Make Money with Tax Liens: Can You Do It?
In this time of financial instability, bank and auto manufacturer bailouts, and a declining real estate market, there has never been a better time to consider investing in tax liens. There is no other facet of real estate investing that is so close to 100% risk-free. And, the amount of money required is considerably less than purchasing real estate outright.
There are two basic goals in tax lien investing. The first is to accrue interest on your invested funds. The second is gain control of and acquire the actual property upon which the lien has been placed.
The first is the easiest and the most common. The second requires more knowledge and time to put a strategy into place. Both are effective means of increasing your net worth.
"United States coin image from the United States Mint." .
What Are Tax Lien Certificates?
Almost all local governments are dependent for the majority of their budget income for services from real estate taxes. When someone or some business does not pay these taxes, the local government either has to cut services or collect the taxes in some other manner. This is usually done through the issuance of tax lien certificates and tax deeds.
There is a technical and legal difference between tax deeds and tax liens, and States may issue one or the other - most however issue tax liens. [For example, Florida is a Tax Lien State; but its next door neighbor, Georgia, is Tax Deed State.]
Simply put, tax liens follow this process: This process is a win-win situation. The governmental entity has had the money it collected for the taxes to run the governmental services and the investor has a more than average return on his investment.
- Taxpayers do not pay their property taxes by the established deadline.
- The county gets this unpaid tax by issuing tax lien certificates and selling them to an investor for a legally established interest rate.
- The investor then has a lien against the taxpayer's property until such time as the taxes are paid.
- When the property owner pays the taxes owed the government (taxes plus interest), the investor is notified to bring in the tax lien certificate. He/she then gets the invested money plus the legal interest from the county or municipality.
Why Doesn't Everyone Invest in Tax Lien Certificates?
Until recently, only the most sophisticated investors were aware of tax lien certificates. The majority were bought up not by individual investors but by banks, attorneys, and insurance companies. With interest rates on these tax lien certificates ranging from 12% to 25% and even higher, the large investors were quick to jump into this investment.
The few "little guys" (you and me) investing in tax lien certificates were in the minority. After all, it is difficult to invest in something you are not aware exists.
At the same time, these sales occur only at certain times of the year in each state. Participating requires knowledge of when and where the sales occur. And, until the last few years a person had to be physically present at the auction to bid, but now many States and local municipalities have internet participation."
How Can I Invest in Tax Lien Certificates?
Knowledge is power! Every state in the United States has regulations regarding tax lien certificates and tax deeds. These laws control the process at the local level. Each town, city, and county that has a taxing authority can issue tax certificates on real estate upon which the annual taxes have not been paid.
For example, the author's state, Florida, has 67 counties, each holding a tax auction. The date of the sale varies from county to county. Florida has an established interest rate of 18% on certificates.
However, you might get less, since at the auction, the winning bid goes to the person with the lowest interest bid. After the auction, on any properties with leftover unpaid taxes (no bids), a person can purchase the tax lien certificates for the state established interest rate of 18%.
Likewise, in Florida the redemption period is two years. Anytime after two years, the tax lien certificate holder can apply for a tax deed. After the legal filing process is completed the property is auctioned off to the highest bidder.
If you are not the highest bidder, you still get your original investment plus the interest (18%) for the time you had the certificate. So, Florida is not likely to be a state in which you are going to get the property for 10c on the dollar, but it is a good state in which to invest for a high interest return on your money.
You can do all the research yourself on each state or you can pay someone else to do it for you.
Have You Ever Bought A Tax Lien Certificate?
"Tell me your experience"
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DaveWalters
Jun 10, 2009 @ 5:01 am | delete
- Been buying tax liens for a few years now, an unbelievably great way to invest money. Seems to be a somewhat guarded secret though. I guess the word is slowly getting out. Great lens!
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