9) Determine Investment Criteria

Let’s talk about how to determine your investment criteria, as this is important to understand before you start looking at individual investment opportunities.

Counties provide lists with varying information on them. Sometimes they’re full of county property code language that is impossible to read without a guide, so to have your criteria established in order to know what to look for exactly. This cut down on your due diligence time.

When looking at a list you may see all of the following things to identify a property and investment:

  • Property Owner
  • Property Owner Address
  • Identification Number (Parcel Number)
  • Amount Owed (Delinquent Tax Amount)
  • Property’s Legal Description
  • Delinquent Tax Year
  • Assessed or Taxable Value
  • Property’s Physical Address
  • Property Type

We’d love to tell you that all of this information is available on every county list, but that isn’t always the case. It’s not uncommon for lists to provide only the following items, and you’re left to find the rest of the information, which we will show you how to do (it’s easy once you know where to find it, and can be fun):

  • Identification Number (Parcel Number)
  • Delinquent Tax Year
  • Amount Owed (Delinquent Tax Amount)

If you’re provided with only a few items to identify the property and investment, you’ll want to also track down the following key information points at a minimum:

  • Property Address
  • Property Assessed or Market Value
  • Property Type

Now let’s ask some questions to determine what your investment criteria might be for an individual tax lien or deed investment.

How much money do you have available to invest?

Decide right now how much money you have set aside that you would like to invest.  We’ve had investors start with $100 and students start with $5,000,000 and we started with less than $100, so don’t feel overwhelmed. Whatever you have readily available is the perfect place to start. This number shouldn’t be the number that you’d like to invest, but the actual money that you have set aside right now or is relatively liquid, meaning you can access it quickly. 

This will determine which investments you can make.  If you’re starting with $5,000, then every investment with an Amount Owed (Delinquent Tax Amount) number above $5,000 isn’t available to you.

That’s the first way to narrow a list.

What kind of property is it?

Is the property a single-family residential home, a commercial property, a condo, vacant land, vacant commercial, or something else?

It’s always wise to start investing by focusing on single-family residential homes, for those who do not have real estate investing experience. There are a few reasons for that. First, if buying tax lien certificates, single-family residential homes redeem the majority of the time, and usually fairly quickly, especially if the property owner lives in the property, which we will talk about determining in a later video on due diligence. For first time investors, an investment in something that will most likely redeem quickly is a great way to get your feet wet. The second reason for focusing on single-family residential in the beginning, is if you were to acquire the property through foreclosure then exiting a single-family residential home is the easiest of all property types to exit.

What is the property worth?

After you know how much money you can invest and what the property type is, you need to consider what property value makes sense for your investment amount. What would make you feel safe enough to make the investment? Remember that the investment amount for a tax lien certificate is directly related to the tax assessed value of the property; for instance, if the tax assessed value for the property is $20,000, then the annual tax bill at 2% would be $400. The reverse side is that your $400 investment is backed by a $20,000 property, which is pretty good; however, what does a $20,000 property typically look like? It may not be a pretty single-family residential home, right? It’s possible that we may need to start with improved lots or borrow money, which is how we started after we got some experience.

By considering these three criteria, we can quickly narrow lists of thousands of potential investments down to hundreds or dozens. From there we would look at other criteria to determine which investments to make, which we will show in a later video.