Can you “flip” your tax auction home?

The concept of “flipping” real estate has long been held out as an attractive way to make a quick profit. The idea of course, is to buy a house cheap, do minimal cosmetic renovations, and then sell it for a profit in a short period of time. And for a time, it really worked, but today’s market requires us to take a more long-term approach in most cases. But what about homes you get at the tax auction? The reason flipping doesn’t work so well any more is because the market is flat or decreasing, and the price delta between your buy price and sell price isn’t as big as it once was. But in the case of a tax auction home, your buy price is likely to be very low, so this makes the “flip” at least somewhat more possible.

Before considering flipping tax properties as opposed to using them as longer-term rental units, there are a few things to consider. First of all, you will need to do some repairs and cosmetic upgrades on the property, and you will probably need to do more of those than you would in a traditional market-based buy and sell flip. You’ll spend more time and more money bringing it up to marketable condition. You’ll need to put time and money into it in any case, but there’s a difference in bringing a property up to rentable condition and bringing it up to saleable condition; with the latter being more expensive.

The other consideration is that the properties you are likely to acquire are also likely to be in areas where prices are depressed and the market is slow, and you may find yourself sitting on an empty property for a year or more before you get any legitimate offers on it. If you’re anxious to get some cash flow, you may want to reconsider the buy/sell business model and go with a rental model instead.

For more information, you can get a copy of my book, “Learning to play the real estate tax auction game” (now available on Amazon).