The concept of Try Before You Buy works when you are purchasing a new car or some furniture. But it has always been difficult to put into practice when you are buying property. You can visit a house and walk around it to get a sense of the suitability of its size, layout, condition and location, but you don’t really know what it is like until you own it.
When buying a home to live in, emotional factors can equal the hard facts in deciding on which property to buy. For tax-deed investors, there is no room for emotion. It is all about the facts of the property on which you intend to bid.
Due diligence is conducted by tax-deed investors in three different ways.
The professional investor – This group will have developed their own systemized approach to gathering data on the properties at auction involving online and on-the-ground research into location, condition, prevailing sales and rental markets and recent transaction evidence.
The regular investor – Here is a group that are no less concerned with the facts than a professional investor, but which lacks the time to conduct all the due diligence themselves and may well out-source the gathering of data to a company that specializes in distressed property appraisal……or just not dig quite as deep.
The occasional investor – This group will take a cursory look at the basics, principally online, and rely on an element of luck. They are generally bidding with cash they can afford to lose and approach their investment with a more relaxed approach.
Whichever group you fall into (and there may be more than those listed above), you understand the importance of some level of risk management before making bids at auction, because whatever amount of due diligence you do, you are doing it to control your exposure to losses.
Post auction, when you have out-bid the competition and own a tax-deed property, there are generally two different paths – you are flipping or holding.
But what about clearing the title? It is presumed during due diligence, and when bidding, that you are investing in something that cannot be easily traded (whether holding, refinancing or selling on). Here is a risk that is just accepted. Historically your choices have been to either hold out the four year statutory period before title can be consider clean (and run all the risks associated with property ownership), or pursue a costly and time consuming quiet title action.
In recent years, a third option for cleaning title has been developed – certification of title insurability based on research. This is quick (cleartosell.com is averaging ten days to certify) and cost effective, certainly cheaper than a quiet title action.
With the availability of title certification comes the opportunity for investors of all standards to extend their systematic approach to investing to include title certification directly after auction.
The benefits of being free to refinance or resell your investments a few weeks after acquisition are considerable. You may still choice to hold the investment for a period of time. But you do so in the knowledge and comfort that your options are much greater if title has already been cleared.
The five stage end-to-end plan investors should adopt to reduce all the substantial risk in their investments is:
due diligence – bid – win – certify clean title – flip/hold.
Don’t leave the risks of poor title in your investments until the last minute. A proactive approach to title certification will add substantially to your returns on your investments.
admin November 5, 2014
Posted In: Tax-Deed