How to borrow money to buy tax liens?

Question

Indiana is a tax lien state with a one year redemption period at which time you are issued at tax deed if the property is not redeemed.  I've been watching the tax sales and there are some houses that are acquired at very good prices!

I have good credit and good relationships with local lenders.  I would like to borrow money to buy tax liens, but when I ask at the bank they've never heard of it.

I would think that I should be able to pledge the tax certificate just like any other collateral.  Anyone have any experience doing this or know of any lenders that do this?

Ann Bellamy · Answer

First Bank Illinois finances tax lien portfolios starting at 2 Million.  Mike McCann is the contact

George P. · Answer

Copying info from linkedin group "Investing in Real Estate Tax Liens and Deeds":
1. suggested lender www.lienfinance.com
2. Moderator's responce to a question like yours: "Actually banks like Capital One and Wells Fargo do secure these loan via the liens you purchase. First, they look at your track record for the past three to five years minimum. Second, they are going to require you to have skin in the game by 20% to 30%. Third, they may also leverage other liens that you currently hold. These banks consider these securitized loans.

These banks have been doing this for a number of years and understand this business model very well. But you are talking about loans for millions of dollars with well vented tax liens investors.

If you are starting out and have no track record, you are correct that you will have to get an unsecured loan as your local bank or local lender will have very little idea of what you are doing."

Hope it helps
Join that group if you want to follow up

Joel Owens · Answer

Tax buying varies buy state and process and interest rate and many other things have variables.

Just like anything else there is competition.There are plenty of properties you DO NOT want to buy tax liens on.These are properties in a bad area where over a years time when you redeem could be worth less than the value of what you are foreclosing on.

The counties and cities just want money and will sell you a tax lien on anything even if it's a drainage ditch with no value.You have to watch out for environmental and a host of other issues including taxes that were bought before yours.

You can do well but just like anything else you have to research it and be smart about it.

Orlando Centeno · Answer

I have done lots of research on this topic and this year in the year I am going to put the knowledge to use.

Private funding seems the most reasonable, and amount can be borrowed for as little as 9% from a person you know. Most would be happy with a return like that, as they would not get that much with it sitting in a bank.

Another way of securing a loan would be take one out on yourself using your life insurance policy if available. Doing it this way you can make yourself more money than with just the lien.

Ex.
Dividend paying life insurance policy pays yearly interest rate on dividends, lets say 5%.
If possible, borrow the amount needed(no credit check), and pay yourself interest on money, lets say 5%.
Tax lien bought will pay a certain amount in interest and penalties, lets say 15%.
So once lien redeems (which most do, ive been reading), you make 15% on it, you pay 5% to yourself (The loan), and at the end of year you make another 5% in interest on dividends on your insurance plan.

The process of using a life insurance plan to make money, i learned from reading "Becoming your own Banker"
http://www.infinitebanking.org/

I want to start investing in tax liens and deeds and am looking for some help/mentor. If you have any good pointers please let me know.

Steve Dussault · Answer

Thanks, George - that is helpful info.  I spoke to my local banker again.  He stated that a few of his other investors had inquired about this recently.

He is currently doing some research to try to come up with a loan product to fill this market.  We'll see how this pans out.  In the mean time I'll check out lienfinance.com.

Steve Dussault · Answer

That's essentially correct.  In Indiana, after the one year redemption period expires the county issues you a tax deed.  After that a "quiet title" process is completed before you can get insurable title to the property.  This takes another 3-6 months here.

If the property is redeemed during the one year redemption period (the majority are) the tax lien investor receives around 18% interest on the lien.  So the problem is that if I use hard money I'd be giving the majority of the profit to them.

If the property is NOT redeemed then your profits can be much higher when you flip the house.  Hard money could make sense there, but unfortunately you don't know in advance which houses will not be redeemed.

To me, high interest hard money doesn't make sense for tax liens (at least in Indiana).  That's why I need to find a traditional lender or perhaps a friendlier hard money lender.

Victorina Evelyn Castillo · Answer

are there counties that provide money to purchase liens?

Thank you

Chris Kennedy · Answer

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Chris Kennedy · Answer

I'd like to bring this post back to life. Anyone research this further? Any more contact information for Tax Lien Portfolios? I'd love to hear anyone's experiences regarding loan products for tax lien certificates.

Jon Fadil · Answer

Stern Bank in Minnesota lends to tax lien investors as well.  Like a few of the earlier posts, most lenders lending on the liens as collateral need to do so on portfolios over $2MM or so.  They're monthly interest is paid out on redemptions (since tax liens redeem quickly, the debt is paid down very quickly).
If you're looking at small deals, you'll be best served using other collateral or personal guarantees to get a loan, then use the proceeds to buy the liens (ie a HELOC).

How to borrow money to buy tax liens?

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