Investing in tax lien is quite complicated and also expensive sometimes, especially for first time investors. Complicated because you may be investing on some useless tax lien certificates or worthless tax deeds. And, could also be expensive if you have been enticed to enroll in some special seminar or course on tax lien investing charging exorbitant fees.
TAX LIEN SEMINARS, therefore, sees this as an opportunity to provide free but significant tips for you to do the right thing and avoid committing the most common mistakes of inexperienced investors.
- First and foremost, you need to visit the website of counties or states near you.
- Print out all the necessary documents, rules and regulations and follow the instructions on tax lien or tax deed sales.
- Call the County if you have any questions.
Remember that investing in tax lien offers a lot of choices that could make you earn more than you have had imagined. It could be like buying an old house and with some makeover sell it for a great price. Or buy a nice property that can give you long-term rental income. Or properties that at the right time will be very good in the market. And, of course you could buy tax lien or tax deed and just wait for your handsome return of investment. But first the difference between tax lien and tax deed.
- Tax Liens – The County or local government places a lien on a property whose taxes are not paid, maybe, for two or three years. The government conducts an auction for the lien and not for the deed. The investor is then entitled to collect the lien and interest from the property owner before foreclosure proceedings begin. The property owner has the opportunity to redeem by paying the taxes and pay off the lien to retain the property. For example, an investor pays $10,000 to win a lien against a property, the investor then charges the property owner $10,000 plus 18 percent to 24 percent interest.
- Tax Deeds – An investor won the bid in an auction by acquiring the deed on the property. The investor becomes the new property owner outright, after the taxes are paid to the local government. The investor can do anything with the property — whether to fix and flip or to fix and rent. With tax deed sales, some states allow time for the original property owner to reacquire the house if the taxes and interest are paid to the new owner. These are known as redeemable sales.
While it is true that both types of investment can be very promising, there are also some mistakes investors often make which you can easily avoid with due diligence. These are:
- Lack of understanding about the Sale — Investors often confuse lien and deed sales.
- Lack of Homework — With all real estate transactions, you have to research the process thoroughly.
- Worthless property—A property that is in a bad part of town likely went into tax foreclosure because it isn’t worth anything. Some are in swamp lands. Some are vacant lots with no development possibility.
- Other Liens or Encumbrances— Some properties have outstanding property taxesowed to one department and other taxes or liens owed to another department. This could happen in states where homeowners pay city taxes, county taxes and school district taxes.
- Overbidding on Properties – Sometimes, because of too much excitement you tend to overbid. It’s best to stick to whatever bid you have in mind before.
- Forgetting important events— Some investors fail to remember the redemption period. If they don’t start foreclosure proceedings after the redemption period is completed, they will lose their investment.
- Negligence in paying other Taxes — Some investors fail to pay the other taxes on the property. Then, they lose the property because others buy it at auction for the other tax payment.
- Initiation of Bankruptcy Proceedings — Property owners who file for bankruptcy can disrupt the payment of local taxes. Therefore, investors have to wait before they get paid.
In general, both types of investment, tax lien or tax deed can be truly great real estate investments. However, you should always practice due diligence and know the risks of whatever you are getting into.
