Tax Lien Investing: Do You Know How to Get Started?
Tax Lien Investing: Do You Know How to Get Started?
It’s not unusual that many people intereste in tax lien investing really have little understanding of what is involved. Potential tax lien investors usually under estimate two things – the amount of money needed to actually get started investing in tax lien certificates and the amount of time that is involved in finding tax liens that will be profitable.
First, let’s briefly discuss the amount of time involved in investing in tax lien certificates. Tax lien sales in most states (for a list of tax lien versus tax deed states go to http://taxesandliens.com/liens_&_deeds_by_state.php) are usually held on weekdays during normal business hours. Therefore you will need to have the time to go to the sale to bid on the properties that you are interested in. Some states let you mail in your bid, but it’s to your advantage to be at the sale. Other states and counties are even hosting their auctions on the Internet.
But going to the auction is less than half of the time that you will need to spend if you want to invest in purchasing profitable tax liens. Before you even get to the point of going to an auction you must perform some type of due diligence on the properties that are in the tax sale. The listings of properties that you obtain prior to the sale from the tax office, usually do not tell you anything about the property or its condition. Quite often this tax sale list will only give you the tax ID, owner on record and amount owed in back taxes. These list commonly don’t even give you the location of the property – just a parcel or tax ID number!
This leaves you with going to look up the assessment information on the property and find the address (you can find this information here http://taxesandliens.com/county_tax_assessors.php). It is highly recommended that you physically look at the property to be sure that the assessment information is up to date and that the property has investment potential. You want to make ensure that the property of interest is worth considerably more than the amount due in back taxes. Remember that you will probably have to pay the property taxes on this property during the redemption period (unless of course the previous owners finds a way to redeem it) before you can foreclose on it and get title/deed.
This raises the second area that investors typically underestimates when they get started in tax lien investing – how much money is requiredc to invest in tax lien certificates. Many investors want to get started with less than $250.00 to invest. Nice try, but this is really not enough. You might not need as much money for investing in tax liens as you do for tax deeds, but you will most likely need at least $2K to get started. Remeber, that even if you are able to purchase a lien for less than $250, you still have to pay the taxes on that property until the lien redemption period is over. If you don’t pay these taxes the property could end up in next years tax sale and another investor can purchase that lien.
Investing in Tax liens is not like buying a bank CD or U.S. savings bond. Any money you put in to buying a tax lien certificate becomes trapped, you cannot take your money out and you do not get any interest payments until the property owner decides to redeem the lien. If the property owner does not pay up on the back taxes and redeem the property you have to wait until the redemption period is over, and then go through the foreclosure process, or deed application process, before you get the property in your name.
If investing in tax lien certificates is something you really want to do, it is recommended that you have at least $2000 to start out with. Make sure you will not need that $2K for any of your expenses (or you may end up borrowing money somewhere). You also need to plan on at least a few hours on conducting due diligence and attending the tax sales. If all you have is $2000 you will probably be going to only one or two sales each year and thus only need to invest a few hours of your time every six months. If you really want to get in to tax lien investing aggressively you should have $5K to $10K, and at least 10 hours a week to spend on meeting your goals. With $5K to $10K to invest you can go to more sales and buy a few liens each year instead of just one or two.
The more time and money you invest – the greater your return will be.
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