Okay, maybe “love” is a bit strong when it comes to something like public records, but public records have definitely played a role in in our investing to date, and I suspect they will continue to do so in the long term going forward.
What Do We Mean By Public Records
For the PoP’s purposes, so far our use of public records has been primarily related to our county property’s appraiser’s database. Public filings related to property ownership are organized and readily available for search online including, but not limited to: home ownership, home sales, mortgages, marriage (if one of the people being married owns property and undergoes a name change), or divorce, construction permitting, foreclosure… the list goes on.
Starting with a name or the address of a property that a person owns, you can pretty quickly get a LOT of information.
Where’s the Value?
This may seem somewhat creepy. Admittedly, sometimes the ease with which we can look up a neighbor’s marriage license or divorce decree from the comfort of our own living room gives me a little bit of the willies. But on the whole, there is a lot of value in making public records so readily available.
The main value for us has been in expanding our ability to find good local investments. Before all of this data was available online, real estate investors would have to drudge down to the local clerk of courts and manually go through the microfiche (or heaven forbid, paper!) records to track down the information they needed. And they would. Data hunters would be employed by the local real estate investment firms to compile reports on various possible investment properties. With typical M-F 9-5 hours of operation, it would have been virtually impossible for Mr. PoP and I to take time off of work, drive all the way to the clerk of courts, and manually dig through records. Small investors like the PoPs would have been at a much bigger disadvantage before access to these records was expanded.
Now, we are able to research our investments in much the same way that the old school data hunters would – but quicker, and while sitting on the couch in our pj’s. That is where we do a significant portion of our due diligence when it comes to our property investments.
“Due diligence” is just a fancy schmancy way of saying we’ve done all the appropriate research in coming to an opinion about an investment.
For example - When one company buys another, before they finalize the deal the buyers will go through the “due diligence process” where the buyers will go through all the financials with a fine-tooth comb and find out everything they can about the seller before making everything final. Then they buyer can tell their shareholders that they did everything they could to make sure this purchase was a sound investment. It’s a big, important CYA move.
For us, doing “due diligence” on a property means that we want to find out as much information as possible about the property and its neighborhood before pulling the trigger. While some of this is on the ground footwork like we talked about in our How We Bought a $50K Duplex series, we also spend time combing through the public property records for not only the property we’re considering purchasing, but for the other properties nearby. When we do this, we’re looking for things like:
- Recent Construction Permits. If people are re-roofing and putting in pools or additions, it becomes pretty clear that the neighborhood is actively being invested in. This is a good sign.
- Count of Owner Occupied vs Rentals. Neighborhoods that are largely owner occupied tend to be better maintained and have a more stable population than neighborhoods that have a lot of rentals.
- Who Owns The Rest of The Block? Is it mostly owned by one person (or LLC)? If that’s the case, you need to know you’re going into a situation where you’re going to encounter price fixing in a rental situation. (Just ask any small oil producer what it’s like competing with the OPEC cartel.)
Public Records Level The Playing Field A Bit
This process is really important to us because unlike our larger competitors, our margin for error is significantly smaller. When your real estate portfolio has hundreds (or hundreds of thousands) of properties, one flop probably isn’t the end of the world. With that many, you can probably rely on the laws of averages to work out and give you somewhere in the range of your expected return.
But for us, we have three properties. A flop on one is a much bigger deal to the PoP’s bottom line. So we do our due diligence. And for that we need public records.
In the end, yes it’s a little weird that our neighbors could find a copy of our marriage certificate online if they really wanted to. But it seems like a small price to pay for the ready availability of public records that help level the real estate investment playing field for small time investors like us.
Have you ever used your local public records database? How easily accessible do your local clerk of courts and property appraisers make the public records in your town? Do you think we’re paying too high of a price in terms of privacy for the information that levels the investment playing field a bit?