Tips To Buying Tax Lien Certificates

 

Buying Tax Lien Certificates is a wonderful investment opportunity, since they virtually guarantee some sort of return rather quickly and effortlessly. How much of a return depends on whether or not buying the lien certificate results in property acquisition.

When a property owner falls behind in their real estate taxes, the local taxing authority has the right to seize the property and sell it for the amount of the tax debt. Tax Lien Certificates are a way for them to recoup tax losses, by giving the homeowner a second chance to regain ownership of the property by repaying the debt during a set period of time.

Buying Tax Lien Certificates is basically a type of short-term loan made by a real estate investor, which is used to pay off the tax debt on the day of the auction, with the right to take possession of the property if the loan and interest is not paid by a specified date. This type of investment is virtually risk-free since the investor will either recoup his initial cash outlay (with interest), in a short amount of time, or acquire ownership of the property soon thereafter, and sell it at market value.

Although the risk for investors is minimal compared to other investment opportunities, there are still some safeguards that should be taken to ensure that the investor actually makes money when buying tax liens - and doesn't lose it!

Do Your Homework:

A savvy investor takes the time to research properties before the auction to ensure that it is profitable before buying the tax lien. Although most properties are acquired for pennies on the dollar through buying tax lien certificates, there have been reports of property owners who allow their parcels to be sold at auction in order to get out from underneath the tax burden of an unusable property.

When buying tax lien certificates that are offered at auction, they rarely give any information beyond a lot number to prospective buyers. Do your homework beforehand to check to make sure that the property is in good shape; is located in an area that guarantees resale; and is actually "usable" either as-is or with renovations. This will all ensure a profitable investment of your time and money before you even consider buying the lien certificate.

Understand the Process.

Every county and state has their own unique set of laws and regulations regarding tax lien acquisitions. Be sure that you are very clear as to all restrictions and liabilities being assumed when purchasing a tax lien certificate. It is also important to realize that when you buy a tax lien certificate, you are NOT buying the property outright, but actually loaning the homeowner the money to pay their taxes and possibly save their property, for a specified amount of time. In the event they pay you back with interest owed within the waiting period, complete ownership reverts back to them, leaving the investor with nothing more than any profit they made on the interest.

Familiarize Yourself With The Auction Process.

Tax lien auctions are fairly simple. Most communities hold tax lien auctions once or twice a year to release properties and recoup lost tax revenue. The auction process is fairly simple. A listing of secured properties is usually made available at the local tax office several weeks before the sale, giving potential buyers the opportunity to select which lien certificates they wish to bid on.

Qualified bidders who have proven that they either have cash on hand, or a certified bank draft to pay for their purchases, are issued a bidding number prior to the auction. Unlike traditional auctions where the highest bidder wins, tax lien auction buyers generally "bid down," or bid on the lowest interest rate they are willing to accept to purchase the certificate. Accepting a very low interest rate will yield a low return of investment profit if the property owner does indeed buy back the lien certificate.

If however, the owner fails to pay off the lien certificate in time, the investor is granted ownership of the property for the price of the taxes due, and is free to sell it at a much higher profit yield.

Buying property tax lien certificates is a fairly easy way to invest in local real estate. With a little research, and an eye for a good deal, those with enough capital on hand to pay for the liens at auction tend to make a hefty profit on the majority of the liens acquired.

 

Buy Tax Lien Certificates