doors, rotten decks, and anything else that would catch a code enforcement officer’s eyes from the road. So make sure that your property is maintained to county and city code for the duration of your ownership.
Buying a house at a tax sale auction is an incredible way to buy at a substantial discount when done correctly. As I mentioned earlier, I have purchased countless homes through tax sale auctions with extremely profitable results. I’ve also watched many of my members purchase houses as well. I just got an email from a member who purchased a property for $12,000 that she is renting out for $1,100 per month to the occupant, who was a tenant of the previous owner that never paid the taxes. Stories like this are plentiful. But it’s crucial that you take everything that we discussed today into consideration so you’re well informed and prepared for your purchases.
I truly hope that today’s episode has helped you with your quest for tax sale success. If so, please take just a second to leave us a positive rating on whatever podcasting platform you’re listening to us on today. It really makes a difference to us and we are so thankful for those who have taken to time to do so already.
And if we can help in any way, there are a number of links in today’s show notes, including one to our primary training academy at taxsaleacaemy.com. Take care, and we’l see you next time right here on the tax sale podcast. See ya!