Our Experience Purchasing at the Sacramento County Tax Sale
We’ve actually purchased a home at the Sacramento County Tax Sale. Here is our first experience. Please note that every purchase is different, but this our experience.
First and foremost, we researched the properties we were interested in. We targeted homes in south Sacramento below Florin Road. These homes are normally distressed and do not appreciate as much as the homes in the bay area. However, they do have good rental potential at reasonable prices.
Our strategy was to purchase a home, rehab and rent it. We spent time and money exploring the available properties that we were interested in and narrowed it down to 3 properties offered in the sale.
On the tax sale day, we signed in, received our bid numbers and took a seat at the auditorium. For those that have not been to a tax sale, it can be intimidating. The auctioneer sets the stage by communicating the rules and terms of the auction. ‘Buyer Beware’, ‘AS is Sales’, ‘You are responsible’ and all of the legal T&Cs enough to scare your socks off from bidding. We had spectated prior year tax sales, so we felt comfortable in the situation. We highly recommend spectating before becoming a bidder.
After the legal jargon, the auction starts. The properties are listed in order of the offered tax sale list. The winning bid goes to the highest bidder. So depending on the interest in the property, a property can start at $10k and end up selling for $200,000. Having a plan for properties you are interested in before the sale, setting the max bid you are willing to spend and sticking to it is imperative to avoid the trap of emotional bidding.
We lost the bid on two properties that surpassed the max we were willing to spend. On the third one, we ended up winning! Winning is a rush. But it is only the start of obtaining the property.
After paying the county clerk, the prior owner has a year to redeem the property if the county made a mistake in the sale process. If redemption happens, then you will get your money back plus interest, but will not recoup any rehab costs you put into the property. So the first year is basically a risk year to your ownership of the property.
Accepting that risk, we wanted to operate it. Here’s where the nightmare occurred. We discovered the that person in the property was a squatter who was living rent free after the prior owner left the home a year prior. ‘Buyer Beware’…in any situation where you are looking to operate a property, get a property manager. Our property manager was able to manage the hostile situation and processed an eviction. In California, an eviction can take up to 3 months. We offered cash for keys, but the squatter wanted more, so we decided to pursue the legal route. Three months later we were the proud investors of a boarded up home that needed a new roof, kitchen, bathrooms, had dry rot throughout the home and plumbing that needed to be fixed.
All in all, we budgeted for the costs and hired contractors to rehab the house to turn it into a home for rent. Eight months after purchasing the home and spending over $50k on repairs, we were renting it with positive cash flow! The property is still operating at a profit.
Many lessons were learned in the process and we often get questions if we would do it again. Without a doubt, we will do it again! A buyer needs to go in with the expectation of anything that can happen will happen.
Research, budgeting and managing expectations strategically sets you in the right direction to operating tax sale purchases.