Introduction to Buying Tax Delinquent Property Before Auction
Real estate investing can be lucrative without purchasing a flashy building downtown or going into debt for a new residential build.
Instead, tax delinquent properties can provide quick transactions for high profits.
If a property has delinquent taxes, the homeowner might be willing to sell it privately before it goes to auction.
Purchasing a tax-delinquent property before auction means getting ahead of your state's auction process to secure a favorable deal on a home.
While your state's overage laws may return excess cash from an auction to the previous owner, a private deal before the auction can be better for the buyer and seller. Therefore, reaching out to homeowners to see if they're interested in selling their property means you can bypass the auction process.
Instead, you would purchase the home as a standard transaction. However, the buyer and seller must take care of the unpaid taxes to avoid an auction and transact the sale.
Benefits of Buying Before the Auction
Buying a home before auction gives two primary benefits. First, if no one else in your county uses this strategy, you'll encounter no competition when buying properties.
On the other hand, if you wait for auction, you'll compete with numerous buyers for the same limited pool of houses.
Second, purchasing a home in a traditional transaction means getting title insurance. As a result, you have a policy upfront that protects you from title disputes from other interested parties.
Contrastingly, buying a home through an auction makes buying title insurance a headache and could leave you vulnerable to claims on the property from other entities.
Cons of Buying Before the Auction
If you want to buy homes before auction, beware of the following drawbacks: first, employing this strategy means working on a tight timeline.
For example, information on homes for sale is usually available four weeks before the auction. So, you're on a four-week timeframe to make an offer that the seller accepts, close on the home, and pay the back taxes.
Because closing usually takes 45 days, you must develop excellent relationships with a title company and lender to speed the process along.
In addition, contacting the previous homeowner can be challenging.
Homeowners who owe taxes and are in financial distress which may make themselves scarce in the public sphere and require extra work to track down.
You may be able to find them through skip tracing, but each day it takes to start a conversation with the owner is one less day before the auction occurs.
What Type of Tax Delinquent Properties Have the Greatest Success Rate
Tax delinquent property purchases with the greatest success rate generally involve sellers who don't want to leave the sale price up to the auction process.
When a homeowner believes they can profit more from a private sale than overage returns, they are more likely to enter negotiations with you.
In other words, a homeowner who sees the benefits of more control and more money in their pocket through a private home sale will give you a better shot at a successful transaction.
Likewise, homeowners may fall behind on taxes because they aren't living in the home and don't realize they are responsible for it.
Or, they may see the house as a burden and wish they could get rid of it.
In these cases, if you connect with the homeowner, they'll likely be happy for you to take the problem off their hands.
Why Would the Homeowner Sell?
A homeowner might sell the house before auction for numerous reasons.
First, if the property is their primary residence, they might want to stay in it through a leaseback.
This arrangement means you purchase and own the property, but you allow the previous owner to pay rent and continue living in the house.
As a result, they retain stable housing, and you acquire an asset that immediately starts providing a financial return.
Furthermore, a homeowner with financial trouble might want to avoid having their home going to auction. Once a home goes for auction, the terms of the transaction are completely out of the owner’s hands.
Instead, a traditional home sale can bring them a greater financial benefit.
The lack of control can translate to lower profit for the owner. So, approaching the owner individually to sell the house before auction means they can reap a financial benefit.
How do you Buy a Tax Delinquent Property Before Auction? Step-by-Step
Buying before the auction means moving without hesitation. So, you can streamline your buying process through the following steps:
Step 1) Go through a list of auctions and local delinquent properties.
Step 2) Investigate properties that draw your interest (for example, is the delinquent property actually a house, or is it an empty plot?) to narrow down your list of prospects.
Step 3) Figure out who the homeowner is through information provided by the county, skip tracing, etc.
Step 4) Contact the owner and get a grasp of their situation and needs.
Step 5) Tailor an offer for the owner’s situation.
Step 6) If the owner accepts your offer, close on the home and pay the owed taxes before the auction date.
Conclusion - Are you Going to Start Buying Tax Delinquent Properties Before Auction?
Buying tax delinquent properties directly from homeowners means getting ahead of the auction process.
Remember, getting in touch with homeowners and working on tight deadlines can make these transactions difficult.
However, pulling off a purchase before auction means bypassing your local competition and making a deal that benefits both parties.
Tax Sale Resources processes about 1.2 million delinquencies annually on its platform. If you’re interested in growing your portfolio through tax delinquent properties, you can take advantage of our website’s research tools today.