When homeowners default on their property taxes, counties can sell properties at auction. These properties frequently sell at a fraction of the actual value of the home. Therefore, the sales attract investors. These investors bid on tax deeds, and the winning bidder receives title to the home. To invest successfully in tax deed sales, though, you need to follow some basic steps.
Choose A Popular or Up & Coming Location
Tax deed sales take place at the county government level in most U.S. states. In Alabama, the State Department of Revenue and Tax Collector prepares tax-defaulted properties for auction. Some counties conduct tax deed sales quarterly or annually. Pick a county based on your timing preferences. Proximity to the property is also a factor. Buying tax deeds close to home allows for easier property management after the sale. The state of local real estate markets also factors in.
Learn The County and States Specific Systems
Counties set special rules for tax deed sales. For example, Jefferson County auctions tax deeds by item number starting with the lowest number and re-offers properties that fail to receive bids at the end of the auction. The county also re-offers properties that receive no bids within 90 days. The re-offering bid price starts at an amount deemed appropriate by the tax collector’s office. You also need to know how you will be required to pay for a winning auction bid. Counties often require immediate payment. Most require same-day payment.
Locate Property List & Database
Before you invest in tax deeds, you'll want to learn as much as possible about the properties to be sold. This starts with knowing the physical address of each property up for auction. Prior to a tax deed auction, county government agencies publish lists of all properties to be auctioned. These lists are available via mail or in-person requests, and most publish the lists to county tax collector websites.
Research, Research, Research!! Then Research Some More!
Select only properties that seem to offer the greatest profit potential via research. Learn the starting bid price for each property and establish the value of the property. Check with the county tax assessor’s office and compare the selling price of similar properties in the same neighborhood or in adjacent neighborhoods. Factor in the age of these properties and the size of the properties. You also want to inspect the property, but you’ll have to do this from a distance since you do not have a right to be on the property.
Do A Lien Search or Pay for A Preliminary Title Search
Do research on liens on properties that interest you. Other liens might be in place on properties to be auctioned. These include liens for unpaid municipal fines, mortgage liens and other tax liens. In Alabama, state law allows title transfer even if there is an unpaid mortgage lien on a property, but the state allows some liens, including income tax liens, to stay in place.
Attend the Auction or Receive Notification via Email
Find out from the county tax collector when the auction will be held. Some auctions take place online. You must be present for an auction to place a bid. Be prepared to meet the local tax collector’s specific requirements for payment. A cashier’s check might be required. Some counties allow time for you to make the payment after the sale.
It’s Time To Make A Profit!!
Once you have purchased the tax deed, you own the home. The next step is to determine how you want to use your investment. If you want quick cash, make necessary repairs and sell the property. If you want a steady income over a long period, consider renting the property.