Re: Tax Sale Property - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on April 19, 2002 at 21:23:20:
Good for you getting good information on the topic. Good for you questioning whether this is a good approach for you.
There are two prongs to delinquent tax property investing. One is to go for the interest rate or penalty return. The other is to attempt to get properties. I have done both, mostly the latter.
Getting an interest rate or penalty return is pretty easy stuff. That I can recommend for a beginner. You want to do some checking on the property and be sure that it is a good one before buying a certifcate on it. However, in many counties just the tax assessed value really is enough, plus, in my opinion, actually seeing the property. If you bought just those properties that the county records show as improved–houses, duplexes, commercial properties–with mortgages, you would have a very high probability of getting paid off and getting your return. Avoid most industrial properties, though–toxic waste is hazardous to your pocketbook.
If you are going after properties, you really need to know something, in my opinion. You should look at the property. You should be able to judge the quality of the property, the location, neighborhood, prospects for the resale or rental, and so on. Buying and owning real estate is something we all have to learn, none are born knowing how to do it.
Now, many properties that have delinquent taxes are not good to acquire. They are bad properties and the owners are sensibly not paying the taxes. So, you do have to check them out. Remember, most properties on tax sales are vacant lots and vacant land, not improved properties. The improved properties are often in very poor condition.
I suggest starting with looking at the parcel or plat map for the property. Big enough for good use? Access to street or road? Then from the assessment roll, are there improved properties nearby? If not, does that mean this is a bad place to own?
Check the zoning and possible uses. I remember one property for sale at a tax sale that the assessment role catergorized as “waste land.” The full definition of waste land in the appraiser’s manual was that the property had some defect that made it unusuable and the defect was incurable. That might mean too small to build upon.
Get out and see the property. Remember property only has value to the extent that it has uses that are perceived by potential buyers. Is it too steep? Swampy, wet, underwater? Is is too rocky to take a septic system? Are there utilities nearby? Electric, gas, phone, water, sewer service, TV cable?
But, always be aware that some use may provide some value to the property when the obvious or typical use nearby does not work for that property. I know one former pre-tax sale investor who bought a property heading for a tax sale in So. CA. It was something like an acre and a half in a gated residential community near the ocean. Lots of very expensive houses nearby. But, there was the possibility of land slippage or an earthquake fault under the property–something that made building on it impossible–at least by the county building rules.
The investor picked the property up for a song from the owner. Then he offered it for sale. Somebody nearby paid him a very nice price for that lot. He made a very good profit. The buyers used the lot as a place to pasture their horses! That use was permitted by the county building code.
This is the type of situation where “lucky” investors have it all over the typical investor. The “lucky” investor in this situation was knowledgeable and thought about what might be possible to do with the property. When you learn more, you can better assess the usefulness and the value of properties. Jack Reed says that the good investor out-appraises the poor investors.
Once you understand something about the market value of properties where you want to buy at tax sales or with tax liens, you may be able to make some fantastic buys. You might make a lot of money. If you study and know something of what you are doing. Typically these days I am paying between $3K and $8K for houses worth $15K to $25K.
Fortunately, there are a lot of tax sales properties that can be bought very cheaply. So, you will not risk too much if you start out with them. Even if some are losers, you are not too badly hurt. And, as you have “learning experiences” (“errors” or “losses”), you will become wiser. Then you will make fewer errors, smaller errors, and–for sure–different errors. Thats what being an experienced investor means. The difference between you as a beginner and me, as an experienced investor, is that I’ve made a whole lot more errors than you have. If you are cautious in your buying, you can become “seasoned” without have too many “experiences” happen to you. Except maybe the experiences of putting money into your wallet and bank account.
I suggest that you at least check out a couple of tax sales or lien sales near you before you decide whether that is the way to go for you. Remember: you don’t have to stick just to the county in which you happen to live. Look around a little. Sometimes the best deals are found in the less populous locations.
Good InvestingRon Starr