You may have heard that tax deed investing is a way to purchase tax foreclosed properties for pennies on the dollar. And you may also know that now is a great time to start investing in tax deed properties because there’s more available now then there has been in the last few years. But did you know that there is a way to Cash in on tax deed properties without even bidding at the tax sale? How would you like to be able to buy tax sale properties for less than what they would go for at the tax sale? And because you are purchasing the property from the owner, before the tax sale, you don’t have to worry about clearing the title.
But that’s just the beginning of how you can cash in on tax deed properties without going to the tax sale. I’m going to tell you a little known secret about tax deeds that not all investors know. In many tax deed states, when properties are bid up at the tax sale, the county will make the “excess proceeds” available to the owner of the property. The excess proceeds are the amount of money that is in excess of the back taxes and penalties, or the minimum bid. Many states give this back to the owner of record of the property at the time of tax sale, and you can use this knowledge to make money on tax deed properties without bidding on them at the sale.
Here’s how it works. You find the owner of a property that is going to be sold in a tax sale in a few weeks. You ask the owner of the property if they intend to let the property go to sale. And you ask them if they would give you the property since they are going to let it go anyway. Or you could offer them a small amount of money for it. You get them to issue you a quitclaim deed to the property. You record the deed at the county clerk’s office. You DON’T pay the taxes; you just let the property get sold in the tax sale. You track the property and find out how much it sold for at the tax sale, and then you apply for the excess proceeds.
The beauty of using the excess proceeds strategy of tax deed investing is that first of all you avoid the competition at the tax sale by purchasing the property directly from the owner and you don’t have to pay as much for the property as you would at the sale. Secondly, you don’t have to clear the title to the property and because you only own the property for a short time, your expenses are minimal.
There are a few things that you need to check out before you try this though. This process does not work in all deed states. Some deeds states do not give the excess proceeds back to the owner of the property, so you need to check that out first. The next thing that you have to check is that the property will be bid up at the sale. You have to make sure that the tax sale is competitive enough that the price of the deed will be bid up considerably higher than the starting bid if you are going to be able to make money at this. You can check this by checking on what happened at the tax sale last year, how high did properties that were in last year’s sale get bid up? But that doesn’t always let you know what will happen this year, since economic conditions may be a little different. So you might want to also check recent tax sales in nearby counties or nearby states with similar demographics to get a feel for what you can expect this year.
You also have to do your due diligence on any properties that you plan on purchasing before you buy them. You need to do this for two reasons. The obvious reason for checking out the property is to make sure that it’s worth enough money so that it will be bid up at the tax sale. But you also want to check and see if there are any liens or judgments on the property before you purchase it from the owner. Because you are purchasing the property directly from the owner and not at the tax sale or from the county, you would be responsible for any liens or judgments against the property at the time you purchased it. So if there is a mortgage on the property, you would be responsible to satisfy that mortgage. Therefore you want to stay away from properties that have any liens on them.
Since you have to do due diligence on tax sale properties anyway, for any type of deed investing, this strategy of tax deed investing is no more work than just purchasing properties at the deed sale. The great thing about using the excess proceeds strategy is that you need less money, so you can purchase more properties and make more money!