Many people starting out in tax sale investing wonder if they should focus their efforts on land or homes. Both have advantages and disadvantages so it is important to consider these up front and decide which will be best for you or if you want to do both.
Homes:
With homes, there is a greater margin of error because usually there will be more equity in terms of raw dollars. For example, if you buy a piece of land for $500 and the market value is $1,000, there is only $500 for profits and margin of error (in case your research isn’t completely accurate, which can happen, or if things don’t go exactly as you plan). On the other hand, if you get a home for $50,000 that is worth $100,000, there is $50,000 of equity, and thus, a much greater room for that margin of error factor. If you need to, you can sell the home at a significant discount and still make a good profit.
Usually, homes can make you more money per transaction. While this isn’t always the case, it is nice to be able to make a lot of money on each transaction. With land, you may need to do more transactions to make the same amount of money.
Land:
Land is more readily available. As you get your property lists, you will likely find that there are more parcels of raw land on the list than there are homes. If you own a home, you probably realize that most people who own a home have a mortgage. Mortgage companies usually require the property taxes to be paid through an escrow account and that portion of the payment is made along with the regular monthly payment. Mortgage companies are careful about making those property tax payments each year so that they can secure their interest in the property.
People are less likely to redeem land than homes. Many properties that end up on a tax sale list do so because the property owners are having financial difficulties. In such circumstances, they may have to prioritize which bills they pay. They are more likely to pay the taxes on their primary residence than on any raw land they own. They are also likely to pay other important bills first and let the land go.
Land is easier to research, especially from a distance. Sometimes it is very difficult to research homes you can’t see for yourself. There is an inherent level of risk in purchasing properties that you cannot inspect first-hand. That same risk is much less with land since there is less that could go wrong.
There is less competition. Some people decide they only want to purchase homes at tax sales. When I started out, that was my feeling. But with so many people competing for home and with less homes available than land (generally), it becomes very competitive sometimes. That competition may also drive up the winning bid on homes.
Starting bids (and usually winning bids) are usually lower on land. This only makes sense. Since counties are trying to collect property taxes and taxes are based on property values, it usually follows that the amount of taxes due (and usually the starting bids) will be lower on land. This makes land a more affordable option for those who don’t have a lot of money to start investing.
Getting land can still be very profitable. The first auction I ever went to, we got two homes. Our profit on these ended up being between $30,000 and $35,000 on each one. The second auction I went to, we got two building lots of raw land. The profit on these was around $30,000 each.
You can usually sell land faster. Online auctions allow you to sell your properties in a week or so. This can create faster turnaround on your money.
Land generally has fewer liens and other encumbrances that can cut into profits. Having fewer liens also increases the chances that you can sell the property quickly.
John Beck himself focuses on land for many of the reasons listed above. He also buys homes when good opportunities present themselves.
Some of the other coaches I work with purchase exclusively land for their investments. They find many opportunities.
Personally, I focus on land and take the homes when they are in my area and good deals come along. I am willing to buy land anywhere in the country as long as my research indicates that there is a good profit to be made and that the property itself is a desirable property. I stick to homes that I can inspect personally, at the very least from the outside.
Assignment: Decide if you want to focus on raw land, homes, or both.
