How To Earn Money By Paying Your Neighbor's Past Due Taxes

What investment will pay you 18 percent or more per year on your money?  It is called a tax lien (or tax deed), and it is growing in popularity as more traditional investments have fallen flat in recent years.  The concept is actually not that complicated.  If you own real estate , you realize that each year the value of your property is assessed and then you are sent a property tax bill.  The process varies widely, but most states provide a window of time during which you can pay your taxes.  In Florida, if we pay real estate taxes in November we receive a small discount, and the discount reduces to zero by the following April (which is the final point in time that the taxes can be paid without being officially late).  If the taxes are not paid within a short grace period after that, a lien is filed against the property.  The county has a secured interest in your real property but still does not have its money.  The solution;  allow an investor to step in a pay the taxes and earn a substantial interest rate on their money.  There was a time when writing an article on tax lien investing, that I would have felt the need to include a list of which states.  Now, virtually every state in the country solicits investors to front the money to cover unpaid real estate taxes.  They are even selling tax liens in Canada!

How To Invest In Tax Liens

Tax lien sales are conducted by local county governments.  The rules and procedures will vary widely from one jurisdiction to the next.  Many states (such as Florida) conduct an auction to sell the tax liens.  It is sort of a reverse auction as the winner is the person that bids the lowest.  In Florida, the auction begins at 18 percent interest and then goes down as bidders offer to accept a lower rates of interest.  For example, you may bid 17 percent and then someone bids 16 percent and the final bidder ‘wins’ at 12 percent.  This is the rate of return that they have agreed to accept to advance the money to pay the unpaid real estate taxes.  The interest on the tax lien will ultimately be paid as a penalty by the delinquent property owner.  The state is only concerned about collecting the tax money from anywhere they can get it,  the amount of interest assessed as the penalty makes little difference to them.

In Illinois, tax liens can have an interest rate as high as 36 percent! In Illinois, they are called Scavenger Sales and are offered through an auction system much like in Florida.

A Sampling of Rates Of Return On Tax Liens Nationwide (source taxsales.com)

ARIZONA - 16% 12%- Redemption period  3 years TLC

CALIFORNIA 18% - 2 year redemption when held Tax deed state

CONNECTICUT - 18% 2 year redemption period TLC & Tax deeds sold

DELAWARE - 15% Penalty - One year redemption.

FLORIDA - 18% per annum 2 year redemption period TLC & Tax deeds sold

GEORGIA - 20% Penalty - One Year Redemption tax deed

ILLINOIS - 36% for full year and 24% on farmland with a 2 year redemption period TLC

 

Risks Of Investing In tax Liens

Most tax lien investors are paid off without much drama, as the underlying property owner does not want to lose their property.  This is not always the case, however.  From state to state the procedures vary and so do your rights and responsibilities as a tax lien investor.  What may make things even more complicated is the property owner filing for bankruptcy, or the IRS placing liens against the property.   This is why I suggest that you invest in a large number of smaller sized tax liens rather than betting the farm on one or two large ones.  Additionally, I would recommend that you do some reading on the topic.  Listed below are some books available on the subject.

If you have invested in tax liens, please use the comment section below to share your experience (good or bad).  Keep in mind that you can purchase tax liens from counties nationwide.  You don’t have to limit yourself to just your own home county.  Most states now provide a method for out of area investors to participate in the process using the Internet.  There is even a way to purchase tax liens from within your IRA account with select IRA custodians.

Helping you make the most of God’s money!

James L. Paris
Editor-In-Chief ChristianMoney.com 
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Comments

[Irene Jones]

Hello Jim Paris: I have always been very interested in pursuing the opportunity of tax lien investing, but never before had a clue of how it works or where to begin. With this information, I can at least begin to do some research into the possibility. Thank you

[dolores]

what about sending mantance fees to collection after 3 months and they add 200 to fees my vacation club frooze my acc. til payed not very happy was having trouble covering 500 now up to 889.00

[Rachel Seidensticker]

Tax lien and/or tax deed investing can be a great investment opportunity, but it is definitely not easy. It requires persistent due diligence. Over the counter sales are another great way to purchase tax liens. These are liens still left over from a sale or like in Montana, they don't hold sales, you just contact the county directly and place a bid and buy the lien.
Another great source of information for tax lien investors is
http://www.tax-lien-database.com. Understanding the process is crucial and then realizing that every county/state differs in their procedures for these sales. This website can really help you get started. For beginning investors, they have a couple FREE eBooks along with other educational materials. For established investors, you can search their database for upcoming sales across the nation and attain all the contact information, including property listings, to attend the auctions/sales. You can even buy and/or sell your liens/deeds directly online! It’s a great resource, and they’re always implementing suggestions to make it better. It is definitely worth a shot.

[arnold morales]

Be very careful that the property you are paying taxes on, is not an easement that has been established for a long period of time, you will never be able to sell it much less recoup you money. Be aware that there is no contamination. Chemicals, oil, aluminum, such as radiator shops can have a very detrimental effect on your investment. EPA Cleanup cost if you ever own it and it is contaminated will wipe you out. Stick to single family homes, income property, vacant land in good area with utilities, decent commercial, stay away from industrial properties. there are plenty of other good TLC's. Also make sure that the tax code (A.P.N. Assessors Parcel Number) has not been reconfigured. If it has make sure you have the new plat map that has been established. Changes to the plat map can leave you with a worthless plot. I have 30 years experience. I have seen many successful outcomes and some very horrible experiences. Can make lots of money without much sweat. Oh, yes it does take some " sweat", you have to do your homework. Very important!!