Tax deed investing can be a lucrative industry to get involved in, but like with any type of investing, it comes with its own set of risks. We see first hand how successful our experienced investors are in this industry and want to pass on some helpful tips to the newer investors. So how do successful investors do it so well?
When buying properties for sale at auctions due to delinquent taxes, bear in mind that there are reasons why the owners failed to pay their taxes. While those can simply be that they were having money troubles or have passed away, there are many other possible reasons for abandoning the payment of taxes such as extensive natural disaster damage, or even that it is located in a landlocked swamp. Take the warning “Buyer Beware” seriously. Go to every length to BE aware of the condition of properties up for auction to avoid being stuck with a property that cannot be built on, accessed, or sold!
One key piece of advice any seasoned investor will give is to do your research! Prior to auction day, research the properties on the lists of lands available through the Clerk’s websites and in person. If possible, do a drive by for visible assessment of condition. Many investors have busy schedules and cannot do this themselves. Thankfully, there are companies such as www.realdiligence.pth4.com, www.ebiconsulting.com, and Integra Realty Resources (www.irr.com) that will take care of the due diligence process for you.
Select only properties that have a potential for profit. If the cost of repairing the damage would be more than your estimate of the potential fair market value, don’t do it! We have learned from working with investors that it is important to partner with a General Contractor. They will determine the estimates on repairs before buying a property so that you can make sure there will still be a profit after rehab. Pay attention to the location as well. The property may not have much damage, but if it is in a neighborhood overrun with crime or neglect, there may not be any luck in re-selling it.
There are huge profits in Tax Deed investing, but only if the necessary steps are taken when preparing for auctions. Research on each property’s condition is just one of many important things that should be on the Pre-auction to do list, but it is an absolute must to avoid being stuck with a money sink hole (or quite literally a sink hole) of a property. There is no sure fire way of eliminating the risks 100%, but has any successful investor made millions by taking the safe route? With risk comes reward.
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