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How to Buy Investment Property the Right Way: Focus on Tax Foreclosures

If you want to learn how to buy investment property the right way, look no further than tax foreclosures. Tax property is great to invest in for several reasons: today’s economy is producing a lot; By the time a tax property has come up for auction, it is generally free of mortgages and liens; And best of all, you can get them for a small fraction of their value (less than a thousand dollars) most of the time, if you know the right way to shop for them.

By “the right way,” we’re not talking about attending the tax sale with everyone else, your brother, and your brother’s tax sell-off investment company. This is a surefire way to waste time and decide that investing in tax sales isn’t all it’s cracked up to be. So how do you buy investment property the right way? Buy tax delinquent property directly from indigent owners, after tax sale.

Why after the tax sale? Three reasons. First, you can search the tax sale results and see which properties got an offer by lot. That will give you a clue as to which properties are worthwhile, and let the big tax sales companies do the work for you. Two, less competition: Hardly any investors are aware of the fact that they can still legally buy a property even after it has been “sold” at a tax auction. Three, by the time their property has been “sold” at the tax sale, most homeowners are ready to let the property go if they can’t pay the taxes.

This time period is absolutely the best time to contact the owners. Once they are about to lose it all, they are the epitome of motivated sellers and will be ready to trade. You can often get deeds for as little as a few hundred dollars from homeowners who are “letting the property go” in mind.

If you’re a new investor, you may also want to look at another aspect of tax sale investing: collecting the surplus, or excess funds created when an investor offers more for a property in the tax sale than the owner tax delinquent owes on taxes. That money usually must be returned to the owner, but for a variety of reasons, these owners almost never find out about it.

Since these funds are not subject to state unclaimed property laws, there are no limits to what you can charge in finder’s fees to reunite these owners with their funds. The industry average is around 40%. Do the math: With a surplus of $20,000, that’s an $8,000 payday for you, all for making a few calls, sending a few emails, and getting a regular citizen like you some of your hard-earned money from the government coffers.

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