Tax Liens - Passive Real Estate Investment With Guaranteed Returns 

States collect property taxes to fund essential public services such as laying of roads and other maintenance works. When a property owner does not pay the property taxes due, the states use either a tax lien or a tax deed system to collect the funds owed to them. These owners have defaulted on payments for over 1 to 1.5 years and despite repeated reminders fail to pay the taxes. The taxes are essential for the State to function properly. A total of 17 states use a tax deed system where property rights of delinquent taxpayers are sold in a public foreclosure auction. The rights to the land are sold at a minimal rate, which is the amount of tax in arrears. This gives the purchaser ownership rights to the property, which can be a steal. A total of 18 states use the tax lien system, where the tax lien or the amount in arrears is sold at an auction. Here, the landowner has been given a second chance to redeem his property. He can pay the arrears plus a penalty to the tax lien holder and prevent foreclosure. 

The tax lien investor has a secure investment, as he can either get 16% to 25% interest on investment or can foreclose on the property should the owner default again. The investor is in a win-win situation, as his investment is secure and he could end up owning a property. Let us say Harry bought a tax lien for $8000 on a property worth $80,000. He could end up owning the property if the lien is not repaid by the owner, a profit of nearly $75,000 as it is a first priority lien.

Tax Lien Auctions
When property taxes have not been paid for more than a year, the county official will inform the owner about the intended lien auction about 2 to 3 weeks before the event as well as publish it in a designated newspaper.

The tax lien will include delinquent taxes, penalties, assessment, and other charges. The auction is public, meaning anybody can purchase the lien. Auctions can be bid-up auctions, where the interest rate is fixed but the lien amount is bid up and granted to who ever makes the highest bid, or a bid-down system, where interest rates are bid lower but the lien amount is fixed. The investor accepting the lowest interest rates gets the lien. They are given certificates of purchase of the lien

The investor has got a passive income with interest rates ranging from 15% to even 50%. The property owner can redeem the lien by paying the amount owed plus penalty within a certain time frame as per the state laws usually between 1 and 3 years. If the owner does not pay the lien a second year, the investor is given first priority to purchase those liens, too. The best part about it is that the investor needs to just invest in the lien, the county makes sure the lien is paid or ensures foreclosure of the property. Once the lien has been paid, the county will give the investor the lien plus interest on producing the certificate of purchase of the lien.

In the event that the owner does not pay, the investor has an option to foreclose on the property. Not only will he make an astounding profit but also since it is a first-priority lien, all other liens and debts are wiped out. It is a secure investment, giving the investor free and clear rights to the property. Tax liens have another advantage: The investor does not have any landholder liability, as he is just a priority lien holder.

Tips For Purchasing A Tax Lien
It is necessary to inspect the property because you may end up with an option to foreclose on it. It will be imperative to ascertain its market value and to find out what other factors may influence its use, such as zoning restrictions. It is necessary that there are no environmental hazards or contamination making it impossible to resell the property in the event of a foreclosure. Make sure that it has no other equal priority liens, as it may cause unnecessary complications. In case the owner faces bankruptcy, the investor is assured a return on investment if not the title deeds to the property. Unless you are an experienced investor well versed in tax lien issues, avoid Federal Deposit Insurance Corporation liens.

Thus, tax lien investment strategies, if perfected, could well set you on a roller coaster of unprecedented profits from minimal investments. Be sure that you are well-versed with the laws of your state that govern tax liens and you could either choose to make money through redemptions or choose appropriate properties that you can foreclose on, making substantial profits.

 

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