Investing In Tax Liens Carries Risk
In these uncertain times, nearly every form of investment carries risk. With investing in tax liens, the risk is minimal, almost non-existent. The process is really quite simple: buy the delinquent taxpayers' property liens.
Your return comes in one of two forms: either the property owner pays the debt, plus interest, and saves their house; or you foreclose and take possession. Then, once the real estate is sold (hopefully at close to fair market value), you reap a huge dividend. It is not uncommon for a smart investor to make upwards of fifty to seventy-five percent return in a matter of weeks.
Of course, you might ask: wait, what are the conditions of these properties? I don't want to buy some dilapidated shack in a swamp. Not to worry; the homes and lots are all over the country, in every state, and every range of quality and value.
Now sure, there are a lot of fixer-uppers, as they're called, and they've suffered years of neglect. On the other hand, there are plenty of fine to outstanding to outright mansions that become available due to divorce, job loss, death etc. In the case of a vacant lot, sometimes it's passed on through inheritance and the new owner just doesn't think it is worth bothering with. Or, a lot can be assessed for community improvements and the owner realizes the assessment is more than the land is worth. Whatever the reason(s) for the property getting slapped with a lien, always do as much research on it before offering a bid. Normally, at the actual sale, no information or inspection is allowed. So, take care of that well in advance. There are stories of people putting in bids on nice big parcels - five, ten acres, or more - and later learning that they've bought the middle of a rive bed; or the land has no public right-of-way access and they now have to buy access from an adjacent property owner. The tax lien certificates, or sometimes tax lien deeds, are sold at auction. They are different, and this difference is important. With the certificates, you pay off the taxes for the property owner, and then agree to take a certain amount of interest when the owner pays off the debt over the payment period, a pre-determined amount of time. Now, the profit is smaller in this case. On the other hand, if the owner does not pay the debt, foreclose gives you title to the property. Result: you get the entire piece of real estate for mere pennies on the dollar. And, if the home/property is in good shape and can be sold in a short amount of time, the profit can be substantial. In the case of a tax lien deed, the profit is less for a very simple reason: you're paying for the parcel outright. But, if you're concerned about a nasty foreclosure procedure, it is definitely the lesser of two evils. Still, substantial monies can be made if you are patient and watchful, and keep an eye out for that special property to be offered for auction. Something very important to keep in mind with tax liens is that financing is not allowed. Different municipalities allow for different payment methods, but they have that one critical item in common: payment is due at the time of purchase. Whether it is cash, check, credit card etc. you have to pay to complete the transaction. Some municipalities do allow a day or two to complete the payment, but that's about it. Still, investors say that tax liens are a splendid use of their time and money, the risks are minimal, and the profit margins are excellent.
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