How
much do tax liens cost?
What
kind of return on investment do you get investing in tax
lien certificates?
How
long does an owner have to pay off their taxes due?
What
if the owner does not pay within the redemption period?
Does
every state auction off tax lien certificates?
What
kinds of properties can you acquire through tax lien sales?
Why
should I invest in tax lien certificates?
How
much do tax liens cost?
Tax
liens can cost anywhere from a few hundred dollars to
a few thousand dollars and even significantly higher.
It all depends on what kind of property it is and how
much it is worth. A tax lien certificate is for the amount
of one years worth of property taxes.
What
kind of return on investment do you get investing in tax
lien certificates?
This
depends on the state in which you are purchasing tax lien
certificates. Your rate of return or return on investment(ROI)
can be anywhere from 5% to 240%. Let me explain...there
is a difference between your ROI and your Effective ROI.
If your ROI is 10% per year, and the owner redeems their
lien after one year, you earn 10% interest on your investment.
But if the lien is redeemed in one month your Effective
ROI is 120%. This is because interest rate is always calculated
over the period of one year. If the interest is paid off
in one month, you still have 11 months out of the year
to invest that same money and earn more interest. So if
you kept investing that same money, and each month were
paid off 10% interest, after one year you will have earned
120% interest on you principal investment. This is what
makes tax lien investing worth it, not only can you earn
high yield returns, but you most likely will not have
to wait a full year to earn them.
How
long does an owner have to pay off their taxes?
The
owner has a certain amount of time, called a redemption
period, to pay off their taxes and redeem the tax lien
certificate. It varies by state and county and can be
anywhere from 6 months to a year. Click on the individual
state links to see what the redemption period is in your
state.
What
if the owner does not pay within the redemption period?
The
lien holder can now foreclose
on the lien. There are various ways in which this
can occur based on the area the lien was purchased. but
in most cases, if the owner doesn't pay up, the property
now becomes yours free and clear. If you purchased the
lien in an area where this is not the case, the property
is still foreclosed on and sold at an auction, and your
investment will be paid back same as if the owner had
redeemed, you may even earn a higher penalty rate.
Does
every state auction off tax lien certificates?
There
are three main property sales that states go by.
Tax
Lien - A lien is placed on the property due to
non-payment of taxes and can be purchased by an investor.
The tax lien certificate earns an interest rate and the
owner has a certain redemption period in which to pay
off the bill.
Tax
Deed - The investor acquires the title to the
property. No interest rate or redemption period is required.
Hybrid
State - This is a deed state which functions
like a lien state. The investor acquires the title to
the property subject to the owners right to redeem within
a certain amount of time and get the property back. If
the owner redeems, the investor receives an interest rate
or penalty on the investment.
What
kinds of properties can you acquire through tax lien sales?
The
answer is simple: all kinds. People think that only poor
people in terrible houses don't pay their property taxes,
but this is utterly false. There is nothing more common
than a wealthy person who buys an expensive house, only
to fall on hard times later in life and not be able to
afford the property taxes on it. There are many reasons
why an individual or business may not pay their property
taxes on time. They don't have enough money, they're procrastinating,
lost their job, moving, going through a divorce, etc.
And
when dealing with businesses, the more reputable the business,
the more reason to invest. 99% of the time they will pay
off their taxes, and quick. Anything from banks, to gas
stations, to whole cities can be up for auction at a tax
lien sale, and most of the time you are just dealing with
missed payment deadlines. People travel, misplace things,
have other people that pay their bills who may not have
received the bill. Things of this nature happen all the
time. We've all been late paying a bill before.
