Creating Your Due Diligence Checklist

Key Points

  • You cannot be a successful tax lien investor without doing your due diligence
  • Exit strategies largely depend on what information you acquire while doing your due diligence
  • There may be other lien holders on the same property and this can significantly affect roll-up costs

Whether you’re new to tax liens or are a seasoned tax lien investor, “due diligence” should be an important part of your vocabulary. Knowing what data to look for and where to find it can help identify potential red flags, so compiling a due diligence checklist can remarkably reduce risk and ensure that you get the most out of your investment. Establishing a checklist with the necessary criteria needed for a smooth investing experience will improve your likelihood of being a successful investor.

We recommend starting your due diligence checklist by examining these FOUR components:

  1. Property value
  2. Other certificate holders
  3. Total roll-up amount
  4. The aerial view of the land

Examine the Property Value

The first part of determining the value of any property is establishing the fair market value. Fair market value refers to the price a purchaser would be willing to pay for that property that is feasible for both the buyer and seller. Using websites like Zillow, Redfin, Trulia and can help provide an estimated assessment of the property’s worth.

Identify Other Certificate Holders

While you may have purchased a tax lien on a property, there could be other outstanding lien holders as well. As a part of your due diligence, it’s important to review how many other tax liens are on the property. For example, if you bought a tax lien from 2014, there might be other tax liens from 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). This can also be reversed where another investor would have to buy you out if they file a TDA, meaning you would receive your investment back plus any accrued interest.

Determine the Roll-Up

The roll-up is the sum of the tax liens that currently exist on a parcel plus any necessary administrative fees. Even if you plan on being an idle investor, locating the roll-up is important in cases of expiration so you can anticipate an exit strategy and total costs when filing a TDA. You can find this information by accessing the county treasurer’s page or at the recorder’s office. Once you have identified other certificate holders for all of the delinquent tax years on the property, you can arrive at a good estimate as to how much your total roll up might be.

Getting an Aerial View of the Land

Using a GIS map or google maps to get an aerial view of the property can help you get a visual of what kind of land you’re purchasing. Doing your due diligence by checking county records coupled with an aerial view can help ensure that you’re not getting into a bad investment. This 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. Doing your due diligence may be intimidating at first, but with the help of ProSource Tax Liens you can get the tools and resources you need to be able to identify potential pitfalls and become a successful tax lien investor.