Tax Liens: A Primer

Tax Liens as an investment vehicle have been gaining popularity for a while now. Several courses have sprung up, but I believe there is a better way of learning how to use them. In this article we’ll cover the basics of investing in tax liens.

Here’s a quick tax lien overview. In many states, when somebody doesn’t pay their property taxes the government places a lien on the property. An investor pays the taxes for the property owner (buys the lien), plus any fees associated. For doing this, the investor gets a couple of things. First, the investor gets the right to collect interest on the money he paid, which is usually a statutory amount. Second, if the owner does not pay off the lien in the allotted time(usually 3-5 years) the investor may get a tax deed on the property.

Tax Lien Differences

Tax liens function differently in each state where they are available. In some places, the liens are auctioned to the investor who will accept the lowest interest rate, or to the investor who will pay the most above the value of the lien. In at least one state, the option to buy a lien is granted through a sort of lottery. Some states only sell the liens once per year. You just need to find out exactly how they work for your area.

The Safety Of Tax Liens

The good thing about tax liens is that you know you are going to get something. Either your money back plus interest, or a property. That’s a pretty sweet deal if you ask me. It is possible to get a property at a great discount this way.

There are some dangers to look out for, though. First off, the property could be worthless. You should know what you’re getting into, and should never buy a lien on a property that wouldn’t be profitable to own. You also need to keep up on your liens. If the owner continues to default on their taxes, and doesn’t pay off the lien you hold, you need to continue paying the taxes on the property.

That being said, as long as you keep up on it, you stand to make a decent return, and that’s what usually happens.

The Best Education Is Free

So you want to invest in tax liens now? You should rush right out and buy one of the tax lien courses to get the scoop. Just Kidding. Call your state’s tax division (often called the Department of Revenue). Or the tax division of any state where you want to invest. The people there will give more useful and correct information than you’ll get out of that $999 dollar course and $10,000 coaching program combined. Plus, it’s free. Well, only the nickel it costs to call, anyway.

Conclusion

Tax Liens can be a pretty good investment, especially compared to savings accounts in your local bank. Be careful to screen out the hype, as chances are very good you’re just not going to get a million dollar home for $5,000. But you will get something, so you might as well look into it. Go call your state’s tax division today.