How to Do Tax Sale Investment Due Diligence
Once you have acquired a tax sale list, how to sift through the data on the list to find qualified investments?
In the "determine investment criteria" section, you learned that three key data are what you are looking for: the amount that we are investing, the property value, and the property type. In order to quickly sift through the list to find properties that meet the criteria that we’ve set up, we use the Quick Glance Method.
Quick Glance Method
Using the Quick Glance Method, you quickly skim through a tax sale list narrowing the list based on your pre-set criteria.
Performing due diligence means researching potential investments to make sure they are good investments; meaning that they will perform well and return as estimated. If you perform your due diligence and set up the deal well, then there shouldn’t be too many questions along the way. The first way that tax lien and deed investors research potential investments is by using the tools on that particular county’s assessor’s website. There is usually a parcel search tool on their site that where you can plug in the identification number for each property and see detailed information.
Know How to Use County Tools
Although many small or rural counties don’t have websites, more and more counties are making property information available online. This makes researching much easier.
Let’s briefly describe some main points about county property records.
The county assessor’s records contain information the assessor uses to determine the value of every property in the county. This same information can be used to help investors determine the value of properties that they are interested in buying.
Counties are not required to put the property record information online, but they are required to make it available to the public. Over the past 10 – 15 years, counties have increasingly become more tech-savvy. Many counties have websites where they post the assessor information and where you can view the records online. If county website is not available, the investor can go to the county building to view the public records or call the county official charge of property records for information.
Using county officials is a great resource for tax lien investors that often goes untapped. Make sure to use them when you have specific questions about their records or county information. The county officials should be part of your support team - when you have a question, call the county officials.
This is the number one tool used by investors. It contains all of the real estate records that investors use to evaluate potential investments.
County Record Information:
How to Assess Property Value
The natural tendency for people is to overvalue or exaggerate the value of the things they own. So it’s very important to keep your emotions in check and value potential investment objectively.
A proper assessment of value ensures investment security. The number one thing to research is the value of the property. Different investment strategies require varying degrees of research. A good general rule for that is the more money you invest, the greater the research that you need to perform. Tax lien investing typically requires only a superficial evaluation, but a tax deed or redemption deed investor needs to know more specific information about the property.
A few formulas are used to determine property value are:
Comparable Market Formula
To use the comparable market formula, the investor prices similar homes that have recently sold, and homes that are currently for sale within close proximity to the home being valued. These similar homes are called “comps” and should have the same features and characteristics as the property being valued. Here is an example:
(Determine dollars per square foot by dividing the selling price by the number of square feet.)
Property Value Methods
Appraised Value: A licensed professional real estate appraiser determines the appraised value of a property. An Appraiser will usually consider similar properties that have sold recently in the area. They may also use properties that are currently for sale and properties that were for sale, but have since expired.
Wholesale Value: The wholesale value is usually placed on properties by investors, and tends to be the lowest estimated price. Wholesale pricing usually means it will be sold for below market value. Investors do this to make a quick profit. These properties often include tax liens that went into foreclosure, and tax deeds properties.
Tax Assessed Value: The assessed value will be the value placed on the property by the county tax assessor. This is a great way to check the value of a property when working with tax liens and deeds. However, this should not be your only resource to determine what the property value might be. Tax assessed values can be above or below market value. As a general rule, they run about 20 percent below current market values.
Insured Value: This is the value insurance companies place on the improvements and structures on the property. This will usually be the amount it would cost to replace or rebuild the structure.
Mortgage Value: This is the value that a mortgage company would loan on a property. The mortgage value is generally close to the appraised value of the property.
Retail Value: This is the value that a homeowner or property owner places on the property. This is the price they feel their property is worth, and is usually above market value and the highest value placed on real estate.
What’s the real value? The real value is the price that someone is willing to pay for it.
Consider the following acronym when evaluating property value: STUD – Scarcity, Transferability, Utility, and Demand.
Scarcity – How many similar properties are currently on the market? Is the property located in a desirable area? How ling are similar properties on the market before they sell?
Transferability – What is the condition of the deed to the property? Is there a loan against the property? If dealing with a tax deed, is your objective to wholesale the property?
Utility – What can the property be used for? Does the property have zoning restrictions? What is the primary use for the property?
Demand – How much demand is there for the property you are selling? How long does it take for similar properties to sell? Do you have interested buyers lined up?
Free Online Resources
Let’s talk about some resources that tax lien investors use regularly.
The very first resource for every tax sale investor is the National Association of Counties, NACO.org. NACO is headquartered in Washington, DC and provides information and links to all of America’s counties, which numbers over 3,000.
Let’s take another look. On NACO’s home page you can find a lot of information about NACO itself and their purpose. That’s all interesting, but we mostly care about the counties themselves. Let’s click on About Counties. Once you do you’ll find some links to county information on the page. Those same links are found in the menu drop down. If you click on Learn about Counties you can learn some interesting things like the history of the county or learning about county names. You can also click here and find a county by searching for a specific city. It will tell you in which county a city lies. You can also search for counties based on population. Those are all good things.
The primary way to use this site is by linking to specific county sites and finding county information. You can find counties by going to About Counties in the top left corner and then clicking on Find a County. After clicking on the state that you’re interested in, all of the counties in that state will be listed along with their population and county seat. Click on the county to view more information like population trends and county officials. You can also click on a link to go directly to the county website. NACO is a great resource. It’s free and always updated.
This is a given, but needs to be mentioned; Google. You can also link directly to counties, find values, formulas, and basically anything you would ever want or need through a Google search. For example, go to Google.com and search Alameda County, CA. The very first result is the link that you can find through NACO; however, you don't get to see all the information shared in NACO.
Go back to Google and search "Alameda County, CA Assessor Property Search". Instead of navigating through the Alameda County website looking for the Assessor’s website, you will go directly to the property search. It is there that you perform some due diligence on potential investments.
This is a must use tool. One reason is that they update images regularly so investors can take a look at a property while they are researching and take a look at the area around the property. The second reason to use Google Maps is Street View. This has been developed over the past few years and provides a view of the property from the street. After you search a property grab the little guy above the zoom scale and drag him in front of the property. You will see a blue highlight where you can drop him. Once dropped you can see the property from the street.
Zillow provides similar services as Google Maps. In fact, it’s a mash up of Google Maps and estimated property values. After searching the property you will be shown a satellite image of the area and the property. You can see the Zestimate, or Zillow’s estimation of property worth. It also shows basic information about the property. You can also get information for real estate agents in the area. You could contact them to get opinions on a specific property in the area.
You can find similar information on Trulia.com homes.Yahoo.com. All of those tools are excellent resources to view images and to get estimates on comparable properties. There are more resources but these three main categories are the most commonly used free services; NACO.org, the county websites themselves, and mapping websites.
Take advantage of these websites!