Tax Lien
Wake Forest, NC · Member since 2013 · 2 posts · 5 votes
Tax Lien
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Fairhaven, MA · Member since 2014 · 15 posts · 24 votes
12yI would get all the infomation from your local county if they offer tax lien sales, or there are 7 states that offer online tax lien sales. They are Arizona, Colorado, Florida, Illinois, Maryland, Nebraska, and New Jersey. They can be found at http://www.realauction.com/county-tax-lien/
Go to the "training site" in the state you want and look through the bidding rules as well as everything under the "training" tab. Make sure you view the "general information" and the "certificate process".
You don't need to know everything there is to know about investing but you do need to know everything about what your investing in.
Things to watch out for:
- Minimum deposites
- Dates for all cut -offs for money and bids
- The starting interest rate on the certificates
- Types of auctions (bid down, premiums, ect)
- Do you have the righ of ownership if when the redemption period is over
- Redemption periods
*note* If you don't know the property you are bidding on, don't bid on it. Do your research.
Good luck,
David
39 Replies
- Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes12y
Research the state statutes about how tax liens work in your state, as every state is different.
- Specialist · Phoenix, AZ · Member since 2011 · 698 posts · 629 votes12y
@Eric Sturdivant NC is a tax deed state so you won't have tax lien sales. You can find the state statutes for the tax deed sales here:
http://law.justia.com/codes/north-carolina/2005/chapter_105/gs_105-374.html
In general - All tax sales are by competitive bid. There is a 10 day upset period after the sale. During that period anyone can trigger a resale by bidding the greater of 5% or $750. Sales are about 4 times a year. Counties can sometimes have additional sales for surplus properties that nobody has purchased in the past but be careful, there is probably a reason they weren't purchased.
Information for Wake County Tax Deed auctions: http://www.wakegov.com/tax/realestate/foreclosures/pages/default.aspx
Information for Franklin County Tax Deed auctions: http://www.co.franklin.wa.us/treasurer/foreclosure_sales.html
It's best to start close to you. If you really want to start in Tax Liens instead of deeds, then pick a state and an area that you know well or visit often. You need to know the area so you don't buy liens on "junk" properties.
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes12y
@Eric Sturdivant Tax sale is something that can be made to sound great. Lots of Gurus pitch it as risk free pennies on the dollar houses. As Jerry said it is competitive bidding and not anywhere near as easy the pitches imply.
It can be very profitable if you know what you are doing. To get started I recommend you go to the county web site of where you want to invest and search for tax sales. I took a tax sale attorney out to breakfast and picked his brain when I got started. I got cheap legal advice he go a new client.
Ned
- Fairhaven, MA · Member since 2014 · 15 posts · 24 votes12y
I would get all the infomation from your local county if they offer tax lien sales, or there are 7 states that offer online tax lien sales. They are Arizona, Colorado, Florida, Illinois, Maryland, Nebraska, and New Jersey. They can be found at http://www.realauction.com/county-tax-lien/
Go to the "training site" in the state you want and look through the bidding rules as well as everything under the "training" tab. Make sure you view the "general information" and the "certificate process".
You don't need to know everything there is to know about investing but you do need to know everything about what your investing in.
Things to watch out for:
- Minimum deposites
- Dates for all cut -offs for money and bids
- The starting interest rate on the certificates
- Types of auctions (bid down, premiums, ect)
- Do you have the righ of ownership if when the redemption period is over
- Redemption periods
*note* If you don't know the property you are bidding on, don't bid on it. Do your research.
Good luck,
David
- 12yMatthew RutledgePro MemberInvestor · Golden, CO · Member since 2011 · 80 posts · 23 votes
I have done one Tax Lien investment just to see how it worked in my county. I'm not sure I would call tax lien or deed investing a "cashflow generator." Money can be tied up for 3+ years depending on statutes.
That being said, a fair bit of research can lead to some sound investments. In my experiment I was looking for something super cheap and treating it like a gambling and/or educational experience. It came down to finding the right property. This is what I was looking for:
- Usable lot and/or home. There are lots of 2 foot strips through the median of the highway. You don't want those. I found a half lot in a very established neighborhood with a two year tax deficiency.
- Viable exit strategies. This largely depends on the previous point. My objectives for the half lot were to offer to sell it back to the rightful owner for what I had into it plus a few dollars for my trouble, sell it to a neighbor, sell it to a developer, build a small footprint house and rent/sell that.
- Comfortable entry point. In my case, I was only going to put up money I was willing to never see again. (In this case, about $400.) Had I been more comfortable with the process I may have been willing to put in more. Based on the research I had done it looks like there is ample opportunity for a beginner to make a mistake and sacrifice their hard earned cash.
In the end, I think I did about 60 hours of property and process research and took home about $60 (about 15%) when the lien was redeemed. I seem to recall redemption took about 9-10 months. Had I put in a significant dollar amount the return would have been very notable.
But as stated, you really need to know the rules and process for your county/state. Here in CO, you would need to buy every year of tax liability until the end of the three year redemption. In my case, I was looking at a maximum of about $1200 of total potential liability, and then foreclosure/title costs on top of that (Estimated at about $3k using lawyers, or about $750 DIY).
And in some cases someone else may have one year of liability purchased, but not the next. That can muddy the waters a bit.
I don't intend to scare you off. I think there can be some money to be made there. But it is not as risk free or as easy as the guru's may lead you to believe.
-Matt
- Real Estate Investor · Duluth, GA · Member since 2014 · 51 posts · 20 votes12y
I agree with you Matthew. I am a newbie at investing in properties, and I just looked up my county rules in the sale of tax liens for Gwinnett county, GA. One has to wait a year to give the original owners a chance to redeem the property, and if they do not, then one can foreclose the property; this is the only way to can gain title to the property.
If the original owner decides to redeem the property, then they have to pay you what you purchased the tax lien for plus 20%. So, if I purchased a tax lien for say $2,000, that means I am waiting a whole year just to get around $400 ROI. I do not think thats worth it considering I want to rehab properties and resell them. It will be something different if during the sale of the tax lien, I gain title to the property. I guess this is a good choice for seasoned investors who are looking for residual income to help them break-even with other investments (I guess).
- Investor · Canton, GA · Member since 2012 · 45 posts · 6 votes12y
After listening to Podcast 55 (I am still trying to get caught up!), I got very excited about Tax Liens. I researched them awhile back but they got pushed to the side with everything else going on. I understand the risk of having your money tied up for an extended period of time and wanted to say Thanks for all the great information that everyone has posted. Are there any good books out there that are tailored to this investment strategy? I am scouring the internet as well but I enjoy reading so I try to find anything I can to educate myself.
- Investor · Winnipeg, Manitoba · Member since 2013 · 303 posts · 321 votes12y
GA is a Tax Deed state with a one year redemption.
During year one you will get a tax deed , but with no right to the property.
the property owner has the right to redeem the property within the first year. You will get 20% during this one year period. It's a penalty(even it redeems after 1 day, the shortest I experienced is 3 days).
After one year, you have the right to barring the owner for the right of redemption. The owner still has the right to redeem it within this 45 days, but the penalty goes up to 30%( additional 10% for year 2).
After the barring of the right of redemption, you are title to the property.
You can rent it out or for your own use.
But If you need to sell the property to a owner occupant that needs financing, then you need to clear title in order for the new owner to get title insurance.
It can be a very profitable business if the tax deed amount that you paid has a Hugh spread to the market value of the property. But watch out for the condition of the property.
- Investor · Hattiesburg, MS · Member since 2014 · 280 posts · 98 votes12y
One of the three business ventures I have is Tax properties, currently in two states and 5 locations. Typically (97%) you get your investment back with interest... As said in other posts, do your research, look to stay away from junk lands, improvements only, etc. Try it small, I did 7 liens for 3k first year, made 300 and have now moved up to holding over 300 liens and certificates. Go to the local tax office, ask a few questions and dig in, don't rely on others experiences, it can be very easy. Can be very profitable too however the research is labor intensive. Lets just say, for two weeks work per year, can make more than many make in a full year. Downside, have to have money upfront but I look at it as a CD, you just don't know when it will mature, 2 months - 3 years! My goal is to have all of the interest I have earned from previous years tax sales to be invested in future sales so in theory will have none of my money at risk, will be all their money invested. How will that work you ask, well lets say you put in 10k, if you earn 12% and reinvest everything, in just 6 years, based on the rule of 72, you should have approx 20k, therefore you could take the original 10k out and have no risk and then every 6 years double that money. Or, raise of eyebrows, leave it all in, yr 6 - 20, 12 - 40, 18 - 80, 24 - 160, 30 - 320, 36 - 640, 42 - 1.28 million, if I started with 10k at 20/yo at 62/yo would have over 1 million. For the numbers geeks, 72 is used to figure out how quick you can double money, etc. so 72/12(rate)=6(years)... To prove, year 0 10k, year 1 11.2, year 2 12.544, year 3 14.05, year 4 15.74, year 5 17.62, and year 6 19.74k. But the only problem is as the $'s go up you must buy more and possibly expand into new areas, so we are in more than the local area now and adding another county this year. To ease the minds of some, there are taxes sold at $0.02 and into $100,000+, the cheap one was a trailer on one acre the larger a multi-million dollar strip mall.
- Investor · Yokosuka, Japan · Member since 2014 · 631 posts · 184 votes12y
@Darron Stewart I like how you broke it down. That is very helpful for the non-numbers folks like me. I'll be sharing this breakdown to my daughters who are in their twenties.
Thanks,
Pyrrha
- Investor · Frederick, MD · Member since 2012 · 160 posts · 31 votes12y
Originally posted by @Ned Carey:
@Eric Sturdivant Tax sale is something that can be made to sound great. Lots of Gurus pitch it as risk free pennies on the dollar houses. As Jerry said it is competitive bidding and not anywhere near as easy the pitches imply.
It can be very profitable if you know what you are doing. To get started I recommend you go to the county web site of where you want to invest and search for tax sales. I took a tax sale attorney out to breakfast and picked his brain when I got started. I got cheap legal advice he go a new client.
Ned
I know this is an older post but @NedCarey I so appreciate your blog and video explaining the tax liens. I have to wonder, how often do they foreclose? I may make this a new post for Maryland and surrounding areas.
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes12y
@Marylynn B. typically they say 3-5% is the amount of houses that actually get foreclosed on. I do 10%+ because I focus on properties I am likely to have a successful foreclosure. I focus on lower priced areas and vacant houses. This is more risk and more work but it is a model that works for me.
- Investor · Frederick, MD · Member since 2012 · 160 posts · 31 votes12y
@NedCarey and if they do not foreclose, are you truly GUARANTEED the interest in Maryland? It seems a little too good to be true? Appreciate your experience!
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes12y
@Marylynn B. Yes you either get paid back your taxes and interest or you get to foreclose.
(of course the devil is in the details, It is not quite as good as it sounds)
- Homeowner · West Columbia, SC · Member since 2013 · 8 posts · 1 vote11y
Hey all, I'm trying to get my feet wet in real estate investing and have considered tax liens. I don't quite understand it at the moment and it seems like I have a lot of work researching ahead of me. While I'm looking up info for my area (Lexington, SC) I was curious to see what you thought about what someone told me. I was told, not by an investor mind you, that if you buy tax liens, you assume all of the back taxes and mortgage payments that were still with the house. That some of these properties had even second mortgages on them. Is this true? Doesn't seem to make a whole lot of sense to buy these "penny on the dollar" deals if as soon as you get them you're paying for the higher prices? Just wanted to see if there is any truth in this and if so, what are the positives to doing these?
Thanks!
- Investor · Chesterfield, MI · Member since 2015 · 40 posts · 12 votes11y
I would check on where you got your information. All the research, I have done there has never mentioned about any mortgages. Yes you will be paying for the year they are auctioning off and will be offered first future taxes until redemption period is up. Which you should pay so as not to cloud up title insurance if you have to foreclose.
- Investor · New York City, NY · Member since 2013 · 137 posts · 50 votes11y
If one is able to successfully foreclose on a Tax lien, ALL Mortagages are wipped out. However, back taxes must be paid either by the tax lien holder or they are sold at subsequent options and you loose your right to redemption, as the junior taxholder can redeem to you and get out of the game.
- Hayward, CA · Member since 2014 · 17 posts · 23 votes11yAs a CPA and a broker in AZ & CA and seasoned investor, flipper, etc. for the last 20 years in these states and others my personal opinion is that while the entry price point can seem attractive, I agree with many others on this thread... Your $ are generally tied up for a few years, the return $ in terms of absolute dollar value and not as a % of you investment are not large unless you end up purchasing the property at a deep discount less other existing liens, etc. Most times your return is simply the interest rate charged to the property owner in exchange for eventually paying the back taxes. The problem with this scenario is that your return is TAXED immediately once you receive it, at whatever your current tax rate is... So your overall return is reduced by taxes you must pay... Not nearly as attractive a scenario in my opinion as when you actually get the property and then qualify for all the tax benefits of actually owning the real estate (1031 tax deferred exchanges, tax deductions if you qualify, etc). Real estate ownership is one of the last true "legal" tax shelters... If you do it correctly and are savvy you may never have to pay any income taxes on the income generated from these investments. But, if you want to get your feet wet first, then Tax Lien investing, depending on the state, can be a good entry point, but longer term I think you can find much larger returns, more liquidity, lower tax impact once you invest in real property.
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
I think if your going to go big and make a business out of this it can be fruitful.. other wise if you have limited capital its like the OP said you make less than flipping burgers.
Plus your capital is not liquid and if your cash is sitting there and that screaming deal comes up what then?
Its like buying rental houses If you don't have a plan to buy 10 or more ( low value rentals) then its an irritant and many buy them then get out of it in 3 to 5 years.. others that have a goal to own hundreds create a business out of it...
- Edgewood, MD · Member since 2014 · 79 posts · 17 votes11y
Ted and Jerry are right. It isn't as easy as it seems. It takes time and cost more than the internet gurus say. Your ROI can be lucrative but you have to have realistic goals. You can be successful and create personal wealth and business capital. It should not be the sole means of building capital or your business. And don't go spend $1000-2000 on a course. Your in the right place with the right people.
- Investor · DMV Maryland · Member since 2013 · 867 posts · 370 votes11y
Unless you have a ton of capital you can tie up for 3 years, it will take several YEARS to get into a cycle of redemption and foreclosure judgment in MD to make a living with this. As Ned is the perfect living example, it can be done and he and his partner have ramped their business up to that point now after almost a decade but they started small, I believe with $1000. Start small and definitely do your due diligence. The lien J and I acquired and just sold last week - we got lucky. The owners never redeemed, number one. We got judgment in about 15 months, number two (was thinking 2 years). I never even drove by it before purchasing it (after the tax sale, over the counter) -- it could have been a pile of rocks I was buying. I drove buy it a ton of times afterwards to pray that it didn't burn to the ground. ALWAYS check your properties before buying the liens/deeds. Ned and partner drive 5000 + properties before the sale every May. I can definitely see the potential now to acquire rentals on the cheap but slow and steady is how people win at the tax lien game, imo.
- Grand Island, NE · Member since 2014 · 35 posts · 4 votes11y
Great info everyone!!!!! I have a quick question...
I live in Nebraska and I would like to know if I can purchase a left over deed in Georgia without going to the county's office?
Thank you very much.
- Specialist · Phoenix, AZ · Member since 2011 · 698 posts · 629 votes11y
@Janie Suarez Your phone is your friend. Call the county you are interested in and ask. You could also look up online. Start with the Treasurer's office.
Do you know the area well that you are investing in? Are you familiar with Georgia state statutes? You really want to understand more about an out of state area. Sending up a signal for @Tom Yung who has experience in this state - and he's not only from another state, he's from another country.
- Investor · Winnipeg, Manitoba · Member since 2013 · 303 posts · 321 votes11y
I do not think there are over the counter in GA.
From my research after every sale that I attended, the left over Lien are mostly not worth the investment; unless you got lucky, the owner redeems. Most left over lien goes back to auction in the future.
Besides I will never buy a lien sight unseen in GA; unless I'm 90% sure the land value is much higher than the lien; as build able land is so cheap in GA.
Still there are 10% chances that you will lose the money.
@Jerry K. thank you for the mention & your breakdown on this year's AZ sale. Great work & always anxious to read.
- Grand Island, NE · Member since 2014 · 35 posts · 4 votes11y
Tom Yung and Jerry K. Thank you very much for your advice guys, I really appreciate your advice and help.
I will stay connected to keep learning from good smart people like you.
Have a nice day.
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