“Oh my gosh, how do you do that?”
“Aren’t you scared to buy those things?”
Those are just a few of the reactions I get from people when I tell them I buy at the tax deed auctions.
Let me break the WHY down for you…
We’ve bought a rental at the tax deed sale for $24k and sold it for $48k in two months. Did I forget to mention that when we paid the 24k it had tenants paying $850 in monthly rent and brand new stainless steel appliances?
A short time later, we paid $19k for a 3BR / 2BA and got a full price offer less than 5 days after it was listed for twice what we paid for it. Each one of these deals involved a certain level of specialized knowledge and preparation.
When a homeowner doesn’t pay their taxes, a tax lien is placed on the property. The tax liens are then sold to investors who make a 5-24% annual interest. If the homeowner doesn’t pay off the tax liens, they run the risk of their property being sold at a tax deed auction. As an investor, you can buy either the tax lien or the tax deed. Tax liens are sold in May in Florida, while tax deed auctions occur year round. I teach techniques you can use to get the highest return on your dollar, even if you are just buying at the upcoming tax lien sale (aka tax certificates).
You have to look at these tax deeds as you do any other real estate transaction. You make your money when you buy it not when you sell it. I do my due diligence on the tax deed file and run my numbers.
I have a formula I use and it’s helped me to buy and sell the properties the right way. Stick to the numbers (formula) and you will be successful. Before I buy any property, I know what the properties are selling for and repair costs. If I can’t get a look inside, then I do a worst case scenario to come up with a repair cost. Remember, when you are buying at the auction, there is no Inspection Period.
I use an ARV (After Repair Value) as my retail amount. My MAOs (Maximum Allowable Offer or Maximum Allowable BID) are usually 50-70% of the ARV minus the repairs. If you are not familiar with the MAO formula, this is how it generally works:
ARV x 70% – REPAIRS = MAO/MAB
$100,000 X .70 – 10,000 = $60,000 MAO/MAB
If I can’t make money on a house where my competition is selling theirs for 2x my price, then something really kookie is going on with that house. As long as you BUY right and do your homework on the file, you shouldn’t get hurt. The bulk of the work is done before the purchase. What happens after the purchase is just a result of your comps and research on the file.
This includes making sure you will get marketable title as long as there are not any errors in the tax deed file nor problematic liens. I have an online course that shows you how to run your title searches on tax deeds. You see the theme here — Homework, Homework, Homework. As long as you’ve done your homework, you can Bid with Confidence (literally).
It’s not all roses. We’ve had a house “accidentally trashed out,” tenants make off with brand new appliances (and replace them with lower quality ones), etc. Luckily they all had a happy ending, thanks to systems we have in place. You don’t ever want to lose sight of the fact mistakes can be made. That is what keeps me on point when I am doing my research. When my students encounter a bump in the road, I’m always glad to help them sort it out and put them back on the right track.
Even if you make a mistake with your numbers, you have to be pretty far off to lose when you buy it at such a large margin of 50% of retail. This is one of the reasons I keep going to the tax deed sales!
What to learn more? Join the online course!
In this course, you will:
- Learn how to run your own title search, what liens to look for, and what liens to not worry about
- Use actual tax deed files and courthouse records
- Walk through 3 actual and real tax deed title searches to see if they are worth buying or not
- Learn what many savvy investors have known for years and how they’ve bought properties for 50% or better off market value at the tax deed sale