Tax Lien Sales: A New Opportunity For The Savvy Investor
As the real estate market takes a dive throughout much of the nation, a recent
trend in house flipping has made many investors reevaluate the profitability of
buying distressed homes on the open market for renovation and resale.
Real estate has long been considered one of the best (and safest) investment
opportunities for both the large and small capitalist. Savvy investors know
that the trick to making money in a downward spiraling market is to purchase
properties for a fraction of their value. How? Many are finding the high-profit
possibilities of investing in tax lien sales too good an opportunity to pass
by.
When a property owner falls behind on their taxes, failing to pay for one or
more years, the local taxing authority have the legal right to lien or repossess
the property and sell it at auction to recoup the lost tax revenue. How long
local authorities wait to seize individual properties, and how much they allow
to be owed on it, is up to the lien laws in their particular area.
Some properties may be acquired for a few thousands dollars, regardless of
how much it's actually worth, while paying off the lien on others may cost more
than the house or land is worth. Savvy investors take the time to research each
property carefully prior to sale day.
Tax lien sales usually happen at public auctions once or twice a year, depending
on the area in which it is located, and how many properties the government may
seize annually for back taxes. Larger urban areas may hold monthly auctions,
while smaller rural ones only have one a year.
There are two types of tax lien sales through auction: the tax lien certificate;
and the tax lien deed. Both can be profitable for investors with the proper
real estate experience, and the cash to invest.
Tax Lien Certificate sales, offer the delinquent homeowner one last chance
to retain ownership of their property, by using third-party investment money
to pay off the taxes and give them a bit more time to collect the money needed
to pay their debt without the risk of losing their home. When an investor bids
on a tax lien certificate, he is in essence agreeing to loan the homeowner the
money needed to pay all taxes due. The homeowner, in turn, agrees to pay back
the tax lien certificate holder - with interest - by a specified date. If the
homeowner fails to pay the debt on time, the deed to the property is transferred
to the investor for the amount paid on the taxes. Either way the investor makes
a profit: either on the interest he earns on the loan; or by obtaining the property
for a fraction of its value through the tax lien sale, and then reselling it.
Tax Lien Deed Sales are handled a bit differently, since the investor is actually
bidding (or buying), the complete property at the time of auction, with no responsibility
to give the homeowner more time to pay his/her tax debt. Once the selling price
is approved, the deed is automatically transferred to its new owner, giving
the investor full reign as to what to do with the property next: renovate it;
sell it as-is; or raise the existing house and build anew.
Investors usually pay more for properties in this type of tax lien sale, which
may lower their profit margins compared to the acquisition of tax lien certificate
properties. But, many investors prefer outright purchases to eliminate problems
with current homeowners. Either way, investing in tax liens is a profitable
and easy way to enter the real estate market in virtually any area.
Tax Lien Auctions
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