If you’re going to a tax deed auction, ready to bid, then you’ve likely familiarized yourself with risks and benefits of tax deed investing in Georgia. You’ve researched the available properties to determine which are worth bidding on. You likely don’t know yet which properties have been paid off the morning of the sale, nor what the likely other bids will be on any given property. Maybe you’re coming to the table with enough funds to bid on multiple properties, or maybe your first “win” will make you unable to bid on any properties called later in the auction. Regardless of the details, remember that the goal is to make money, which means you need to know your exit strategy BEFORE you acquire the property.
Often, because of the perception of massive equity margins with tax deed purchases, novice investors think that there is enough “meat on the bones” to over any number of exit strategies. As tax deed investing has gone more mainstream, though, the margins continue to shrink. Make sure you have a plan (or plans) on how to get out, before you get in.
SALE
Do you already have a potential buyer (or a buyer profile) in mind for the property? Are they willing to wait over a year while you clean up title to the property? Do you have the renovation/construction budget to make the property marketable? Keep in mind that you’re committing to having your bid amount tied up for a year before you can push forward.
Alternatively, if you have a pool of savvy cash buyers/investors you work with, are they willing to purchase a quit-claim deed of your interest, and then clean up their own title? This would speed up your sale, but drastically reduce the amount any sane buyer would pay for the property. If your buyers won’t take on that amount of work, can you handle the barment, do your renovation, and then hand it off to a cash purchaser who would then have to pursue the quiet title action? Are you able/willing to accept the obviously reduced sale price for such that type of transaction?
REDEMPTION
If any of the statutory “interested parties” come forward to redeem the property, you’re expecting a 20% return, right? That’s true, even if they redeem before the 12 month redemption window passes. Keep in mind, though, that there are costs associated with this process as well. You have to prepare and record a deed transferring the property to the appropriate person/entity (not necessarily the one paying the redemption price).
Also, if you have already paid an attorney to assist with the barment, and the interested party redeems after receiving their notice, you don’t recoup the attorneys’ fees you have paid. Keep this in mind when getting a “steal” of a price; if your winning bid price is super low, you may wind up upside-down, even with a 20% return.
HOLD
If you’re looking to hold onto a property long-term, keep in mind that you’re holding its liabilities as well. Are there environmental contaminants? Are there code violations that you’ll be responsible for remedying? You do have to keep up with taxes, HOA assessments, etc… as well. Even just sitting there isn’t free.
SUMMARY
Exit strategies with tax deed purchases are largely the same as more traditional real estate investments, though there are normally some increased costs . Hopefully those costs are offset by a low purchase price and/or a large rate of return, but make sure you are considering those factors when deciding which properties are worth a bid!
If you have project-specific questions that you’d like to discuss, please contact us for a paid one-on-one consultation, and we can discuss any identified risks, and come up with strategies to mitigate them.