how to make money on tax liens

how to make money on tax liens

Make Money in Real Estate Tax Liens: How To Guarantee Your Return Up To 50%

Posted on 2008-07-06. By anonymous.

Wiley | 2005-04-05 | ISBN: 0471692867 | 288 pages | PDF | 1,1 MB

How does a guaranteed short-term profit of fifteen, twenty-five, or even fifty percent sound? What if you could acquire a property valued at $100,000 with just a $10,000 investment? In the tax lien game, those kinds of profits aren't just possible, they actually happen! In Make Money in Real Estate Tax Liens, Chantal and Bill Carey show you how to profit from this safe and reliable wealth-builder.

* What are the risks versus the returns of tax lien investing?

* Why should I buy tax liens?

* How, when, and where can I buy tax liens?

* Will I have to foreclose on properties?

* Does my state offer tax liens?

* How do investors redeem tax lien certificates?

Read This --- How to Make Money Buying Tax Liens

  • Read This --- How to Make Money Buying Tax Liens The most common reason why a tax lien is imposed on a property is delinquent property taxes or the inability of property owner to pay his property taxes. If you are a homeowner who has defaulted on your tax payments, then your municipality will have the right to sell the tax lien to a third party at auction. Consequently, that third party can either enforce the lien or sell it to another person if he wishes to. Nevertheless, there are rules to follow prior to an auction. First, notifications where accrued interest and penalties have to be computed is served. The lien can only be removed if it has been paid off. Nonetheless, you can still avail of the redemption period by which you have the opportunity to look for funds to pay the back taxes and redeem your home. Ted Thomas, America’s Tax Lien Certificate and Tax Deed authority, reveals that an estimated 3 million people in America are not able to pay their property taxes. The only way counties can get money is to auction off tax lien certificates since property taxes are needed to pay for civic services. These include the libraries, schools, hospitals, police and fire departments to name a few. Tax lien certificate for sale is by far the safest lucrative investment in America. Investing in tax lien certificates is a secure alternative to multiply your money. This is almost risk- free since it is hundred percent backed by law. Tax lien home sales are completely conservative investments protected by the county. When tax defaulted properties end up in auction, that is where savvy investors buy tax lien certificates. Here, the winning bidder ends up buying the property with just the amount of back taxes. Who knows, you might also end up owning the property in the future? However, once the property owner is able to pay the default taxes, government gives back your money plus accrued interests and penalties therein. Although it is said that 99% of all property owners redeem the taxes due the county, still you are given a high rate of return. Overall, the property owner pays 95% of all tax lien certificates sold. Obviously, increases the financial freedom you deserve. What do you know about home liens? A home lien is a legal recorded claim against your real estate property. The claim ties up your property as a way to collect money that you owe the county, meaning the unpaid property taxes. Why is home lien a cause for worry?
  • Be forewarned if you let a lien on your home linger, it could mean facing foreclosure. That is, with an unpaid debt. If your house was meant for selling, it could cause tremendous delay in the process. A lien serves as a warning since it could stop you from selling your home. Therefore, before the situation gets out of hand and into the courts, if ever, you have to pay your back taxes. Now that you are learning about tax lien certificates investing, start learning how to make money buying tax liens. ________________________________________________________________________________ World- renowned real estate guru, Ted Thomas has created a complete amazing system that teaches anyone with money how to buy tax lien certificates online. Register online and get free access to valuable resources on the subject.

Read This --- How to Make Money Buying Tax Liens The most common reason why a tax lien is imposed on a property is delinquent property taxes or the inability of property…

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How to Make Money Investing in 0% Tax Liens

by Ankit Duggal |

I recently attended a meetup of BiggerPockets members in New York City and this post is inspired from a discussion at the event. First, I want to thank Darren Sager for organizing the event, Brandon for attending, and getting an opportunity to meet a lot of the fellow BP members in person. Now back to the article.

The discussion arose as a fellow BP member asked me “What do you invest in Ankit?” I stated Tax Liens are my preferred investment class for 2014. The astute BP member then stated: “How can you make money in NJ Tax Liens with everyone bidding the liens down to 0% or paying a premium to the face value of the lien?”

I explained my investment model rationale to him and I was on my way. On the bus ride back to New Jersey, I thought that was a really good question and it warranted an article to flush out the investment rational and model behind buying 0% Tax Liens.

Large investors i.e. private equity groups, family offices, hedge funds etc. have discovered tax liens and have driven the demand for liens beyond the available supply in certain townships. These investors are willing to accept a zero percent interest rate on initial investment in order to acquire the rights to accrue 18 percent interest on all future taxes paid on the lien. Aside from the higher returns generated on subsequent taxes, investors earn penalties between 2 to 6 percent even if the interest rate is bid to 0 percent. This method of tax lien investing is built on the business model assumption that liens on average will not be redeemed for at least 2 years.

When I started investing in tax liens back in 2011, I attended my first tax lien auction and I noticed major tax lien investors buying liens at 0% or even paying premium to the face vale of the lien. I walked away from my first rattling my brain to figure out why would anyone want to buy a tax lien at 0%! I started researching into the asset class and realized that one of the key aspects of investing in tax liens is to keep paying subsequent taxes aka subs after buying the initial lien.

Once a tax lien investor owns the initial lien then the investor has the right to pay subsequent taxes. The ability to pay subs is important for a tax lien investor as it increases the amount of money invested in 18 percent and preserves the first priority status of the lien. Hence a zero percent initial lien purchase can become a double-digit return investment with the help of subs.

Investment Model: Purchase a lien at zero percent and pay subsequent taxes to achieve a 10%+ return over a 36 month investment horizon

The model is premised on the rationale that even liens purchased at 0 percent will achieve attractive returns through the payment of subsequent taxes.

A “How To” Guide for Investing in Tax Liens

If you’ve been doing some homework on alternative investments, you may have already come across tax liens, a form of investment which offers you the opportunity to make returns, often somewhere in the ballpark of 10 to 18 percent.

Who would have thought you could make money from something that contains the dreaded “t” word?

Tax lien investing is a legitimate way to make a predictable return for your money, but like any investment, you should be aware of the risks and potential pitfalls first. Here’s the rundown on what you should expect and what you need to know before investing:

A tax lien is placed either by the federal government, state government or local municipalities as a claim on privately-owned property. The lien is usually placed on the property when the owner fails to pay their property taxes (or other taxes) and gives the authority that places it the first right to the property over other creditors.

Overall, this is not good news for the property owner if they are in a tax lien situation. Their credit record will also be blemished by it so it’s always preferable that they pay the money owed sooner rather than later.

So, where do you come in as an investor? Those local municipalities would much prefer that they had the cash flow to keep running their operations, so several states allow for the sale of those tax liens to investors. The liens may run from being quite small (say, $100) to several thousand dollars, depending on the property and state of delinquency.

NOTE: Tax liens aren’t to be confused with tax deeds as the two work differently. In a state which sells tax deeds, you are actually purchasing the deed to the delinquent property and will hold it free and clear without a redemption period.

How does a tax lien investment work?

As an investor, you purchase a tax lien certificate that acts as a claim against the property in question. These are usually sold at auction and the bidder who wins is the one who bids the lowest interest rate that they are willing to receive and comes in lower than other bidders.

Once you hold the certificate, you now have the right to collect the unpaid taxes, a penalty, and interest on the late payment. The interest usually runs between 8% and 36%, depending on the laws of the particular jurisdiction. The property owner now must pay you within the redemption period of the lien, which can be mere days to five years, depending on the area.

As an investor, you purchase a tax lien certificate that acts as a claim against the property in question. These are usually sold at auction and the bidder who wins is the one who bids the lowest interest rate that they are willing to receive and comes in lower than other bidders.

Once you hold the certificate, you now have the right to collect the unpaid taxes, a penalty, and interest on the late payment. The interest usually runs between 8% and 36%, depending on the laws of the particular jurisdiction. The property owner now must pay you within the redemption period of the lien, which can be mere days to five years, depending on the area.

The obvious next question then is, what happens if the property owner doesn’t pay up? As the lienholder, you can ultimately take the deed to the property. One thing to be monitoring over this period is whether any new liens are issued against the same property. You will want to bid on those too because newer liens take precedence.

From this, you can gather that it’s better if you have cash available which you’re not anticipating needing in a hurry. If you get a lien with a longer redemption period, you are potentially waiting years for any sort of return. You could say this is a con of this type of investing – you only cash in at the end of the redemption period and, in the meantime, don’t receive income on your money.

What are the risks of tax liens?

Like any other investment, there are risks involved with tax lien investing, although it does tend to be a lower risk category than say, the stock market. One reason for this is that the investment is tied to a property asset, so if you’re not paid for the lien, you can take the title of the property.

Here are the risks to be aware of:

  • Each state has different rules regarding interest rates, redemption periods and pre-foreclosure requirements. This can become confusing for investors if you’re looking at spreading across different states.
  • States with pre-foreclosure conditions require lien-holders to follow them to the letter. If something is left out, you risk your lien being declared invalid.
  • In most cases, you won’t know the true state of the property. You may find yourself with the deed to a complete disaster. It always pays to do your due diligence – investigate the property where you can and at least be sure that you can sell it for more than your lien is worth. Investors have used liens to snap up properties for pennies on the dollar, but there’s also the argument that you will probably need to spend money and effort on the property before selling it. Many investors prefer to stick to areas that they are familiar with for this reason.
  • Following on from above, you also run the risk of landing a property that isn’t useable. What if you end up with an acre of marshland? This is again, a case for doing your homework first. Several years of unpaid taxes may indicate the property is not a good investment
  • There may be other past-due taxes associated with the property which you will have to take on in a foreclosure situation. For example, city, county or school board taxes.
  • The owner may file for bankruptcy, putting property taxes on hold. There have been situations where this has happened immediately prior to the property going up for lien auction, before the tax authority is informed of the bankruptcy status. The tax lien ends up being sold at auction, but the sale is invalid. The purchaser can get their money back, but there is no return (and there’s bound to be a wait period to get your payment).
  • If you take on a lien with a longer redemption period (say, a year or more), new lots of taxes will fall due. You will need to pay these in order to remain the priority lien holder, otherwise, liens may be subsequently sold for those taxes. This means that you need to keep up your diligence over the redemption period. Many investors hire lawyers to take care of the details such as additional taxes or foreclosure proceedings (another cost to factor in if you take this route).

One of the advantages of investing in tax liens is that you can potentially get in with a much lower capital investment than some other choices. Depending on the lien amount, you might be able to get in for a couple of hundred dollars or less.

Secondly, if you’ve done your homework and managed to avoid any of the pitfalls listed above, you can find yourself with a relatively low-risk investment which brings you a predictable return. When compared to something like flipping property, tax liens are much more stable because there isn’t the same volatility as the property market.

Tax liens are generally sold at auction by the county or municipality concerned. You might want to start with an area that you already know well, as it will make it easier for you to do your homework before the sale.

A simple Google search of “(your county or municipality) tax lien sales” will usually turn up website information, but you should also check local newspapers. The county is required to post public notices of tax lien auctions. If all else fails, just call them and ask for details of their next tax lien auction.

You can expect there to be some stiff competition from other investors and even large lien investment funds. Remember, auctions are designed to promote a competitive environment which nets the seller the best possible deal. Know your true minimum rate for a property and don’t get caught up in auction fever to go any lower.

While you can get into tax lien investing for a relatively low amount and it is lower risk in the scheme of investments, beware of the possible pitfalls first.

It’s always important to do your research on the property and understand whether you’ll be getting yourself into a bad deal should the deed end up in your possession. You ideally want something which you’ll be able to sell with little trouble.

In most cases, rather than end up with the property you’ll simply have your return on investment after the redemption period. This is a nice, predictable income, although you need to be prepared to wait for it if you’re in on a longer redemption period. Know the rules for the respective jurisdictions that are selling and choose those with terms which suit your preferred period for tying up your cash.

Make Money Paying Your Neighbors’ Property Taxes

Every homeowner knows the joys of paying property taxes. And unfortunately, the Great Recession has made it tough for many people to pay the bill.

When a homeowner fails to pay their property taxes, a lien is placed on their home and the tax lien certificate is later auctioned off to investors.

Anybody can participate in a tax lien auction and they are quite popular with small-investors because of their low risks and high interest rates. Tax liens can also be purchased for as low as a $100, making it an accessible investment for even those with little capital.

How to Buy a Tax Lien Certificate

County governments don’t like to wait for outstanding tax bills so they auction the liens off to local investors to generate quick cash. The auctions are often held at the county courthouse, but some counties even have online auctions.

To find out about tax lien auctions in your area, “Google” your county tax collector’s website for a calendar of upcoming events. You can also check in your local newspaper as auctions are required to be announced in the legal section of the classifieds.

Attending a tax lien auction can be a lot of fun and there are usually several auctions held in a row. The amount of the lien doesn’t change in the auction, rather investors bid on the interest rate. Bids on the interest rate will start high, and investors bid down until someone wins the auction and the tax lien certificate.

As long as you hold a lien against your neighbors’ house, you will continue to accrue interest on your investment. The interest rates can range anywhere from 5% to a whopping 50%! In most states, the annual interest penalty is applied the day after the lien is acquired, so often times your best rate of return can be when a property owner pays their taxes within a few days of the auction.

Every time a homeowner send a tax payment to the county, you will receive a check in the mail for your portion. If you own several tax liens, it can be a great way of earning passive income.

What if They Don’t Ever Pay Their Taxes?

Well, truth be told, many tax lien investors pray that their homeowner never pays the bill…

If the taxes are not paid the investor receives first right of refusal for the next year’s delinquent taxes. In most counties, if a tax payer is delinquent for three years in a row, the investors has the right to begin foreclosure proceedings and claim the deed to the house. Obviously, this can create a huge return for tax lien certificate holders who can acquire properties for pennies on the dollar and resell them for a huge profit.

Foreclosing on someone can come with a lot of stipulations depending on your state. If their are other lien holders or claims against the deed, they will need to be paid before you can take ownership of the home.

There is also some risk in this strategy. First, it’s estimated that less than 1% of homeowners let their property tax debt default to the point of foreclosure, meaning that your chances of acquiring a home on the cheap are slim. You also run the risk of inheriting a home with major structural damage which is why it’s important to do your research before investing in a lien. If the home is worth less than the lien you hold, you’re out of luck.

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