I am often asked by real estate investors and students alike how to buy and make money with Tax Deeds. This is a relatively unknown but potentially very profitable investment technique.
But…what is a Tax Deed?
A Tax Deed is any real estate that has been sold at auction by the county or municipality for delinquent property taxes.
Investors pay the total of past due taxes, interest, and fees to the county or municipality in return for the ownership of the property. Over 3,300 counties in the US levy property taxes on real estate to finance all the things that are required to run a county. Schools, libraries, roads, fire department and police are some examples.
About 32 states use the TAX DEED process to recover delinquent taxes and 18 go through the process of selling TAX LIENS. I will cover Tax Liens in another article. Check with the County Clerk for the exact requirements on how to participate in a sale. Sales take place throughout the year and several times per month in larger counties. The best way to explain how to buy a Tax Deed property is a step-by-step outline.
SET A BUDGET
You will need 100% of your estimated bid in cash available within a very short time (usually 24 hours) to pay for the property. No financing here.
REGISTER A NEW ACCOUNT
If the auction is held online, sign up with the company that conducts the online sale. If the auction is live, register with the county Clerk.
MAKE A DEPOSIT
Deposit the minimum amount required to bid your estimated amount. This amount is due at least 24 hours before the day of the auction. Cash, ACH or wire transfer. No checks.
MAKE A LIST OF PROPERTIES
Once registered, go online and check the properties going to auction. Make a list of the ones you like. Focus on properties located in a county near where your home or a county you know well. For the live auction, you can get the list of properties from the County Clerk.
This is the process of checking the properties for location, condition, and value. Fortunately, there are several resources available to you like Google Maps, Property Appraiser, Tax Collector and various sites that will give you some comparable values like Zillow and Realtor.com. Visit each property that interests you in person. Do not rely on GoogleMaps alone. Private liens are wiped out and government liens survive the auction. Check your local state statutes.
BID AT AUCTION
Familiarize yourself with the auction process and be ready to bid on your properties the day of the sale. If held online, the rules will be outlined by the company conducting the auction. If the auction is live, the rules and the procedure will be explained before the auction starts.
Set a maximum bid for each property on your list and do not overbid. No exceptions. There will be many more properties in the future. The goal here is to ensure a profit from the time you buy.
PAY FOR THE PROPERTY
If you are the successful bidder you will receive an email confirmation of the amount owed. The deposit amount will be automatically subtracted from your account. If live, you will be asked to pay a percentage of the total amount due. In both cases, the balance is usually due the next day.
You will receive the Tax Deed in the mail within a week to ten days. You now legally own the property. You can rent it or sell it. Depending on the State, you may need to clear title by filing a Quiet Title action, Title Certification, or simply waiting out the statutory time period to clear the property out of any possible third-party claims.