Tax Liens - What You Should Know When Investing
If you're interested in making money in a creative way, you may want to invest in buying tax liens. Many people boost their income when getting involved in this, but it's important to know some of the pros and cons.
Whether you're thinking of trying your hand at investing in real estate or are already a seasoned expert,
you may want to branch out and explore the ins and outs of tax liens. If someone is late paying their property taxes, the local government will place a tax lien on the property. To keep local government services operating (police, fire, sewer etc.) these liens are sold at auction. Many investors purchase these tax certificates at a local sale. The property owners have a certain amount of time (known as the redemption period) to pay all back taxes and fees plus interest to reclaim their property. If the homeowner does not reclaim their property, you can begin the foreclosure process and will own the property. The property then can be sold for a large return on your investment
One of the most important things to do as an investor is to purchase the security interest certificate at the most affordable price you can. This means, instead of hitting auctions in all the large counties in your area, you may want to consider the smaller ones. That's because bidding on tax liens certificates is competitive and you need to give yourself as much of an advantage as possible. Also, some people are actually working for big companies and only spend their time in the larger regions, since it's likely that the big regions have bigger security interest certificates. This means you have a chance at getting more certificates even if they are of smaller value.
Many local governments have started putting tax lien auctions online. This allows a larger pool of investors to bid on tax certificates which is an advantage to the local municipality¸ but it will also allow you to bid on many more properties without being physically present for an auction.
There are some cons when it comes to tax lien investing. The main thing that you need to understand is that when you by one of these certificates, you won't have access to your money or investment until the certificate is redeemed or after the redemption period expires (this can be several years). Now, for some people, this doesn't work.
Although no investment is guaranteed, the returns on a tax certificate make it worth the wait. If the property owner redeems the certificate, you receive all of investment plus interest (usually set by law). If the owner doesn't redeem his property you will be free to foreclose on the property, allowing you to own it for yourself or resale at a fraction of the market value. Keep in mind if you want to get the most for you money, you need to be willing to go where the best tax liens are. That means you need money for traveling expenses, food and more. If you're not comfortable preparing for all this, then you may need to consider whether or not this type of investment is for you.