Real Estate Investing: Tax Liens

Certain measures have to be taken by the government to make delinquent taxpayers to pay taxes that are due, tax lien is one such method adopted in 18 states, where as the rest of the states use the tax deed system. In states where applicable, tax liens are sold to investors for taxes that are over due, and the investor can collect interest from the homeowners for the amount invested in the tax liens. If the homeowner fails to pay the tax lien plus interest, the investor may foreclose on the house and gets to own the property without any problems, as it is a first priority claim.

Advantages of Investing In Tax Liens:

This method of investing in real estate is gaining popularity as investors are guaranteed a favorable return on their investment or in extreme cases deeded rights to a property. The earning potential is about 16% to 24% and it is considered a low risk and a low maintenance investment. These interest rates are untouched by any changes in the Federal Reserve interest rates. Another reason why investors love this method is that they lien does not subject them to land owner liability. Tax liens are secure investments as they are but a fraction of the property value.

When property tax delinquents are given adequate time as well as warnings to pay the arrears, and they fail to do so for more than a year and a half, the tax collectors will list their property taxes liens and sell them in an auction. The property owner is informed of the intended sale of their tax lien as well as published in the local newspaper. Once the tax lien is sold, the homeowner is given a fixed time frame, the redemption period, to repay the tax lien plus interest. Foreclosure of the home is inevitable if the amount due is not paid within the redemption period. The investor is granted full rights of ownership to the property and in case the money owed is repaid while foreclosure is initiated; the investor has the right to charge the cost of he foreclosure to the homeowner too. Thus they have potential to huge profits. If foreclosure occurs the property is given free and clear of all other claims to the investor. Another advantage is that the investor need not worry about redemption as the county is in charge of that and usually they need have no contact with the delinquent taxpayer. If the redemption has been paid to the county, the county returns the principle amount plus the interest to the investor on producing the tax lien certificates. Should the same homeowner is delinquent again the investor has a priority claim on the tax lien.

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Alexander Gordon is a writer for – The Small Business Consulting Community. Sign-up for the free success steps newsletter and get our booklet valued at $24.95 for free as a special bonus. The newsletter provides daily strategies on starting and significantly growing a business.

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