Buying Tax Liens for High Investment Returns

Buying tax liens can be a very powerful yet lesser known strategy of making a guaranteed return on your money. Most people think that if you want a higher rate of return on your money you need to take riskier investment, this isn’t true with tax liens.

Let us look at what are they and how to buy tax liens for maximum profits.

What are they?

When a homeowner cannot pay their property taxes that money is considered late. And they will have to pay those taxes plus interest on it in the future.

The only problem is, the government still needs the money to manage the city, build new streets, and take care of everything a city needs to.

You as an investor can help them out, while still making a return. Here is how it works.

You pay for their taxes. Then when the home owner pays their taxes you receive that money, in addition to the late fees that they were charged.

The amount of interest you can earn depends on the state, but you may be able to earn 15%, 18% or more on your money, simply by paying other people’s taxes. And once more it is a guaranteed return.

You do not have to take on any of the risk that you would have to by trading stocks, or investing into a rental property.

Buying Property Tax Liens

Buying property tax liens does take a lot of research. Before you can do it you have to figure out the following information about your county, either by calling the treasury office or visiting their website.

1. When is the next Tax lien (deed) sale? And where is it at?

2. Information on all the tax liens being auctioned off.

3. Any tax liens that were not bought in the past sales that you can buy.

It is important to have information about the property before you get to the auction. This way you make sure to only bid on tax deeds which the owner is likely to pay for, or which you would not mind getting into (see below).

This helps prevent you from buying tax liens that may be riskier. Do as much research on the property beforehand as you can to get a feel for it.

Auctions

Auctions are where Tax Liens are sold. Each state or county may have a different procedure for auctioning off taxes.

For instance one common way of doing it is to auction them off by percentage returns. If the lien is 18% it may start at 18% and go to 17.5% then to 17% … until someone is the lowest return bidder.

Other states may be different so be sure to figure out how the bidding works before you go.

What Happens if they Don’t Pay?

Buying property tax liens pretty much gives you a guaranteed return because over 95% of tax deeds are paid. However, some are not.

If you buy a tax lien and it is not paid for by the home owner then you have the possibility to make even more money. (Talk about low risk even when you lose you win)

If this happens you simply receive the house, this is yet another reason why it is a good idea to do your research beforehand. The good news is that the mortgage will be wiped out causing you to own it free and clear.

The bad news is that the IRS might have a lien against the property that you have to pay for, or you may have some other fees. But even so it is still going to give you a much higher return then whatever you were going to get on the tax lien by itself.

You can either sell the property and make instant cash, live in it yourself, or turn it into a rental property like I talked about in beginning real estate investing. The call is up to you.

Of course getting a house by buying tax liens is a very rare situation. It will almost certainly never happen to you, especially if you buy houses that are worth paying taxes on. But if it does, it means more profit and maybe even early retirement.

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