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
On today’s podcast episode we’ll be discussing a few red flags. Tax sale research is such an important part of what we do as investors. If you’re new to this business, picture this. Someone says I am selling this property. Here is the legal description and parcel number. That legal description is a bunch of abbreviations, numbers and directions that doesn’t make sense. That parcel number looks like a phone number with a few extra digits, and maybe even some numbers. In many cases, that’s all they tell you.
In other cases, they’ll provide some additional information. Here’s an address, but I don’t guarantee it’s the address to the property, you should check that out. Or, here’s a photo. But, I don’t guarantee it’s a photo of the actual property we’re selling. In fact, there’s a good chance it was taken by a third party that we contracted with. And by the way, we’re only selling what we own. We might not even have full ownership of this property is our tax foreclosure was screwed up somehow.
And for good measure, you understand that by buying the property I’m selling, everything falls on you. We hold no responsibility. No liability, whatsoever. None. Nada. Zilch. We don’t guarantee anything. Nothing. Everything is on your shoulders. Good luck. If you saw this advertisement somewhere, you’d probably laugh. But, that’s exactly what tax sale investing is. And that’s such a large part of the reason we’re able to get incredible deals.
That’s also the reason that research is so important. I’ve got dozens, if not hundreds of videos on research on YouTube, I’ve gone in depth on this podcast, and obviously this is something we have a substantial amount of training on inside the academy. Don’t think for a second that it’s mundane, boring or you can scrape by with surface level research. You can’t. You’ll lose money. I can just about guarantee it will happen sooner or later.
As you’ll discover over the course of learning, reading and filtering through tax sale sale lists, there are some good properties, some bad properties, and some really, really bad properties. The trick of course, is to determine which is which. After looking at hundreds of thousands, perhaps even millions of properties sold, there are certainly some red flags that can help us along the way.
Let’s go over a few of these red flag properties:
The first red flag is the frequent flyer. Tax sale properties end up at tax sales because someone failed to pay the taxes. We all know that. But, was there a valid reason? Did someone specifically choose NOT to pay the taxes because they didn’t want the property? You’re going to come across properties that we refer to as frequent flyers, they are the properties they went through a tax foreclosure once, someone bought the property at the tax sale, then they discovered they there is a serious issue with the property so they didn’t think it was worth anymore of an investment in that property to pay the taxes again, then the tax foreclosure process caught htem and here it is at an auction once more. I’ve actually seen the same property at an auction more six times. The same exact property. These are frequent flyers and there’s probably a real good reason that they’re back.
Another red flag is some sort of sign or notice in a photo. If the auction company posts photos or you came across a photo that has a sign posted on the premises, then that should be a red flag for you. Now, in many areas, the tax foreclosure process will require that a notice be posted, so make sure you know what you’re looking for. I’m not talkinga botu that. I’m talking about that condemnation notice, that demolition notice, that public nuisance hearing notice. Yep, all are red flags.
Another red flag is to review a tax sale list and see a subdivision name . . . over and over and over again. I’ve seen some lists that have 300 or more properties from one specific subdivision. That should be a red flag for you. It could be an issue where the subdivision doesn’t physically exist, where there is no access, perhaps it’s not buildable, not desirable, or it could be HOA fees that make the investment there cost prohibitive. Scan the legal description for subdivision names to see if there is a recurring theme, then research that subdivision thoroughly before proceeding.
The next red flag is a similar one, and that is properties in one specific area. If you continue to see that same street names, sections of town or other geographically similar clues, then that should be a huge red flag. I’ve been in sections of towns before where every third house was a tax foreclosure. Yes, I said every third house. When you’re dealing with those kind of stats, it’s hard to make the case to invest there. Get a clue on the area you’re investing in and pay attention to the signs.
Another red flag, along the same lines, are well, trashed properties. Perhaps it’s not as obvious as one out of every three homes being a tax foreclosure. But maybe you have just four or five. And half of those look to be trashed. That’s a pretty good sign that that area isn’t going to be a place you want to invest. I remember seeing a photo of a trashed out house and thinking that maybe it was just that one particular house. So I took a ride through the area which was completely unknown to me. That was, by far, one of the scariest rides of my life since I was an obvious outsider, seemingly lost, in a very bad section of town. Lesson learned, red flag raised.
Another red flag . . . structural disrepair. That wall that looks a little bit crooked from the outside, it’s probably the reason the property is here in the first place and is probably the reason that the house is unsafe and will be a huge money pit. Sometimes you can’t tell, but if there is any indication of structural instability, skip it. Cracks in walls, leaning walls, missing bricks, that kind of thing. Sure, it can be tempting to try you handle at fixing it yourself. But, as someone from Florida, familiar with structural issues, the cost to repair foundations can sometimes exceed the cost to just rebuild the entire structure.
Another red flag are the remains of buildings or trash on the property. If you see a stack of old blocks on a property, they might’ve come from the building that was previously there. It might not be a big deal, or it could be directly related to the reason that property is being sold, such as it being contaminated. If you’re seeing trash on the property, then the locals might be using it as their dumping ground. Meaning that you’ll be required to clean it up. And let’s hope that they didn’t dump contaminants there. Or, thousands of old used tired, which I’ve seen before.
The next red flag might be hidden in the legal description. I’ve said it many times before, but the county is only selling the legally described land. Not the address, the house, what the photo shows or anything else. Just the legal description. Take the case of the Florida man that paid $9,000 for what he thought was a villa, but ended up only being a 1’ strip of land. This was very obvious in the legal description as it read “northerly 1 foot.” There are also conservation easements, WRAs, and parks sold. Then sometimes you’ll see a percentage ownership interest sold instead of the entire ownership of the property. Not fun owning a property at a 1/72 owner.
Another red flag is going to be odd results on the GIS system. I’m not going to go into detail about GIS on today’s episode, but in short, you can use GIS to see approximate boundary lines of properties. If it’s not obvious by reviewing the legal description, the GIS can make oddly shaped properties become fairly obvious. That 10 acre parcel isn’t so desirebale when you realize it’s a one foot easement stretching 435,600.
And one last red flag for today are crazy low opening bid amounts. Now, obviously, there are ways to get extremely cheap properties that I’ve discussed before. BUT, if you’re looking at a standard tax sale auction list and the opening bid is made up of the back due taxes, interest and fees and it’s nominal, then there might be an issue. We have to remember that the taxes are based on the tax assessed value. A million dollar house is not going to have a $3 tax bill. So, if the opening bid totals just a few bucks, AFTER a couple of years worth of taxes, interest and fees, then there is likely going to be an issue. Look at it deeply before proceeding.
So, there are a few of the red flags that I look for when I am starting research on a tax sale list. Most of these are all very surface level things that you can discover within seconds on starting your research. Take the time to learn how to research and continue to develop that skill and it’ll become much easier for you, you’ll get more efficient and more accurate. The end result will be more money in your pocket.
I truly hope that you enjoyed this week’s podcast episode. As a reminder, we do this podcast completely free, and in exchange we would be so appreciative if you’d take just a few seconds out of your day to leave us some positive feedback on whatever podcasting platform you’re listening to us on.
And if we can be of help in your quest for tax sale success, there are a bunch of links in today’s show notes, including one to our primary site which is at TaxSaleAcademy.com.
Thanks so much for listening today. Take care and make it a successful day. See you next time!