Tax auctions - not as easy as it seems

When you see that thick section in the newspaper full of tax auction listings, the possibilities seem endless -- and then you start reviewing the properties, and discover that half of them are vacant lots, there are hundreds of properties that are beyond repair, and still more that are in such devastated neighborhoods that even if you did renovate the property, nobody would ever want it. 

There are deals to be had, but you will have competition for the best properties - so don't count on them going for the minimum listed bid. 

Before the day of the auction, some due diligence is in order. Create a short list of properties that you may wish to bid on, and take a drive around town with a notepad. You won't be allowed to enter the properties, and some of them will still be occupied, but you can still tell a lot from a quick visual inspection. Chances are, most of the properties that are occupied and in good shape will be redeemed, so your benefit there is in receiving the interest payments only, not the deed. If you want the deed, your chances will be better if you find the vacant fixer-uppers.

Beyond the visual inspection, there are a few other steps. The county tax assessor holding the auction probably does not talk to code enforcement, and so there is a chance - a fairly good one - that many of the properties listed at auction also have code enforcement records, and may even be scheduled for demolition, and you may well end up with significant fines the day you take possession. Take your short list to the code enforcement office (or if you're lucky, they may have an online database), and find out what issues may be attached to the property before bidding. You may even be able to talk to the code inspector who has actually been inside the property and has photographs - a big benefit to you, since you're not allowed to enter. 

On the day of the auction, take cash with you. Take more than you think you'll need, because it's likely you will have competition, and there is always the potential for a bidding war. Above all, don't get discouraged, stick with it, and you'll find some rare gems to add to your portfolio for very little money.