Tax Sales are Different!

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 tax sale research. This is such an important topic to me. I’ve got loads of videos about it, I’ve devoted two modules and multiple workshops on research in my academy and I truly believe that your research will determine your results. BUT . . . I want you to also understand that tax sale research, is, well, just different.

I get emails, read posts, and just see general inaccuracies when doing tax sale research. Much of it stems from those who are transitioning from traditional real estate research to the tax sale business. So I want to kind of set the record straight today so that your expectations align with reality. I want you to understand exactly what you should be researching and I want you to understand that tax sale research is certainly different.

As some of you might know, I’m a licensed real estate broker in the state of Florida. Now, it’s pretty rare that I actually broker properties for others anymore as my tax sale business alongside operating the academy and assisting members keeps my time very occupied. But on occasion, I do browse new listings for close friends that are also investors just to make sure we don’t miss any great deals. Two weeks ago I took a good friend of mine to look at a property that had just hit the market. We went to that property to perform due diligence prior to writing an offer. And that’s really when it struck me – this due diligence and tax sale due diligence is nothing alike.

While we were there, we walked around the outside of the property surveying the land, the tree work required, we were able to get a closeup look at the foundation and really take it all in. Then we walked inside. We got out our tape measure, while taking diligent notes and photos. We took a look at every wall, every bathroom, bedroom, each of the cabinets, the ceilings. We measured for new cabinetry, new flooring, we counted for the number of lights and ceiling fans, and shortly thereafter we developed a budget for the remodeling costs of this property. Generally, we’re within about 5-10% on a project like this one. That was a bank owned home, a REO.

Here’s where that differs from tax sale research – access. With a very, very rare exception, you will not be able to get that kind of access to a tax sale property. In many cases, accessing the property to that extent will get you thrown in jail for trespassing. The properties being sold at a tax sale generally fall within three classifications, none of which are good for typical open market type inspections. It could be a situation, like many tax liens or redeemable deeds where the owner is occupying and owns the property or has complete control over the property before, during, and even after the sale date. It could be where the owner has complete control over the property up until the sale date, when they lose ownership once a deed is recorded to a buyer. Or, the county or foreclosing governmental unit might be the owner. In any of these situations, there are not open houses. No Inspection periods. And no time to walk around or through the property. And this is something that many investors struggle with.

So, based on my walkthrough that we discussed earlier about measuring, budgeting, creating a list . . . all of that good stuff, which is how most people budget for remodels what do we do about tax sale properties? What exactly SHOULD we be doing?

A few days ago someone asked me how to check the condition of the kitchen and bathrooms. My response hopefully didn’t come off as being too brass, but I simply said: You act like there is no kitchen and no bathrooms. That’s how you budget for their condition. And that’s it for the entire house, too by the way.

So, instead of worrying about the interior condition, we automatically assume it’s in bad, bad shape. We budget for a complete floor to ceiling gut job right off the bat. Now, you won’t always need to do a complete gut job and we’ll discuss some of the clues that can help you avoid a complete gut job shortly, but if we budget for it and don’t need it then that’s even better.

So, what can we look for? What are some of the clues that can help us avoid getting in over our heads? I generally look for visual exterior clues that help me to determine the condition of the interior.

Let’s start with some online research. I always recommend checking with the building department, code enforcement office and the property assessor’s office. They can often provide some very helpful clues about the property including it’s recent history. If a property has been burned down, has been condemned or has some other sort of serious issue, then there’s a good chance it’ll show up online.

After that I’ll take a look at google street view. There is a feature where you can adjust the dates on street view in many areas, where you can see the last 5-10 years of the property. This will show you the maintenance or lack thereof over the years.

Then I’ll take a look at the aerial images – both on public search engines like Google and Bing and through the county’s GIS system. I’ll view the property from multiple zoom angles and directions. This can help you identify potential issues like a missing roof or other changes in the characteristics of the property that can help you determining it’s condition.

There is obviously plenty more I do online, but these are just a few of the things I use to provide clues for the condition of the property.

Once I decide that it’s worth looking at in person, I’ll drive by the property and I always first look at the overall condition of the structure and property. When I see a house that looks like it has sat vacant for the last 20 years, then you can just about guarantee that the inside of that property is in rough condition. Likewise, if I see a neatly maintained yard, with perhaps even occupants inside, then I’d likely assume the property is in pretty good repair, even if we do have deal with those occupants in the future.

So I’ll start with a general gut feeling. After that I look at the roof. The roof protects the house and they’re expensive to replace. Because of this, many roofs on tax defaulted real estate are in disrepair. Not that big of a deal on their own, but the problem is that they’ve probably been in disrepair for many years. This means you now have water intrusion and moisture issues and likely some wood rot. And it’s not just a roof that’s at the end of it’s useful life, I’ve seen numerous tax sale properties that have had trees fall through the middle of them.

After the roof, I’ll look at the walls. First, are they intact? Believe it or not, I’ve seen home with two walls existing and two walls that had fallen down. The house was a lawsuit waiting to happen. If they’re intact, are they straight? Are they bowing out like there are structural issues?

What about any nearby trees? If you’ve got a huge live oak that is inches from the house where the root system is obviously under the house, that could be a major issue as it could severely damage the foundation.

Is the driveway in tact or is it broken into chunks, lumpy or otherwise in disrepair? Again, this could be an indication of foundation type issues.

Can you see the doors or windows? Are they intact or are they missing or broken? When you come across stuff like a broken window don’t assume it happened yesterday. Because it didn’t. It’s probably been that way for years. A broken window or an open door not only causes huge moisture, rodent and other concerns, but it could become a hotspot for drugs or other concerns.

All of the stuff I’ve just mentioned, and more, can easily be reviewed by a simple driveby. We will never likely be able to know exactly what’s going on with the house and the condition of it, but our intention should be to become as well informed as possible so we can make the best decision. It’s not about knowing the exact cost of every single little detail. But, we don’t want to go into an investment and grossly underestimate the cost of the rehab.

I always recommend to yes, use the clues that we discussed to help you out, but ultimately, you should always overestimate the cost of your rehab for tax sale properties. This is not a bank owned property and there will be things you won’t know about.

And on that same token, we must remember that your research and your driveby still do not guarantee it’ll be in exactly that condition upon purchase. You don’t have a contract that requires the seller to keep the properties in the same condition that you originally saw it in, as most conventional contracts require. Instead, you’re buying a property today HOPING that it’s in the condition you saw it in yesterday or last week or whenever you drove by it. And that’s a great time to throw in a reminder that the closer you can driveby a property to the auction, the better. Wait until the absolute last minute, if it’s practical!

This is just a small taste of the due diligence required. More than anything I wanted to record this episode to remind you that tax sale investing and conventional real estate investing, while similar, can be two different animals. As you’ve heard, the research process is entirely different. Be patient and be diligent in your research and ALWAYS set your budget for rehabs as high as practical.

I truly hope that today’s episode has helped you. If so, please do us a huge favor and leave a positive review on whatever podcasting platforms you’re listening to us on today. It truly helps us out and means a great deal to us.

If we can be of any additional help, there are a bunch of links for you to checkout in today’s show notes. Thanks so much for listening and we’ll see you next time on the tax sale podcast.

Take care, bye bye.