Most segments of real estate have only one way to profit: by selling at a higher price than you paid. But buying at property tax auctions gives you two different paths. In addition, you often have the opportunity to buy real estate at bargain basement prices. So what makes buying at property tax auctions a safer way to invest?
Huge profits if the property taxes are redeemed
When you buy a property at a tax auction, it comes with the caveat that the prior owner can redeem the unpaid property tax at full value and take possession of the property back. Since tax auctions are usually at a huge discount to the taxes owed, most buyers are happy to see the person who defaulted on their taxes take this avenue. It’s not uncommon for the property tax buyer to make a 20% + return on their investment simply by doing nothing more than having the taxes redeemed.
Huge profits if the property taxes are not redeemed
Since you typically buy the property for a fraction of the taxes owed, you buy the underlying real estate at a fraction of its value. We’ve seen nice two-story houses sell for $5,000 and raw land for under $1,000. It’s amazing what deals are available at these auctions. Obviously, the profit potential is to either sell the property (typically after renovations) or to make it into an income property and rent it out.
But due diligence is key
The difference between successful deals at property tax auctions – and complete failures – is the amount of due diligence that is conducted before the sale begins. A smart buyers will personally look at any property they are going to bid on, and do some cursory due diligence to know that the property can be used in the manner they contemplate. Remember that these auctions sell the property “as is” and there is no recourse on the buyers part if they have made a huge mistake.
Don’t be misled by thinking that everything is inexpensive
One big problem with these auctions is when the buyer thinks that “everything is so inexpensive” and starts bidding on properties they have never seen and know nothing about. You have to accept the fact that many of these properties are not even worth the taxes – that’s why they were unpaid to begin with! If there’s a raw piece of land for $500, you have to expect that it may be landlocked or has an easement across it. Buyer beware is a key trait of successful buyers.
Buying real estate at unpaid property tax auctions can be extremely lucrative and gives the buyer several outlets for profitability. You may want to consider this investment angle.