by Shawn Hobbs,Owner SJH Investments, LLC
So you’ve finally purchased your first tax deed property. I would like to take the time to congratulate you and wish you much success. You’ve researched the market, established your investment strategy for the property, driven by a few times to look around the property and you’ve gone to the auction and had the winning bid. After waiting a few weeks, you have your deed and now the fun begins. This is the point where many tax deed investors realize they are in over their heads, because they did not plan accurately. This is the point where I too have asked myself “why did I buy this property?” Let me share with you some of my errors so that you can avoid these beginner’s mistakes when investing in tax deed properties.
Not The Best Kept Secret In America
When I first learned about investing in tax deed properties, I had thought “this is too good to be true,” and to an extent I was right. I had watched all the infomercials showing the pretty houses bought for a few hundred dollars and thought I could get a piece of the pie. Well my first surprise was that I was not the only one watching the infomercials. The first few auctions I went to were crowded with people that had way more money than I had. I learned that no matter how much of a great secret you believe something is, never go under the assumption that you are the only one who knows about it.
I started attending tax deed auctions in the late 1990’s, just when the internet was starting to take off. Today, if the auction is online, you can be sure that you’re not the only one who is bidding. Part of being prepared is learning not only about the properties you want to bid on, but the competition. If possible, find out the results of the previous tax deed auctions in the area. Go through the court records and see if certain names appear often. Those are the bidders that maybe your main competitors depending on the type of property you are looking to acquire. They can also be your ally, warding off other bidders who might be afraid of competition and think that going to the tax sale would just be wasting their time.
I can remember trying to enter a house recently that I had acquired from a county repository sale. I was in town to pick up the deeds for two properties bought at a tax deed auction. This house was about 1 block from the hotel where I was staying and about 3 blocks from the County Tax Claim Bureau’s office. Nice area, nice block, somewhat distressed house. I thought, if it was abandoned, let me trace the owner and see if I could make a deal. Well the “owner” was the county and they were offering the house for $500. Sold!
Caveat Emptor!
Here’s the catch: they didn’t have the keys and I couldn’t go inside prior to purchasing the deed, in order to determine if this was truly a great buy. And unlike buying a TV from QVC, there are no refunds and all counties put a Caveat emptor (Buyer Beware) clause in the rules of bidding at auction. After purchasing the property, I had to break open the door in order to get in. Of course without having given notice to my new neighbors that I was the owner, I found my property being surrounded by 3 police vehicles. When one of the officers approached me, I already had my deed and driver’s license ready. His response was “You were ready for us to come here, why didn’t you call us to let us know that you were going to break in?” My response was, “How would have you responded to a call to your station about a new owner needing to break in to their new house? Is it the difference of three cop cars or six?”
After the laugh, they left, but I was left with having to place a new lock on the front door. The next surprise with this house was that the inside was totally trashed; from graffiti on the walls to a pool table shoved into the kitchen. The previous owner knew they were losing the house for back taxes and decided if they were not going to have it, no one would. I walked in on an estimated $30,000 in total repairs. Thank goodness the house only cost $500 and was worth around $90,000 after repairs. I learned two lessons from buying this property; (1) make sure you meet the neighbors and introduce yourself before beginning any work. They can be your best friends or worst foes. (2) Always plan for the worst when purchasing at tax deed sales. Plan your strategy as if you were going to build a new structure on the lot and work down from there. The less you have to repair, the better.
Due Diligence Matters
The last thing I want to stress to you is to go the extra mile when it comes to research. Whether you decide to utilize the services of another or conduct the research yourself, it is crucially important that you understand the market and what resources you have to maximize the opportunity of the tax deed you plan to buy. Just last week I found a 14 acre commercial lot sitting on a repository list that had been sitting on the list for about 4 months. The list it was on was very difficult to read, with property codes that are not only hard to understand, but some codes were missing from the legend they provide. I called the tax claim bureau to ask for an explanation of codes that I saw on the list, but the codes were not on their key and they didn’t have a clue. I’ve learned in my experience that some government personnel can be helpful and others can make you want to pull your hair out.
I decided to call the county assessors’ office to get help on the codes. Not only did they explain the codes, they also did the research I needed on a list of parcels on the repository for free! This is how I was able to find out about the 14 acre commercial lot that I have placed a bid in for $750, exactly what they listed the lot for. The great thing about this property is that less than ½ mile away, there is the same size lot up for sale for $500,000 and one about 1/10 mile away that sold for $475,000 less than 2 months ago. Persistence in research pays off. It also helps to be courteous to those in the county offices, for they might be able to help speed up certain processes for you (you cannot bribe them or quid pro quo, but a simple “hello, how are you” can take you a long way).
About Shawn Hobbs:
Shawn Hobbs is a Tax lien and deed investing agent who acquires tax liens and tax deeds for investors who do not have the time to physically bid at the tax sale themselves or who do not feel comfortable doing the necessary due diligence to make sure that they are bidding on profitable tax liens and/or tax deeds. You can find out more about his agency, SJH Investments, LLC at http://taxliendeedagent.com.
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