Simulation: a fictional property for practice.

A vacant restaurant building at a county tax sale

The opening bid is $38,000 for a 6,000 sq ft building. You can only see it from the street. What is it really worth to you?

A fictional commercial building at a county tax sale. Tax-sale rules differ by state and county; read the county’s current notice.

• Opening bid: $38,000: the unpaid taxes, interest and costs
• Building: 6,000 sq ft former restaurant, vacant for 3 years
• Viewing: Outside only. No inside access before the sale
• Deed: A tax deed from the county, usually with no promises about title

Mission 1: Research before the sale

What can you check before you bid? Pick all that fit.

• A title search for liens and recorded documents
• The city’s zoning, permits and open code cases for the address
• Environmental records for the address and its neighbors
• Ask the former owner to let you inside

At a tax sale you buy what you can learn from public records and the street. Price in what you can’t see.

Mission 2: Repairs you can’t see

Enter your repair budget before you see the example ranges.

• Roof replacement, 6,000 sq ft
• Three rooftop heating and cooling units
• Removing the old kitchen and grease trap
• Accessible restrooms and entrances
• Fire sprinklers and code upgrades

About $125,000 to $285,000. This drill uses $200,000, and a real budget adds a cushion for what you couldn’t see.

Mission 3: Your maximum bid

• Rent once leased: $14 a sq ft a year, tenant pays taxes, insurance and upkeep: $84,000 a year
• Less 5% vacancy and $7,800 of costs the tenant doesn’t pay: Net operating income (NOI) $72,000
• Value at an 8.5% cap rate (NOI ÷ 0.085): About $847,000
• Repairs: −$200,000
• Tenant improvements, $20 a sq ft: −$120,000
• Leasing commission and 12 months of holding costs: −$61,200
• Quiet title action so a title company will insure it (example): −$8,000
• Selling costs (5%) and your 20% target profit: −$211,750
• Your maximum bid: About $246,000

The opening bid is where bidding starts, not the price. Other bidders run the same math, so the winning bid can be far above $38,000.

Bidding passes $150,000 and keeps going. Do you keep bidding up to your $246,000 maximum (Buy), wish you’d done more homework first (Investigate), or stop now (Pass)?

Buy, investigate or pass? Work through the drill to see what an experienced investor would weigh.