300 people show up, 5 people actually buy at tax sales
We’ve been attending the Sacramento tax sale for the past 10 years. We’ve won bids and lost others. Here’s what we’ve learned:
Amateur investors bid based on emotion, professional investors won’t play unless the numbers are right, spectators fill empty seats and prior owners are not at a full loss.
In the end, you get a fun mix of people looking to extract value and capitalize on others unable to fulfill their tax obligations. Understanding that someone is losing their home because they did not pay their taxes is a sad proposition. However, the sale of the home will allow the county to recoup taxes to apply the funds to better the community and could inject positive life into the neighborhood. The prior owner is not at a full loss. They have the ability to capitalize on money bid over the amount necessary to recoup the taxes owed.
How is this possible?
The bid price is set to the minimum amount needed to cover the taxes owed. The net of the purchase price above the amount owed in taxes is then made available to the prior owner, similar to a regular sale.
Now, why are there so few winners?
The winners depend on who bids the most money. People do not have infinite funds of cash. We’ve seen properties bid to prices near or above market prices due to emotional bidders. Now the propensity to actually purchase a property that supports an investors expected of rate of return determines whether or not they bid. As a result, NOT bidding sometimes is a great investment.
How to know when NOT to bid?
Research! You need to understand the properties available and set objective rates of return that you are comfortable with. We explain our methodology on $1,000 for every $100,000 spent.