Goal: To learn how to screen the properties on your lists so that you can focus on the ones that will be most profitable for you. You will start eliminating properties from your lists based on the information you find out about them. At the end of the screening process and market analysis, you will want to have a handful of properties from each list that you are interested in acquiring. You will also want to have your maximum bid amount for each one established.
Not every property on every list you get will be profitable. You MUST research each property to determine as much as you can about it before deciding whether or not to get the deed / lien certificate for that property.
We get lists of properties that are delinquent on their taxes from the department in the county that is in charge of the collection of “REAL” property taxes. Please keep in mind that the county does not perform research for you. We need to perform our own due diligence. We will be able to use different departments within the county to help us to determine if the property will be a profitable one for us.
Each county is very different in how they do things. It's not unusual to find counties that cannot provide us with enough information to feel good about making an educated decision on a property. To ensure the county I am researching has the information to see my research through to the end I recommend selecting a single property from your list as kind of a test subject. Conduct all the steps on that one property to identify any breakdowns the county may have. Once you know you will be able complete the steps with one property take the rest of the list through the process. This can be a real time saver.
6 Steps to Screening Properties
1) Price – Look at the minimum bid and eliminate any properties that are out of your price range. Keep in mind that as you increase the amount you have to invest in tax sales, you will be able to afford more expensive properties. Also, if you find a property that is out of your price range, but it is a good deal, you can look for ways to make it work (get a partner for that deal, etc.).
2) Cross off properties that are owned by businesses. (It is far more likely that privately held properties will not be redeemed before the auction.) Keep in mind that the "drop dead date" (the last day the property owner can redeem the property) has a direct impact on this step. If the property owner no longer has the right to the property, and the county owns it we don't need to cross off properties that were previously owned by businesses. In addition some counties that do lien sales, and later deed sales will show the lien investor on the list as well as the actual property owner. You will see this alot in Florida. As a rule if the property owner still has the chance to redeem, and they are a business I cross them off.
3) Location – If you are familiar with the area, you should identify which of the properties from the list are in good areas. If you are not familiar with the area, move on to the next topic since we will cover this in another session.
Even if you are not familiar with the area, you can at least look at the population trend for the county. Go to http://www.naco.org/ and put your cursor over “About Counties”. From the drop-down menu, choose “Find a County”. Choose the state where the county is located and click on it. This will bring up a list of counties in the state in alphabetical order. Click on the one you are researching. When the new page opens, you will see the populations from 1980, 1990, 2000, and 2005. This should tell you whether the population is increasing or declining. If the population is declining, this is a red flag. You may decide not to work with the county at all if the population trend is consistently or dramatically downward.
Once you have looked at price and location, you will need to get information from 3 of the county’s departments to determine which properties are the best deals. Before you ever buy a property at a tax sale, you need to know if the property is marketable and valuable. If the property is not marketable or not likely to make a profit, cross it off the list and move on to other properties until you find the ones you feel will be the most profitable.
For all of the information needed from these 3 departments, look for the appropriate information in the following sources (listed in order of what to do first):
· See if the information is provided in the list of available properties provided by the county.
· Then check the county’s website.
· Your last option would be to call the county if you cannot find the necessary information from the list or the website.
At the beginning, I recommend working with counties that provide as much of this information as possible on their website. This will help you become acquainted with the research process and give you a good foundation to build on.
4) The Assessor’s Office – The assessor is usually the one that determines the value of each property and assigns a value upon which the property taxes will be based. In order to determine a value for the property, the assessor must have some basic information on the property. This information will be helpful to you. Here is what you should try to find out about each property from the Assessor’s Office:
· What is the parcel number of the property?
· What is the street address of the property?
· What is the legal description of the property?
The above information is what identifies the property and distinguishes it from every other property in the county. With this information, especially the parcel number, we can go to the other county departments and get the other information we want to research. Having the right identifying information for the property will help ensure that the information we get is accurate.
From the assessor’s office, also find out:
· What is the property’s assessed value?
· What is the property’s fair market value?
· If the market value is not available, ask how the assessed value is determined.
(For example, is it the same as the fair market value or a percentage of fair market value, or some other method). This should help you calculate the fair market value.
· What is the amount of property taxes due on this property each year?
Once you have the assessed value and how it is determined, you might have a sense for whether or not this property can be sold for a profit. However, keep in mind that assessed values are not always an accurate indicator of fair market value, so it is also important to look at comparable properties that have recently sold in the area to determine the probability of making a profit.
· How can I find a parcel map or GIS (Geographical Information System) map? If the county has a GIS map, this is preferable.
· If the maps have the latitude and longitude of the property, note this for future research.
· What is the lot size (acreage or square footage)?
· What is the property’s shape?
· What are the dimensions of the property?
The dimensions are important so that we can know if the property is buildable. If it is not buildable, you will need a different exit strategy than if it is buildable. A non-buildable property will be harder to sell. But it may be attractive to a neighbor looking to expand his/her acreage or a neighboring business that can control land that would otherwise go to his competition, especially if they can get the land inexpensively.
· Is there a building or are there any improvements on the property?
o Do the improvements still exist?
o Is the building vacant or occupied?
o How old is the building?
o What is the square footage of the building?
o How many bedrooms and bathrooms are in the home?Bottom line – get as much information about the building as possible.
5) The Zoning / Planning Departments – Get the following questions answered about the property:
· What is the zoning on the property? (Residential, Commercial, Agricultural, Rural, Industrial, Estate, and Forestry). This will help us determine what type of buyer we can sell it to.
This will help determine what you or your end buyer can do with the property.
· What would it take to re-zone the property? (Example: from agricultural to residential).
· Is the property buildable?
o What are the setbacks (distance from the curb to where you can build).
o Frontage / Side yard (distance) / Back yard (distance)
o Are there any easements§ Utilities easements – water line underneath the property, gas lines, etc.§ Easements by necessity – point of access to a land-locked parcelo Are there any utilities on the property? (Gas, power, water or well, sewer or septic).
o Is the property in a flood zone?
· Are there homes on either side of the property?
· (Planning Department) – Are there any upcoming projects in the county or the city such as shopping centers, grocery stores, malls, or anything else that would raise the price of the property? These can be used to spice up your listing when you sell the property. They will create sizzle that will entice more people to bid and also entice them to bid more than if you didn’t include this information. If you don’t ask this question, you will be leaving money on the table. Asking the question will help you maximize your profit on each property.
6) The Recorder’s Office – (or whoever records deeds in the county)
· What is the current owner’s name and contact information (mailing address, etc.)?
· Are there any back liens or encumbrances?
· If so, what is the amount of each lien?
· What has the property sold for in the past?
· Can I find what surrounding properties have sold for in the recent past?
Keep in mind that you will probably not come across very many “PERFECT” properties. As you do your research and find out things about a property that you might consider negative, you will need to determine if it is something you are willing or able to deal with. If not, move on to the next property.
Remember, the goal is to eliminate properties you don’t want to purchase or that won’t be profitable so that you can focus your time and energy on good properties that will be profitable.
Assignment: Take the property lists you have obtained and start applying the 6-step screening process. Cross properties off the list if you find out information that would lead you to believe it is not a good property to acquire or if it would be too difficult to sell.
