When evaluating a property I intend to bid on at a tax deed sale, I follow a 3-step process.
1. Research the Neighborhood
2. Evaluate the Property
3. Determine Exit Strategy
My strategy begins with a full rundown of the property at an academic level before arriving on site to the actual property. Knowing as much as I can about a property ahead of time allows me to create far more accurate evaluations. Better evaluations help you to minimize risk and create efficient bid margins.
Researching the Neighborhood:
The worst thing you can do is treat your property like it exists in a vacuum. A property’s true value is highly dependent on its surrounding neighborhood. I look for things like crime, shopping, schools and freeways for proximity and their ratings. You also need to look at other homes for sale and rent in the area. It’s important to note the rehab expectations set by others in the neighborhood.
Evaluating the Property:
This is the step where you have to pay the most attention and end up making the most guesstimations. No matter how hard you try, 99.99% of the time something will not be quite like you anticipated. Understanding that will make your life so much easier and take away some stress. The idea is to get as close of an estimate as possible and exaggerate guesses on the high side. Done properly, you’ll minimize how often and how far projects go over budget.
Determine an Exit Strategy:
Once you’ve had a chance to do some homework and see a property, it’s time to start looking at what you plan to do with the property. There are 3 main exits for you to think about. You can either flip the property at full value, wholesale it out or hold it as a rental. The first 2 steps will give you most of the info you need to make a well informed decision. It’s important to understand your exit BEFORE you try to start any rehab on the properties you acquire. Messing up this step could render all of your efforts invalid and put you in a bad place. Done correctly, you’ll minimize your efforts and maximize your returns!
I hope this information helps and next I’ll be discussing how your potential exit strategy can affect your bidding… thank you again for reading and for being a part of the TAI Community!