Filed Under Beginner Real Estate Investing |
Basics of Tax Lien Investing (First Part)
A lot of patience is required to learn the ins and outs of tax lien investing, let alone real estate investing. However, if you take the time then you will be rewarded with the riches you desire through one of the most secure, available, and satisfying investment opportunities available: tax lien investing. And once you master one avenue of real estate investing (tax lien investing), there are still many more than you can employ in your endeavor to create multiple streams of income.
But before we get into using tax liens and/or tax deeds as an avenue for real estate investing, let’s identify exactly what ax liens are. Different forms of government (local, county, or state) use taxation as a way to raise capital used to fund their operations. One of these taxations happens to be property tax. Basically, the government charges a fee to the owner of a property. The fee is assessed based on a valuation determined by the local government.
This fee (tax), is used to fund the local government (usually the county). But what happens if the owner is unable to pay the tax, for whatever reason? The government places a lien against the property for the amount of defaulted payment, hence the name ‘tax lien’. Meaning that the property cannot be sold until the government is paid what it is due, and this amount is documented via the tax lien certificate. Think of this as Uncle Sam’s knee cap breaking procedure.
But a tax lien certificate is not a revenue stream, and thus no money goes to the government after placing the tax lien. So how does it get the money it needs to deliver to all of it’s voters the exemplary service we have come to recognize with government jobs? The government entity auctions off the tax lien or tax deed.
I hope you’re paying attention because this is where you take your first step into tax lien investing, purchasing the tax lien. When you purchase the tax lien, the government gets their money immediately. Budgeting is met and they are happy. But you have traded your hard earned cash for a piece of paper in hopes that investing in a tax lien will pay you. Before we get to why you would want to own one of these papers, let’s talk a bit more about how you obtain one.
Most people don’t even know that tax lien investing exists, let alone how to find a tax lien certificate or even attain one. So consider all the other would be tax lien investing advocates out there as strong competition. Despite what many ‘gurus’ teach you, these tax liens are in short supply and highly sought after, so keep your tax lien investing secrets to yourself!
What is it the tax lien investing people know? They know that there are thousands of counties that issue tax liens or tax deeds. Each one of these counties has their own government, and each one of these governments does things a little differently than the others. Start by looking at the different counties in the country using www.naco.org
I suggest you start with tax lien investing if you have limited funding and, like me, just want a consistent ROI for your cash. Doing so will also limit the areas in which you can invest, and thus allow you to concentrate your studies and efforts.
However, if you want to obtain discount real estate, then tax deeds would be a better pursuit. Regardless, as you become familiar with one you can always start learning about the other and eventually incorporate both.
Back to obtaining the first component of tax lien investing, the tax lien itself. To start, you’re going to need to develop a plan of action. Here is one that I suggest:
Call up the local tax collector (or treasurer) and ask when the next tax sale will take place. Once you know when, you need to know where the sale will be and make arrangements to be there. Next, derive a list of tax liens to be auctioned by getting a list from the office (if available) or scouring the local newspaper that lists government notices.
Now you have a list of properties with tax liens against them, where they will be sold, and when. But your only half way there. Now you need to determine the rules of the sale for the tax liens. This can, again, be found by contacting the local tax collector (treasurer).
You also need to know what the interest rate for the tax lien is and how it is calculated.
After you have all of this information, you can ask the juiciest question of all. Are there any left over (unsold) tax liens? If so, start here!!
Since you usually have a ‘yes’ to the last question, you will want to get a list of the unsold tax liens and give it an eager look over. Rumor has it that some counties have far more certificates than available funds from investors. How easy is that for those wanting to start tax lien investing?
If the list isn’t available? Usually another department maintains it and you can be directed there instead. In any case, if such a list exists at all, find it. This will be the easiest money you will see out of most real estate investing methods.
Try calling many different counties and getting the answers to each of these questions. Many of them will be similar and many of them will be different. But you will begin to understand this niche of the real estate investing industry, namely: tax lien investing.
You will most likely come across many counties with no unsold tax lien certificates before you come across one that has a list. But when you finally find this little gem, hold on to it and watch your money roll in.
In part two we will talk about the tax lien sale. (tax lien investing Second Part)
2 Responses to “Basics of Tax Lien Investing (First Part)”
I almost bought an info product on this subject. I’m a sucker for infomercials.
to be honest, most of the information is overly vague and if you ever spend money on this topic, do so on a book or two. even the books are vague, but they are much cheaper.
the reality of the situation is that these are so highly sought after now you have to dig through several counties before you can find over the counter ones, and those are not typically high dollar amounts (from what i have seen)…so if you want dozens of 200$ liens….fine….but the land is not usually worth that much and that makes it even tougher.