Buying a Tax Certificate: A Look at the Benefits

If you've been getting interested in making a profit from real estate investing, you may have found yourself discouraged by a market that is far from stable. Fortunately, there are more ways to profit from the real estate market than simply buying and selling property. One of the ways that has proven highly profitable for many is buying a tax certificate from local and city governments that have placed a lien against a house. This situation can arise when a homeowner fails to keep up with their property taxes. The government steps in, places the lien, and this is willing to sell off the certificate to interested investors. This takes the delinquent tax problem off of the municipality and it gives investors the chance to either collect the taxes from the property owner or potentially take ownership of the property at a drastically reduced price.

Interest

When you buy a tax certificate, it not only entitles you to collect the back taxes on the property, but the homeowner will also be responsible for paying all taxes, plus interest and fees on those taxes. This is where investing in this type of lien can be very profitable. The money is all owed to the holder of the lien, which will be you if you choose to move forward with investment. The longer the homeowner takes to pay back the money, the more the interest grows. Most states have a redemption period that legally allows homeowners a set amount of time to repay the taxes, interest and fees due. Some investors even set up payment plans with the homeowner, which, if the homeowner chooses to make a minimal payment each month, can set the investor up to profit almost as a credit card company would.

The Deed

When you buy a tax certificate at auction, the homeowner will be responsible for paying you the money owed (all taxes, interest and fees) by a pre-determined date. If this obligation is not met, it will be within your rights to foreclose on the property and essentially take over the deed. Though you'll have to go through what is generally a rather lengthy court process to reach this point, you'll have essentially purchased a house substantially below market value (the cost of the certificate, plus fees and other costs accrued during redemption period and costs of the foreclosure process). This is an enormous opportunity for profit, even if you need to be ready for an extensive process in the meantime. There are companies out there that can help you expedite some of this process, particularly when it comes to the quiet title action you need to file.

If you're interested in getting into tax certificate investment, do your research. Liens go up for sale all the time, but it can be challenging to break into that world. Don't give up hope, however, as there are plenty of resources out there that can help you become an investor.