Tax lien properties? Never heard
of it. Sounds complicated. Anything to do with taxes couldn't
possibly benefit me. Buying properties for pennies on the dollar
only happens in those late night infomercials. These thoughts
were mine regarding tax lien properties until I discovered the truth
about these properties. There is a huge return on investment (ROI)
on these properties if you are willing to put some time and energy into
researching the properties.
Institutions, like credit unions and
banks, and large investors have the resources to research and purchase
tax lien certificates which in turn can become tax lien properties.
But, they would rather keep this 'gold mine' to themselves to keep
lining their pockets with properties they acquired for pennies on the
dollar or guaranteed ROI of up to 50%. You will rarely hear your
financial adviser telling you about this opportunity, but it's worth
your while to see if this stream of income is something that you'd
like to pursue. If your dream is to own real estate, this could
be the best way to make your dreams come true.
As most of you know, state, county and
local governments raise money to provide services, such as law enforcement
officers, paramedics and other first responders, through revenue from
property taxes. Homeowners understand the concept of property
taxes well, as most pay this tax once or twice a year. This tax
is based on the fair market value of the property multiplied by the
current tax rate. Property taxes should be paid in full when they
become due by all homeowners. Fortunately, or unfortunately, however
you look at it, some homeowners fail to pay their property taxes on
time. Laws and time lines for property tax delinquency vary by
county, but when the property owner becomes delinquent on their taxes,
the amount of the tax becomes a lien against the property. This
lien does not help the state, county and local governments provide the
services necessary to keep their entity running, so they are authorized,
by state statute, to collect taxes due by selling the amount that is
unpaid at public auction, either through Tax Lien Certificate or Tax
When an investor buys a Tax Lien Certificate at auction, they are essentially paying the back taxes of the property owner. The state, county and local governments can continue to provide the services to their community and the tax lien certificate holder is now owed the full amount of the taxes plus a penalty to be paid to them, not the county assessor (although the county assessor will receive the payment and then pay the investor). The penalty is a fixed amount set at auction (some with state imposed maximums of 50%). Yes, that would be a 50% return on your investment. This is the part where I tell you to do your due diligence on the property BEFORE you buy the Tax Lien Certificate. There is a risk involved if you don't research the property to make sure there are no additional liens or claims to the property.
Tax lien auctions are usually advertised
in the local paper or through research on a county's website and anyone
that can legally own property in the United States is allowed to attend
and buy tax lien certificates. Many auctions are held throughout
the year, so if you plan on tax lien properties becoming a part of your
portfolio, you should attend one of these auctions, in the county or
state you plan to purchase tax lien certificates in, BEFORE you actually
decide to purchase a tax lien certificate. This will give you
invaluable insight as to how the auction is run, who are the major players
and if you would benefit from buying UNSOLD tax lien certificates after
the auction is over.
Tax lien certificates are the first lien
on the property in many states. What does this mean to you?
If a property owner fails to pay their back taxes and penalties within
a certain time frame, you, the tax lien certificate owner can foreclose
on the tax lien and take ownership of the property. This is how
a tax lien certificate investor becomes a tax lien property OWNER.
Real estate taxes trump all other liens on a property, including all
mortgages, so the tax lien certificate investor owns the property 'free
and clear'. Once you have the deed in your name, the tax lien
property is now YOUR property and you can flip it for an enormous ROI.