What is it like investing in local tax certificates and tax deeds?

Question

:D Never owned one but am getting curious. Supposedly they are the most risk free investment you can deal in-is it true? What are the risks and benefits? When you bid on a tax deed are you bidding on the face (property) value or bidding on the interest rate? Any good websites that compile all tax deed sales accross USA or do you have to scour all the local county regsiters offices? I am in Wayne county, Michigan. Thanks, Dan

Steve Babiak · Answer

Some good points already stated above.

One risk not mentioned that can be expensive is environmental issues. For example, houses at one point were allowed to have underground buried heating oil tanks.  Over time, these would degrade, and they could discharge the oil into the surrounding grounds.  This clean up expense can become substantial.

Loc R. · Answer

A good starting point is "The 16% Solution" by Moskowitz.  It's dated, and some things have changed, but a lot of the concepts are still relevant today.

Like I said, a good starting point.

Ned Carey · Answer

Dan, there can be plenty of risk in tax lien investing. The biggest risk is simply bidding too much. It's easy to do in a declining market with over assessed houses that are deteriorating with time. I have walked away from several liens that seemed like bargain bids just a couple of years ago.

By and large it is safe, if you know what you are doing. Learn your market and learn the rules and you will do fine. If you don't want to take the time to learn the rules buy US treasuries.   - Ned

G.D. Haizlip · Answer

Dan,

The key is to know the Rules or what I call the The Facts (Truth) About Tax Sale Investing.  You have to know the rules (laws) for the State of interest to you, then understand How to Invest in that state respectively.  Some states for example offer Investors an opportunity to Earn Interest on the Liens/Deeds that are purchased.  A Tax Lien is usually subject to redemption period--during which the Investor earns interest on his/her money.  A Tax Deed is also sometimes subject to a redemption period, depending on the State.  Georgia, for example, offers Tax (Sheriff) Deeds, but subject to a 1 year and 45 day redemption period.  On the other hand, some states offer Tax Deeds--with no redemption period at all (e.g., Hawaii, New Mexico, and several-several others).  Once you determine a State that interest you, learn the rules for that State, know whether it is a Tax Lien State/County or Tax Deed State/county, map-out when the Sales are conducted, get an idea from the Tax Collector of the number of properties offered, redeemed, etc.---just call them for that and ask questions.  You may also (which is a good idea) attend the sale to get to know who the players are before you Invest (Learn as much as you can first before you Invest).  Be Patient with it and Have fun!  Making Money (to me) should be fun---not stressful---so do do not lose your confidence--ever!  Have Fun!  Learn the Game and Make Money and Play to Win!

Before you Invest in a Property (RESEARCH) it to determine the Property Type, Its' Assessed Value and its' potential Market Value, Location/Area and know the likelihood of you owning it IF that is your goal.  Don't be fooled---many properties are redeemed, but there are some states/counties in which you CAN actually Buy Properties "FREE & CLEAR".  THE KEY: RESEARCH--RESEARCH.  I have done a great deal of this and have found out about SALES that many people may not know even exist.  For example, some states offer Tax Sale Properties "OTC"--Over the Counter, meaning you can buy them without attending the Sale.  Some say these are left-over properties that may not have any value.  Well that really depends on where you want to start financially.  It is not at all a bad idea to buy one (A Tax Deed Property) to get a feel for how the Process work.  Always buy direct from the County in this case---before you dive into the world of Buying from Third Parties or Individuals.  As always, Buyer-Beware" is still the golden rule, but know that you CAN really do well.

Finally, EXPECT TO SUCCEED AT IT!  RESEARCH AND YOU WILL BE BLESSED!

Much Success to you, MoneyMakers

Jim Wineinger · Answer

Most investors, in this area, are looking for a higher interest rate provided by the states laws.

Because the bidding amount is usually the taxes owed (you are basically giving the homeowner a loan for the redemption period) the risk is lower due to the lower amount of monies risked. But the risks are higher than most ways because if you go on the property itself you are essentially tresspassing on the homeowners property and can be arrested. Therefore it is harder to do proper due diligence on these properties. Plus the lists of available properties are not usually published until 2 weeks before the sale (sometimes one month). It is therefore a lost easier to miss something as you are deciding which properties to bid on.

It would be best to plan to attend your first sale and not "buy" anything but see how things are done in your county. Making notes about anything you did not understand and at a later time ask the officials who conducted the sale, or an individual who you saw was very active at that sale. I have found that most of them will be willing to give you the needed information at a lunch/dinner meeting (you would offer to pay, of course).

Mack Payne · Answer

Tax certificates are a wonderful creation and I know from experience they work very well in Florida.  And now many of the sales are online so you don't have to be present at the sale as before to buy them.  Check out my website [REMOVED]

Dan Krause · Answer

Mack Payne: I tried the http link and it doesnt seem to go through, Dan

Jim Wineinger · Answer

I had to vote you up one for that one Steve. This is an area that can be investigated throughly in most home purchases, but the tax sales just usually do not allow us enough time for our due diligence to get that intense even if we were to think about it.

Jim Wineinger · Answer

Actually in TN the tax deed sale acts like a tax lien/certificate sale in that there is a one year redemption period. You are issued a reciept for the winning bid at the end of the sale but do not recieve the deed until after the redemption period is over.
They can also conduct a tax deed sale for any property which has already been thru the regular tax deed sale recieving no bids (county was high bidder), after the redemption period is over.  This tax deed is not finalized for the advertising period of 10 days at which time you get the deed immediately with no redemption period.

Jim Wineinger · Answer

Worst case scenerio is that you invest in a tax certificate which ends up giving you the property, but does not cancel the existing liens. Therefore you are now responsible to pay for the homeowners liens in order to keep the property and not be foreclosed upon yourself.

You do not have to retain an attorney, but if you do not how will you know your local laws regarding these tax liens/tax certificates/tax deeds?

Not just any attorney will do!!!!!!!

What is it like investing in local tax certificates and tax deeds?

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