Buying Real Estate at County Tax Sales

Just finished watching one of those late night shows on cable. The ones where they try to sell you their real estate package by telling you how easy it is to make money buying real estate.

This one was on county tax sales.

You can buy 100,000 dollar homes for $235.00.  This is true, but it’s not quite as easy as it seems at first.

I have tried this method, and while you can make money at it, there are a few problems.

The first problem is that most of the valuable houses are in the larger cities, for example I live in Sacramento County which has about 1.4 million people.

When the county sells properties here they run ads in the local newspapers and list the addresses. So you have 1.4 million people who now know the address and how much the property is selling for.

Then when the time comes, they have a large auditorium and a few thousand people show up and you bid against them.  

Bidding against a couple thousand people, how good of a deal do you think you are going to get?

You should be able to figure it out, that it’s not very good.

Most major cities have a similar process, if you want to get a good deal on something, then you have to have less exposure.  There has to be fewer people who know about it and fewer people bidding against you.

This will happen in the counties with fewer people, like Montana.  There they probably have tax sales and maybe a dozen people show up.  But do you really want to go to Montana and buy a property in the middle of no where.  You have to start looking at things like….

Does it have a road that goes to the property?

- Water?
- Electricity?
- Phone lines?
- Cable?
- Sewer?

If there are no roads to the property, then even if they have a house the value is a lot less.

But you can probably buy a house for a couple hundred bucks if you look long enough.

My experience has been that if you get 50 people bidding on a house, then there will usually be 2 people who will continue to bid until they get very close to the market value.
Usually within 5 to 10%, buying houses at a 5% discount if a very tough way to make money.

The other option is to try and find out about tax sales all over the country.  Follow sales from many different states.  I have never had much luck doing this, the main problem is that it take so much time.  Then when you find a house for a few hundred dollars it’s very hard to tell if it is worth it or not.

I have found that by sticking to my local area, I get to know a lot about the houses here.  Many times I will have seen the house before and know what other similar houses in the area have sold for, so within a couple seconds I will know if I want to continue working on a potential deal or not.

This knowledge saves a lot of valuable time.