Investing in real estate can be done in a number of ways. Investors can purchase a property to flip for a profit or go through the process of buying tax liens. A home with a tax lien is put up for sale at an auction. Each year there is an average of $7 billion and $10 billion of taxes that go delinquent.
One reason buying tax liens is a good real estate investment is because of the increased foreclosures due to the economy. Property lien sales area a way for local governments to get money from a property that is past due with taxes. Tax lien sales are used in 29 states to force homeowners to pay property taxes.
Buying tax liens will vary from state to state, but will use the same basic outline. There is a set amount of time tax collectors need to wait before unpaid taxes are put up for auction. The time to wait can be a couple of months to a year or more. Tax liens at an auction are sold to the highest bidder. The total that paid for a tax lien will go to the government entity. A winning bidder will get the tax lien.
Return on Investment
Investors can see a return on their investment multiple ways. The first is to get the amount paid in the auction and the interest penalty back when the property owner pays their tax bill in full. Average interest that is on a tax lien is between 10 and 12 percent. The second way is to seek the ownership of a property. This is done by waiting to see if the property owner redeems their property. The person who owns the tax lien will need to file a lawsuit to obtain the deed to the property.
Know the Pitfalls
Investors buying tax liens need to be aware of the pitfalls to buying tax liens. The condition and area of a property needs to be known before bidding for a tax lien. The investment put into a tax lien will need to be protected. One way to do this is to check the redemption period allowed by the state. Investments in tax liens may take time for a return to materialize. This means patience is necessary.