Finding deals through the MLS can be frustrating for real estate investors. Dealing with stiff competition from other investors and homebuyers can make anyone want to look for greener pastures. One place that many investors will look for potential opportunities are city-owned properties. But are city-owned properties worth the effort? Let’s talk about how to find and buy city-owned properties to grow your real estate business.
To find and buy city-owned properties, contact your local department of transportation and ask to be put on their sales list. You’ll receive regular updates about the city’s inventory and public auction dates. To purchase a city-owned property, you’ll need to attend their public auctions and become the winning bidder.
There are a few caveats that I think are important to clear up about government-owned properties for sale. So let’s talk about why a city might own property and how you can get your hands on it. Plus, I’ll discuss some considerations that might make you look elsewhere for cheap real estate investment options. Let’s dive in.
What are City-Owned Properties?
In most cases, you won’t be dealing with your city specifically. Government-owned properties are usually owned by either the county or the state. But for the sake of argument, let’s group all of these together under “city owned.”
City-owned properties are either purchased from the homeowners for a specific project or foreclosed properties due to unpaid taxes.
Properties Bought for Specific Projects
A city will buy a block of homes from homeowners when they need to make way for things like expanded roads or infrastructure changes. It’s a fairly common occurrence that can happen for several reasons. The state of Tennessee did this in the early 20th century to build a new dam. Remember the movie Deliverance? That was also based on a municipality buying properties in order to flood them for a new waterway.
The city will offer homeowners a fair value for their property and will sometimes offer to purchase a new home on their behalf. Homeowners can walk a fine line when dealing with their town as some will refuse to sell until they get a better price. Sometimes the city will agree, but other times they can invoke Eminent Domain, allowing the town to force someone off the property without payment (or very little payment).
What usually happens is that the city will overbuy the number of properties they need to finish the project (better safe than sorry) and will end up with an inventory of excess properties. When this happens, they’ll list the extra inventory up for sale.
Properties Foreclosed on Due to Unpaid Taxes
If a homeowner falls behind on their property taxes, the city can foreclose on the home. Property taxes take priority over any other debts associated with the house, including the mortgage. Even if the homeowner is up-to-date with their mortgage payments but behind on their taxes, they can lose their home. This is often why you’ll see property taxes rolled into mortgages; that way, the lender knows the city gets paid, and the bank makes their money back, too.
If a property is foreclosed on, the city will issue a tax lien on the home. The municipality may then run a public auction to unload the tax liens off in bulk. Investors who win the auctions can then receive interest on payments the homeowner makes to get current. If the homeowner cannot get back into good standing, the investor may be able to foreclose on the home and take over ownership.
How to Find and Buy City-Owned Properties
The department that typically handles property inventory for sale is your local Department of Transportation. Depending on the size of your town, this could be the city or state DOT, but your best bet is to start with the county DOT and go from there.
Most DOTs will send a list of their available properties for sale to real estate agents, but that doesn’t mean you have to be an agent to get on their list. Anyone can get access to their sales list; all you have to do is call and ask to be put on their mailers.
A Few Things to Consider About Municipal-Owned Properties
Many investors think getting a city-owned property is an excellent way to break into real estate investing, but it’s not as simple as that.
Going the tax lien route can be a convoluted process that may take years and offer no guarantees that you’ll actually get ownership of the home.
Excess inventory properties are very rarely houses; it’s often just land. While land can be a very good investment, it’s probably not the right investment for someone looking to do fix & flips.
In addition, land-based deals mean you’re going to have some stiff competition. Giant development corporations keep an eye out for these types of deals, and their pockets are deep. These companies build things like strip malls or high-rise condos, so it can be an expensive bidding war to get into.
How to Buy a City-Owned Property
If I haven’t scared you away yet, great! Let’s talk about what the process might look like to actually get a city-owned property.
First, a caveat: the buying process can vary based on your municipality. Call your town and ask them how they like to handle property sales.
In most cases, public auctions will be held for city-owned inventory. I dive more into the process behind public auctions in this article, but here’s what to expect:
- The city will auction off multiple properties at a time
- You’ll be expected to put down a deposit if you win. It will be at least $5,000
- You’ll need to come up with the rest within 24 hours
- You won’t have the ability to inspect the property or run title checks
Again, more nuances come along with public auctions, so check out my other article for a more in-depth guide. Also, be sure to get specific requirements from your town or state ahead of time so that you have a good understanding of what you’ll be required to do should you win an auction.
If you’re a new or small-time real estate investor, city-owned properties might seem like a great way to get started. However, the truth is that they’re much more competitive and intense than a regular for-sale property. In some ways, even bank-owned homes are easier to get than city-owned. But suppose you’re looking for ways to expand your real estate development portfolio or are wanting to get into land investments. In that case, city-owned properties can be a great way to scoop up properties for pennies on the dollar.
Have you purchased a city-owned property before? Leave a comment with your experience and let me know if there are any tips I missed.