Due Diligence
The research and investigation process an investor conducts before purchasing a tax lien or tax deed to evaluate the property and assess risk.
Due diligence in tax lien and tax deed investing refers to the comprehensive research and analysis an investor performs before committing capital to a specific property or lien. This process is critical to minimizing risk and maximizing potential returns on your investment.
Key components of due diligence include verifying the property's assessed value and fair market value, checking for environmental issues or building code violations, confirming the property's legal description and boundaries, and researching any additional liens or encumbrances that may exist on the property. Investors should also verify the property's current condition, ideally through a physical inspection or, at minimum, through satellite imagery and online records.
Understanding the local market conditions is another essential aspect of due diligence. Research recent comparable sales, neighborhood trends, and any planned developments or zoning changes that could affect property values. For tax lien investments specifically, investors should also verify the interest rate, redemption period, and any additional costs that may be required.
Seasoned investors develop systematic checklists and processes for their due diligence to ensure consistency and thoroughness. While this process takes time, skipping or rushing due diligence is one of the most common mistakes new tax lien investors make — and it can lead to costly outcomes.