The term due diligence should be a center point of your real estate vocabulary by now. Knowing what data to search for and how to use it can determine the course of your investment. In addition, doing due diligence keeps you from making mistakes. But even though you know you should do your research, where do you start? Don’t worry. We’ve put together a due diligence checklist that will kick-off your research.
We recommend starting your due diligence checklist by examining these FOUR components:
- Property value
- Other certificate holders
- Total roll-up amount
- The aerial view of the land
1. Examine the Property Value
To start examining the value of a property, you will need to find the fair market value. Fair market value refers to the price a purchaser would be willing to pay for that property. Using online valuation tools like Zillow, Redfin or other similar sites can help provide an estimated assessment of the property’s worth.
2. Identify Other Certificate Holders
More often than not, a property has multiple years of delinquent taxes. This isn’t necessarily a bad thing but could be if you don’t identify them beforehand. For example, if you bought a tax lien from 2014, there might be other tax liens from the years 2015 and 2016 on the property. You as an investor will be required to “buy out” the other lien holders if you plan on filing a tax deed application (TDA) to acquire the property.
3. Know the Roll-Up
As discussed in our previous post about tax lien terminology, the roll-up is the sum tax liens on the property plus any administrative fees. Many people are looking to just collect interest, but there are still instances where knowing the roll-up is important. For instance, if you purchased a certificate that is due to expire, a TDA will need to be filed. You can find this information by accessing the county treasurer’s page or at the recorder’s office.
4. Get an Aerial View of the Land
Many people shy away from tax lien investing because they’re afraid of purchasing a property in poor condition. But using a GIS map or google maps easily provides a visual of the land you’re purchasing. Checking county records coupled with an aerial view will allow you to see if the property is landlocked or in a body of water (wetlands, swampland, etc), and will allow you to check to make sure that the legal description matches.
These four key components are a great start to creating a due diligence checklist and every new investor should work on mastering this process. It is nearly impossible to create a plan of attack or come up with an appropriate exit strategy if you have not done your responsibility of due diligence.