First, the auctions are getting WAY more competitive. Attendance is up at every one we go to. In Dallas county, the numbers have about doubled in the last year. All these new people make us wonder how they are doing the due diligence. I mean, you think there would be traffic jams of folks driving by all these properties. But rarely do we bump into anyone doing field research.
That brings me to a couple of stories from this month. Arnie met a gentleman at the Dallas auction that bought 5 properties. In talking to him afterward, Arnie found out he bought 3 of them sight unseen. Just thought since they were so cheap, they had to be good deals. I’m not sure how he made out but we simply don’t buy properties we haven’t seen and recommend no one else does either. I mean can anyone say EPA Dump Site? That is a REALLY BIG risk as the EPA doesn’t care how you put yourself in the chain of title; once you are there, you are fully responsible for the clean-up.
Another story comes from a BiggerPockets post. A person in Houston said he was visiting the courthouse for some other reason and stumbled upon the Tax Sale. Wound up buying several properties and posted a question asking ‘What do I do now?’. Well to start with, he should not have done that in the first place! So what if the property sold for a few hundred dollars, one of them has a building on it that he admits will need to be razed. With mowing liens, post judgement taxes, demolition fees, etc., he may have committed himself to $1000’s in extra expenses and potential fines.
Buying these properties without doing the due diligence is just dumb. You not only may waste the money spent at the auction but open yourself to future expense, penalties, suits, and much aggravation. That’s why we:
1) Physically visit the property, not just check the online pictures, to check the property and the neighborhood
2) Lien search the owner(s) and the property
3) Research the valuation and cash-flow expectations
Only after doing all of this should you consider investing in any property, especially those at the Tax Sales.
Good Luck and Good Hunting!