Tax liens

11 Replies

I'm starting out buying tax liens looking for returns not properties. Now I'm hearing some people saying tax liens can be a bad investment. I have done extensive research and what I keep find out is if you do your due diligence you can really minimise your risk. Is this true and what thoughts do you guys have. I would like to get as many opinions as I can.

                                                                 Thanks in advance,

                                                                     Lou 

Like any real estate investment, perform due diligence and yes you can minimize risk. For example if you buy a tax lien on a property that has a mortgage, you can pretty much rest assured the lender will pay off that lien as long as the house is still standing and its not a toxic site as the lender will not let a house go for pennies on the dollar and lose their investment. 

@Lou Gonzales

I do not invest in IL.

Investing in tax lien, you really have to know your state statue & have a exit strategy in place.

Below I am using a property(make up story) for you to see what can be happening if you do not have a Exit strategy.

Let's say the property has an accessed value of $60K homestead in FL. You get a lien for 2013 tax, let's say $1200 for 18%. 2014 came you get a lien for the same amount & 18%. You told yourself. Great 18% return every year. Actually it may or may not happen.

The same property owner has not pay mortgage for the past year & the balance of mortgage is $29K. So 2015 you apply for deed foreclosure. Since it is homestead, the starting bid will be $30K+ charges & fees. Are you prepare to dish out additional $30K on top of $2400 that you bought the lien?

The mortgage company will not bid against you in this case, because they can apply for the overage of 29K. On top of that, lien certificate has a life span. So if you do not apply for deed foreclosure, your certificate will become null & void after certain years. 

On top of $30K winning bid, be prepared to put away funds to rehab the property & the cost of clear title. Most tax sale property is in very sad & bad shape.

Give you another story. (NJ)

Some people go after small utility lien for almost no interest for the first year(2013).( Bidding is fierce in most counties now that I have talked to other investors). On the first year, I may get no return for my $. but if the property owner does not pay the 2014 after Nov, 2014 I am entitled to pay for it. Lets say the tax came up to $7000. I will be getting 18%. So I am going to do the same thing in  Nov, 2015. The owner does not pay again. I will pay & secure my position to foreclose after 2 years.

As you can see, buying a lien is easy, but to think & plan for 2 years takes a lot of patience & hard work to pick out the good ones.

I am more of a deed investors, @Ned Carey & @Jerry K. K are more into lien investments.(BTW, more than 97% of good liens get redeemed.)

Read up their posts, if I am not wrong; I [email protected] K.invest in IL lien as well.

@Lou Gonzales Tax liens can be a good way to get higher interest on your money. @Tom Yung has given some great examples of thinking ahead so you avoid bad decisions. I don't actually invest in Illinois tax liens since most are not online auctions (however Cook county is quasi-online). I invest mostly in Arizona and Florida. I made my first tax lien investments back in the late 1980's in Illinois. I turned to tax liens in a strong way about 6 years ago when I dove into online tax lien auctions in other states.

It is difficult to perform due diligence from another state. I visit the areas I invest in about every 18-24 months so that I have an idea of decent areas and local services and people. My goal is mainly interest rate return in my i401k and also some money outside of my retirement.

@Lou Gonzales

Now I'm hearing some people saying tax liens can be a bad investment.

ANY real estate investment can be bad if you do not know what you are doing. The more you know the lower your risk. The problem is many investors think Tax lien investing is 100% safe, so they are taking risks they don't understand.

Thank you guys so much. I am just getting started and wanted to buy tax liens in Chicago, and near northern suburbs to start, only because I have owned 58 total units, SFR, duplexes, quads, 6 units, and an 18 unit in and around Chicago. I feel pretty comfortable in this area and I'm actually not looking to acquire and hold properties strictly looking for higher yield. My exit stradigy would be to hopfully have the owner redeem but if I do get the property to quickly wholesale it.

I had invested with PIP Group in Illinois tax liens.   I found two things.   1) The process is very complicated and it seems like there are a thousand ways one could screw up, so I was glad that I had an experienced company that could walk me through it.   2) Choosing the liens themselves is incredibly important.  Unfortunately PIP Group failed at #2.  In every batch of liens they bought for me about 25% redeemed in the 1st year and 10% the second and 5% thereafter.  I kept plowing profits back in, but now have a portfolio of very old liens that seem unlikely to ever redeem.   

In hindsight, one of the worst investing decisions I ever made.  

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Greg said it best, without the correct due diligence, tax lien investing can be the worst decision an investor can make. The most important decision in tax lien/deed investing is location, location, location. Georgia and Texas are excellent states at 20% and 25%, with redemption periods not exceeding 1 year. More importantly, you bid for a deed, not a lien. These two states are hybrid states in that you obtain the deed at the auction, but the property owner has a redemption period to buy back the deed. This works well with the right investment strategy. I am always willing to work with others, so look me up with any questions. I am currently building a software program that will conduct the due diligence process, set by the users specific criteria, in the end providing only properties that matches the investors goal. This is important when tax sale lists can include over 200 properties.

@Karlton Hoskins You seem like you know your stuff on tax liens. I'm an investor in your state and  currently dealing with a tax lien issue. I have a house that has a tax lien on it but its a very small amount and the owner has no mortgage. I'm actually trying to acquire the property for wholesale or fix n flip. I have talked to the property owner and she would really like to get the property off of her hands. What would you suggest?

Myka please feel free to give me a call to discuss this further. I will send a colleague request. I'm always willing to lend a hand.

@Karlton Hoskins are you willing to share your due diligence software? That's sounds amazing for people like me bidding online and out of state. Would love to work with you. Thanks!

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