Investing In Tax Lien Properties

In some states this is a good way to pick up properties very cheaply. You have probably seen numerous infomercials on TV claiming you can take a few hundred dollars and acquire several hundred properties. While this is probably an exaggeration, there is some potential with investing in tax lien properties.

Let's go over some basics. Governments must tax to make money. Property tax is another form of taxes. When someone doesn't pay their property tax a lien is placed against the property. That person has only so long to pay the tax before the government will have a auction for either the Tax Lien Certificate or a Tax Deed.

Every state and county is going to be different on their laws and rules and since there are several thousand counties in the United States, I cannot begin to go through each one. So you need to make sure you have researched the laws pertaining to the counties you are interested in investing in. For example, there is a period known as right of redemption. This is where the old owner can go back and pay the money due and get the property back. In some states it's 6 months and in some it's as long as 4 years.

My goal on this page is just to give you an overview of how tax lien investing works so you can decide if this is an avenue you'd like to go down.

First, there is the judgment and then the scheduled auction. You can call your local county and find when the next tax lien sale will take place. You can also get a list of the tax lien certificates and properties. At this point you need to research the rules of the sale. Most counties and states will be glad to help you with that. Just Ask!!!

Now at this point you have a list of tax lien properties, you know when the sale is going to take place, and you know the rules of how it will work. The next step is to figure out which properties to bid on. You simply need to look up the legal description, the address, owner's name, and assessed value.

You will already know how the sale will work because you did your homework, but let's go over a few different ways states conduct their tax lien sales. First, the starting bids are typically the amount of taxes, fees, and interest owed. In some states you are bidding on the lien certificate and the bidding works backwards.

For example, if the state only allows up to 17% interest, the bidding will start at 17% and then go to 16.5%, 16%, 15.75% etc until the lowest interest rate someone is willing to pay is accepted. That person has now purchased that tax lien certificate at that ending rate. The owner must still pay the 17% and the county keeps the difference.

In some states you are bidding on an interest in the property. For example, if the tax certificate is worth $2,000 the bidding will start at $2000. The bidder is bidding on an interest in the property. It could be from 1% to 99% depending on the value of the property and the value of the tax lien certificate. In the event of a foreclosure you would gain the percentage of ownership in the property.

Remember that if the right of redemption is exercised by the old owner, you do not lose your investment! You will get a percentage of interest depending upon which system the state uses.

Investing in tax lien properties can seem complicated. It really isn't too bad once you learn the rules of your state and county. The main thing is to do your homework and attend some tax lien sales before actually bidding at one.

Tax lien investing can provide a great rate of return on your money and in some events, you can actually get the property very cheaply. I will point out that over 95% of tax lien properties are redeemed by the owner. You can still get a good return through the interest if nothing else.

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