Can you really get title to a home at the tax auction?

That’s the million dollar question on everybody’s mind, and there’s a lot of conflicting information out there. Some “gurus” out there will tell you that it’s nearly impossible, and that almost all the homes get redeemed by the original owner before the redemption period ends. Let’s put the debate to an end and answer this question once and for all.

The way a tax auction works is that you bid on the tax lien, then wait a period of usually one year. If the owner does not pay the back taxes, then you get the title. If the owner does pay the back taxes, they also have to pay you interest and/or a penalty, plus any expenses you incurred (title search, certified mail, etc.). Here in St. Joseph County, Indiana, tax auction investors earn 10 percent if the owner pays in six months, and 15 percent if they pay within a year.

A good many investors aren’t even looking to gain title. Ten to fifteen percent on your money secured by real estate is a pretty good return, and so somebody with a hundred grand could make an additional ten to fifteen thousand (as opposed to the pitiful one percent the banks are paying now). With the stock market in such disarray, it’s attracting more investors.

It is true that many of the houses on the list will get redeemed. Generally, the ones that are in excellent condition and in good neighborhoods, and are still occupied, will be redeemed. Your chances of getting a $250,000 home in the suburbs for a few thousand dollars in back taxes are practically nil. If the owner doesn’t pony up the cash, the bank probably will, assuming there is an underlying mortgage on it.

That said though, the proper way to play the game, if you’re looking for title to homes, is to target the homes that are unoccupied or boarded up, and may be in the city, in more marginal neighborhoods. These are less likely to be redeemed. Many of these properties can be renovated with little effort and transformed into excellent rental properties. Keep in mind, that a house that has been boarded up isn’t necessarily a complete loss. It just means that a big piece of wood has been put over the windows and doors to keep out vandals. The house itself may still be in good shape structurally.

Find out more in my book, “Learning to play the real estate tax auction game” (available on Amazon.com).