A lot of investors know the difference between a tax deed and tax lien. Investors understand that when they buy a lien certificate, they are not buying the property but would pay for its delinquent taxes. They are also putting a lien on the property so that if the homeowner fails to pay his dues plus interest and penalties, the lien holder can foreclose the property after the redemption period. Investors also understand that when they buy a tax deed, they are actually buying the property and can get the right of ownership. There are those however, has no idea yet on what a redeemable deed is and its difference to a lien. Here is a brief explanation:
Redeemable deed is like tax lien and tax deed mixed into one. In a redeemable deed sale, you are actually buying the property’s deed. However, the deed is restricted during the redemption period. This redemption period is different from a liens scenario though. The homeowner can redeem his property by paying the full amount that was bid for the deed plus a heavy penalty. If the deed is not redeemed, the homeowner is no longer allowed to get back his property. The deed holder is now the new legal owner of the property.
A tax lien can come into play to a delinquent taxpayer for not paying tax dues. This includes property, business, and income. States and counties use this type of enforcement to get back lost revenues. The Internal Revenue Service is not your only concern when it comes to collecting tax debt. It is because this also includes the federal government and all the way down to the municipal levels.
Taxpayers have heard about federal tax liens because it comes direct from the Internal Revenue Service. State tax liens are similar to this. The difference between the two is that multiple sections of the government can enforce a lien on the state level. Your state can place this against your property if you fail to pay personal taxes.
You would most likely be faced with a county lien when you fail to pay your property taxes. They can place the lien against both secured and unsecured property. If you do not act quickly, this gives them the ability to take over the property or sell the lien certificate to interested investors.
Municipal tax lien is just as damaging as those listed above. This is also used when a taxpayer fails to contribute taxes. Its process has to do with jurisdiction and based on where you reside.
Always remember that a lien is a serious ordeal no matter if it is state, federal, county, or municipal. When you owe taxes to the government, pay it right away or face the consequences.
There are important questions raised about tax lien investing. One of these is “Is it possible to purchase free and clear properties for only a few hundred dollars?”
It is very rare for a valuable property to be acquired for just a few hundred dollars but acquisitions like this have been pulled off. Majority of valuable properties are redeemed before a deed a can be acquired. This happens even if there are subsequent taxes and significant fees as well as legal cost that must be paid in due time. Furthermore, the interest rate is bid down to zero and most tax liens homes are either bid up into tens of thousands of dollars. Lastly, there are a lot of property investors who want to purchase liens that a lottery is held. With these said, do not expect that you would be rich in just a short period of time. You also need to work hard, do due diligence, and be patient on your lien certificate investments.
Is there a way to compete with large companies in the tax liens and deeds investing business and still get high interest rates? It is quite difficult to compete especially in some states wherein the interest rate is bid down at the tax sale. However, here are some strategies you can use to get high returns on your tax liens and deeds investments:
a. It is best to attend actual tax sales rather than relying too much on online auctions. You get to bid on properties and adjust your game plan accordingly. You also learn from your mistakes.
b. Go on far locations. Explore rural areas that has tax sale properties for sale and you might get homes or vacant lands at pennies on the dollar. Take note that you are going to have a tough time competing in crowded counties.
c. Buy smaller liens because most big companies or institutions target large liens. Always remember that smaller liens have less competition.
d. Majority of investors want to bid on the liens of beautiful houses situated in quiet neighborhoods. They leave out those that are in vacant lands which has the potential to rise. Competition is lesser for these types of properties.
The idea here is to get to know the value of properties and know your competition so that you can get properties at ease. This way you would also know which ones are after by big players and which ones are less competitive.
Do you know how to get started in buying tax liens online? If not yet, then you need to check out this information:
First you need to find out which US counties conduct tax lien sales online. Take note that most of the counties in Arizona, Colorado, Florida, Illinois, and Maryland do online tax sales. A helpful website taxsalelists.com offer information on the tax sales that are coming up at an area near you. Sign up for a membership on their site.
Second if you know which counties conduct the online tax sales, read all the information you can find on their website. Understand how to bid, when to register, and what responsibilities you’ll take as a bidder. Also, read on what to do after having successful bids and the payments needed at the sale.
Third you need to register for the sale as soon as registration is open to the public. Determine too if deposit money is required.
Fourth make sure to place your bids before the sale ends. Double check if you are bidding on the right property. Pay all your successful bids on time and make sure you have the money to back it up.
When purchasing tax lien certificates, there are rights provided to the homeowners to redeem their properties back. The rights depend on the counties that handle the tax sale. If the homeowners exercise their rights to redeem, then they must pay the county back the initial investments of the buyers plus interest and other fees. This happens in most cases.
Here are two scenarios that would happen in tax lien investing:
a. Property not redeemed – The investor gets the property free and clear of any mortgage. The investor also gets the chance to apply for a deed and own the property at a price just for its back taxes.
b. Property Redeemed – The investor gets back his initial investment plus interest. The investor makes lots of profits out of this.
Tax lien investing is a very profitable business but make sure to do it right in order to lessen the risk of losing money.
What is a tax lien sale? Tax lien sales are held yearly in the US by counties in order to satisfy tax debts of homeowners in the form of property taxes. In a tax sale, the lien certificates are offered to the general public and property investors who are willing to buy can place their bids. Winning bidders would get the lien certificates.
Delinquent taxes together with the accrued interest and other fees that are associated with the property on sale must be paid by the homeowners. Failure to do so after the redemption period has expired would result to foreclosure of property, and rights of ownership granted to a new owner.