Investing In Tax Liens - By: Steve Gillman

Tax liens can be a relatively safe investment. A good return on your money is also possible. The catch? Everyone knows about this now, and the bids are pushing down rates of returns.

When we went to the local tax lien sale here in Fremont County Colorado, we were amazed that a little community like this could have so many investors wanting to buy tax liens. This is good for the county, but not for an investor.

Tax liens are essentially the legal claim on the debt that a property owner owes for late taxes. They are handled a little differently in each state, but are generally auctioned off to investors. To pay them off and so not lose their property, owners must pay whatever fees and interest rate the law specifies. Here in Colorado, that is 15 return on our money.

Unfortunately, it wasn't as simple as that. While it is true that the property owner will pay 15 over face value. The "premium" goes straight to the county, which is why they employ a professional auctioneer to get those bids higher. This means that if the owner pays his taxes in a year, the lien holder will get just $1,000 plus 15.

Wait, there is worse news! If the property owner pays his late taxes a month after the tax sale, the investor would get just $12.50 in interest. In other words, he would lose $87.50 because he paid a $100 premium, which the property owner doesn't have to repay. It seems that most of the investors thought the late payers wouldn't pay for a couple years (after three they lose the property), since a 10 of this value each year, and owners lose their properties (perhaps to you) after two or three years depending on the state, you should never have to invest more than 15 if the assessor is awful in his assessments.

In other words, unless the owner never pays, and after you take the deed to the property, you find out it is filled with toxic waste, you are fine. To avoid this potentially bad scenario, simply buy only liens on residential property, and spread your money among numerous liens. If you make 15, and you don't have to take title to the property.

There are some other things to watch for, however. Here in Colorado, for example, if the property owner doesn't pay the lien by the deadline, you have to publish a notice three times before getting title to the property. If it is a small lien you could spend all the interest you gained posting ads in the classified section of the local newspaper, just to have the property owner pay up (he doesn't have to reimburse you for the ads). For this reason and others, I would only invest in liens of $400 or more.

In some states, rather than bid a "premium" buyers bid down the interest rate. The rate mandated by law may be 16 of liens auctioned off are left unpaid until the deadline passes. You can do research to find the property owners least likely to pay their liens, but who wouldn't sell their property before losing it over a few thousand in back taxes? Yes, occasionally someone gets an $80,000 house for $2,000 in back taxes by buying a tax lien, but don't count on it as a part of your plan.

About the Author

Copyright Steve Gillman. To see a photo of the house we bought for $17,500, and to get a free ebook on how to buy Cheap Homes, visit: http://www.HousesUnderFiftyThousand.com

Article Directory Source: http://www.articlerich.com/profile/Steve-Gillman/14633

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