I've been in the real estate game for almost 10 years now (I started out buying and selling mobile homes, believe it or not!), and I can tell you one thing for sure - real estate tax sales lead to the best buying opportunities out there.
Have you seen the late-night students boast of acquiring nice-looking homes for $286.
15 "free and clear"? Deals like this really do happen.
Just not often enough for me! The truth is, such deals are extremely rare, and there are bidding mechanisms in most states to keep investors from acquiring valuable properties for pennies.
Today, let's look at how typical tax sales work, and why that $286.
15 property is so elusive.
Depending on state law, when an owner does not pay his taxes for a certain period of time, the county will seek to recoup its uncollected money through a tax sale of the property.
These are usually in 1 of 2 formats - a tax lien sale or a tax deed sale.
TAX LIEN SALE - An investor pays the taxes owed, and earns a high percentage return on his investment.
The owner is given a certain amount of time to pay the amount owed, plus the return to the investor.
If the owner fails to pay this amount by the deadline, in most states the property is deeded to the investor free and clear.
TAX DEED SALE - A sale date is set for all properties with delinquent taxes.
Anyone who has not paid by that date has their property sold to the highest bidder.
We can pretty much forget about acquiring a super-bargain property at a tax deed sale due to investor competition.
Each state's law is different, but your state should be similar to one of the two formats.
Now, back to the $286.
15 property - when it's offered, how does the county determine who gets to buy it? Usually through some type of competitive bidding process, which will bring the amount paid to near market value.
Or maybe in the case of a lien auction, there will be a lottery to see which investor gets the lien.
If you're lucky, maybe you'll be the only one buying the lien and you'll have a chance at a bargain buy...
The problem is, 95% of the time you'll be paid off (redeemed) by the owner! And you had to evaluate hundreds of properties in advance of the sale so you would be prepared to bid on the right ones! Don't get me wrong, tax sale liens are a great investment to make a safe return on your money and even get a bargain property once in a blue moon.
But I want property, and lots of it, now! And I don't want to look at hundreds of properties and tie up my money for years, hoping and praying for misfortune for the owner, which results in his property being lost to me.
That's kind of sick anyway, isn't it? So we can't get a deal at a tax deed auction, and tax liens are too low-percentage.
How then are we going to get a bargain purchase using the tax sale as our friend? We're going to let the tax sale buyers do their thing and evaluate hundreds of properties.
We're going to let the owners who are inclined to pay their taxes before the deadline, pay.
And the ones who can't, or don't want to pay their taxes? We'll be contacting them and buying their property!