Real estate offers a variety of investment options. Tax lien investing is another method for real estate investors to make money, and while it is a little different than your typical buy, flip, and sell, there are some similarities. Some tax lien investments turn into property ownership if the property owner fails to pay back the property taxes on time.
Finding homes with delinquent property taxes is more challenging than looking for a standard investment property. You have more hurdles to jump and factors to consider. Here are the steps to take and the pros and cons to consider.
What are Tax Liens?
A tax lien is a legal claim counties have against a property when the property owner doesn’t pay the required tax bill. A property with a tax lien cannot be refinanced or sold without satisfying the tax lien first, as the tax lien is a legal claim.
Tax liens take priority over any other liens on the property, including a mortgage lien. Property tax liens are involuntary, compared to a mortgage lien, which is voluntary because you choose a mortgage to buy a house. Delinquent taxes can turn into a tax lien sale, giving investors the option to buy the delinquent taxes and earn a fixed interest rate.
Tax lien vs. tax lien certificate
A tax lien certificate is a legal document from the county showing the amount of local property taxes owed and any penalties. Investors earn a tax lien certificate when they are the local government’s winning bidder in a tax lien auction.
Real estate investors can buy tax lien certificates to pay off the tax liens, and the certificate entitles the investor to repayment from the property owner by the expiration date.
The tax lien certificates allow the investor to collect the full amount owed from the property owner plus stated interest and fees. If the owner fails to pay, they can begin foreclosure and take ownership of the home.
How Does Tax Lien Investing Work?
To invest in tax liens, you must find properties…