How a Tax Sale Can Make You Money

Thousands of homes are put up in a tax sale every year, utterly underneath the radar for most people. While these auctions may not be a part of the mainstream, clever investors are acutely aware of the advantages they hold. Lists are made public through various outlets. Some are available for free, while others are only available if you belong to certain memberships or pay a fee to view the source. Websites have begun popping up, providing an easy way for fledgling investors to get involved. If you've been looking for an investment opportunity that could pan out, this could be what you've been searching for.

A tax sale doesn't necessarily involve selling a home that has been repossessed by the IRS, but in some cases that is exactly what it is. This occurs when the owner failed to pay the taxes due on their estate, failed to meet the demands of the lien, and subsequently had to forgo the property. The winning bidder in an auction will then take possession of the property and be held responsible for the outstanding taxes due. If you are the winner, this is something you'll have to consider before you plunk down your investment dollars. Never bid on a property without knowing exactly what you're getting into.

Often, a tax sale will not involve the property itself, but rather the lien. If you bid on a lien and win, you will essentially take the place of the state tax collector. It will be up to you to see to it that the owner pays the back taxes, along with the interest owed. It is this interest that makes such an investment worth it. Most owners want to keep their property and will do what they can to get up to date on their payments. If you can collect the back taxes (making up for your original investment) and collect the interest, you can turn a tidy profit.

If you do place a winning bid on a lien and the owner does not bother to pay their back taxes, it could put you in a tough spot. While you will have the legal right to file suit and claim the property, this is a process that could take many months, if not years, to complete. At the end of it, you will own the home, however, which could potentially put you in an even better situation to make a substantial profit. It's just a matter of making it through an expensive and lengthy court process, which could put a strain on you, financially speaking. Make sure you're ready for such an ordeal before you get involved with a tax sale.