Tax Lien Investing Made Simple

April 10, 2017

Tax Lien Investing Made Simple

Tax Lien Investing Made Simple is the result of being asked a LOT of more or less basic questions about the subject.

I hope this article explains it in a straightforward and easy to understand method.

Property Taxes are collected locally. The Federal Government and State Governments do not concern themselves with property taxes.

Collected by local governments, these property taxes go to pay for basic county government functions such as schools, jails, roads and etc.

The amount of the tax rate of your local government is established once a year in relation to the funds they need to operate.

If they do not collect all of the property taxes they expected something has to happen. They can either cut back on local services or institute a method to collect delinquent property taxes.

And virtually ALL local governments choose to collect.

BUT, virtually ALL local governments also collect in similar but varying methods.

As you begin to learn about the subject you’ll see that many of us just refer to them as tax liens.

These “tax liens” prohibit the property owner from selling or mortgaging his or her property until these back taxes are satisfied. If you purchase one of these pure “tax liens” you are going to earn some amount of money whether it be in interest or penalties or both. But you DO NOT just automatically receive the property. You have no ownership interest in the property.

Most of the time you’ll see these “tax liens” referred to as “Tax Lien Certificates”. You are paying this person’s back taxes on his property. The local government immediately get their money to provide services. And you hope to collect a good deal of interest.

About half the states operate like this. In other words, about half the states actually sell a “tax lien”. It does no more than places more or less a “hold” on the property.

The other half of the states will sell a “tax deed”. In “tax deed” states there are in fact methods for you to become the owner of the property. If you want to invest in real estate these “tax deed” states may be the way to go.

If you simply want to earn more interest than your bank CD you would look more to “tax lien” states.

So the first thing you have to understand with these investments is that there are basically two types. A “tax lien” where you earn interest. And a “tax deed” which are more suited for you to eventually own the property.

These are the basic terms you need to become familiar with. Not all states are true “tax lien” states and not all states are true “tax deed” states but you have to understand the difference.

Now let’s assume you don’t understand any of it but are still interested. You go to your local tax sale and purchase a “tax lien”. It’s the only way you’re going to learn.

You may get lucky and the property owner may pay you a year down the road and you will have earned maybe 12% on your money. In some states you may earn almost double that.

You may NOT be as lucky and find out that you are going to have to foreclose to recoup your investment. You still get your interest. Just a lot more headache.

But first learn the difference between “tax liens” and “tax deeds”. Then know you have to understand your state laws AND your local rules.

My advice to anyone is to at least try it. I find it interesting and profitable.


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