Types Of Tax Sales And How To Handle Them

There are two main types of tax sales in the US, lien certificates and deeds. Each has their advantages and disadvantages.

If you’re interested in getting into real estate or property, but still lack the necessary funds, tax sales are a great way to get involved and possibly pick up a great bargain. It can be confusing for first timers, as there are different ways to invest and risks involved. There are two main types of tax sales depending on the state or county where the property is being sold. Potential investors may either be looking at purchasing lien certificates or deeds, with some areas having a combination or hybrid of the two available to buy.

Lien Certificates

These kinds of tax sales are good for investors looking to diversify their portfolio or those looking for a potential extra source of income. In this scenario, you purchase a lien certificate for a specific home or piece of land directly from the government. The owner than is indebted to pay the remaining tax and accruing interest directly to you. If they default on payments, the property will then go to auction and you will be rewarded with the profits, or the property may directly be turned over to you to do with as you please. While it is possible in these cases to end up with a property for just the cost of the taxes, many people will attempt to make payments in order to keep their home.

A big risk in these situations is when the person defaults because the property is essentially worthless. The government may deem it a waste as well and not send it to auction or foreclose on it, as it would be easier to just ignore it. If this happens, your investment is likely wasted, unless you can repurpose the property or flip it for a profit. Barring that scenario, you’re more likely to make a profit just from capitalizing on the interest made by those who continue to pay, or through acquiring a decent piece of property for a fraction of the cost.

Deeds

Some states forgo the lien certificates and send the property straight to auction. Often times the starting bid for the land or home starts at the cost of outstanding taxes and dues. In these tax sales, the benefit is that after you make your purchase, the property belongs to you. There is no waiting for someone to default or for the government to start foreclosure proceedings. These auctions tend to be more heated; however, and sometimes property can even go for more than it is really worth. While you can get great deals, you have to be a bit auction-savvy and keep a cool head. You’ll have more misses and be outbid, but persistence can pay off.

The risks in this scenario include going over your budget or picking property that is less than desirable. Sometimes a deal that seems too good to be true is. Many homes will require some fixing up and hard work. There are also bad pieces of land that should be avoided. Most importantly, you have to have your finances in order. There is no point in buying a foreclosure if you’ll be foreclosed on yourself.

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