Tax Deed Investing

Our previous post on tax lien investing was a prelude to tax deed investing, if you missed it go here to read it as it is important to understand how a tax deed comes to be. OK, so now we understand that a tax deed is the result of an unpaid tax certificate. Again, it is important to share that the rules and guidelines for purchasing tax deeds vary by county and by state. However here is a general guideline on what they are and how you can purchase them.

Tax Deed Investing As a tax lien certificate fails to be redeemed, get paid off by property owner, the recourse to get the money back out of the tax lien investment is to start the foreclosure proceedings.

First a common question is, “what about the lender”. All lenders know that a tax lien holds first priority over a property. Yes, you may have a $2,000 tax lien and a $200,000 loan on a property, but if the $2000 taxes are not paid, the lender can actually lose their ability to collect on their loan (providing they were given proper notice). For this reason a tax lien is a good investment because the odds are strong the lender will redeem the certificate if the home owner does not. However, often there is no lender involved. So what is next?

One of two steps...If you are investing in a tax deed state:

The county in which the property is located actually forecloses on the property. The county then puts the tax deed up for auction. This action is designed to cover the cost of the tax lien and any other penalties or fees that may be accrued for the property. The total of these fees will be the minimum bid. So essentially you can buy the tax deed for as little as the fees to cover back taxes and penalties. This is often pennies on the dollar for the true value of the house. When there are multiple buyers for the tax deed, the minimum price can raise. However, it is important to understand that the total fee needs to be paid right away, or in some cases you are allowed up to, but not to exceed 24 hours. For this reason the typical tax deed is sold at a huge discount below tax assessed value.

Non tax deed states:

The process is similar to tax deed states as outlined above. The big difference is the counties and or states do not do the foreclosure process. You, as a tax lien owner, can perform these tasks and actually force a foreclosure.

Who buys these tax deeds?

As you can see, you can acquire property for pennies on the dollar. You can purchase these tax deeds cheap and have the ability to make lots of money with the property. You can go to the courthouse steps and buy these and you will see less competition at these live events. Many counties now allow you to do this online, making it even easier. Keep in mind the counties that allow you to buy these online tend to have more buyers because it has become pretty easy to do so from the comfort of your own home. Online purchases can be made by any savvy investor from around the world. The counties that do not have online sales are actually very short in the competing buyer category so the best deals are found here.

Next post in the series: Due Diligence is Key