This blog talks about some tax sale investment strategies, to help you decide where you should start to spend your time.
There are essentially three categories of tax sale investors:
Long-term investors, interested in receiving high interest returns.
Short-term investors that are looking to acquire tax sale property.
Hybrid investors that do both.
So what kind of investor are you?
This is largely determined by your that amount time and cash you have to invest in the process.
If you have very few hours in a week to invest in finding and buying tax sale properties, then being a long-term maybe your best option. You can start with as little as $50, but be realistic. You’re not going to become rich overnight on $50.
On the hand, if you have time to find and analyzing tax sale properties, a short-term strategy of acquiring tax sale properties for larger returns would be your better option. You will need to have a reliable source of capital for this strategy. This could be your own funds or funds from other sources.
In many instances, there are many that see the opportunity in the long and short term and want to do both. This path requires a commitment of time and money.
These are some questions to help you make you decide the type of tax sale investor you could become:
- How much money have you set aside to invest for either strategy?
- Where is that money located? Savings, Checking, 401k, IRA?
- Do you have an IRA or 401k that you’re willing to use for this?
- Will you need access to these funds in the next 24 months?
- How much time can you dedicate each week to this strategy?
- Are you willing and able to travel regularly if necessary? - How often? Weekly? Monthly? Quarterly?
The answers to those questions largely determine what investing profile you are. Here are several tax sale investor profiles for you to consider:
Profile 1 is a tax lien certificate investor. These investors want to generate high interest returns and will do it through tax liens. You can invest through live auctions or through online auctions. Travel is not necessary. This investor can also use their self directed IRA or 401k accounts to invest. The other thing about tax liens is it won’t take that much time to invest. Tax liens are pretty simple and don’t require very much research. It simply requires that you know the basics of each investment before pulling the trigger. It’s not necessary to fly anywhere to evaluate tax liens since most will redeem. And tax liens are typically less expensive than tax deeds so investors can get started here with little capital.
The second profile is the tax deed investor. Most tax deed investors will be required to do some travel to evaluate properties and to make the purchases at the auction. Most tax deed states will require the investor to attend the auction to purchase the property. Tax deeds can also be purchased through self-directed IRA accounts. Tax deeds typically require more money to get started with and will require more time than tax liens. It’s also important to evaluate each investment before pulling the trigger because you will own the property shortly, so they require more time. If you do not have the ability to travel you will need to rely on professionals to provide you with facts and proof about the tax sale properties. These professionals include: real estate agents; property inspectors; licensed general contractors and local title attorney’s just to name a few.
The third investor profile is the over-the-counter tax lien investor, which simply means the investor is buying tax liens after the auction has ended. This investor spends most of their time online researching and finding deals. This investor is not as interested in attending auctions and bidding against other investors. They are content with the tax lien opportunities left after the auction. This investor is also interested in the full promised interest rate since some auctions require the bidders to bid down the interest rate if buying at the auction. So an investment that starts at 18% may end up much lower if buying at the auction. When buying over the counter, or after the auction, the investor gets the full interest rate every time. The time and money constraints are similar to profile one.
The fourth profile is the over-the-counter tax deed investor. This investor is constrained by similar things as profile number two and is interested in building lots, vacant land, raw land, and other properties like that. With the struggling economy and lack of investors, investors are seeing more over-the-counter, single-family homes, so don’t count those out completely. Most new and advanced investors are looking for single-family homes, which is wise. But down the road, don’t pass up great deals just because it doesn’t have a white picket fence. For example, building lots can be fantastic investments. It’s possible to make great profits with them. They typically require less capital but can be flipped fairly easily. You could buy a lot sandwiched between two homes that has power and sewer set up to one of the property owners. Buy tax deed properties “over the counter” requires considerable analysis before you purchase. There could be thousands of dollars in liens and judgements which survived the tax sale you will inherit. This strategy does requires that you know how to do your homework before you buy.
The fifth profile is the pre-sale tax deed investor. A quick note on this one, it’s not legal in all states so check the local statutes before doing so. These investors are often referred to as “short sale tax deed investors”. These investors are aggressive and have significant funds to invest. They are short-term investors looking for quick returns. When the tax sale list is released a couple weeks for the tax deed sale, the investor contacts property owners offering another solution besides tax sale foreclosure, which is surely coming. If the property owner is interested the investor evaluates the property and makes an offer including cash for the property owner and cash for the county for the delinquent property taxes and fees. If the market value and payment to the property owner and county make sense, then go for it. This could be a great solution for popular or competitive tax deed counties.
Profile six is the limited time and resources investor. If you don’t have a lot of time or money then this is the one for you. This means starting small and starting slowly. These investors are looking for tax liens to go to foreclosure to make a lot of money from a little investment. There are ways to do that, which may take a little more time and research.
Profile 7 is the redemption deed investor. This investor has time, money, and the ability to travel (if not living in a redemption deed state). This investor is interested in large returns and potential property ownership, but is willing to wait, if necessary. This investor will be required to do a lot of due diligence on properties to ensure good investments. This is a great strategy.
It isn’t necessary to focus on just one strategy or profile. You might fit into more than one profile; so if you would like to do more than one, then go for it. You just need to adjust your time and money to accommodate. So think about these profiles in relation to the answers you gave to the questions earlier. Where do you fit in and what would you like to do? If you have constraints, then raise money, save money, free up time, or do what you need to do to fit into another profile.
After you know what profile you are and what kind of investing you want to do, you should spend the time to educate yourself on the process in the states or states you want to invest. We have a tax sale manual for all 50 states on our website, so you can learn the statutes and unique buying opportunities within each state.
After you understand the process you can then state to research the many lists of properties available, which is also provided in our manual. If you need assistance contact me.
Hope this brief background on redemption deed investing helps!
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