Would you like to get between 15% and 50% interest on a low risk and low maintenance investment? Would you like to be guaranteed either a favorable return on the money you invested or deeded rights to the real property secured by the investment? Would you like to have these opportunities even if you only have a little money to invest? It sounds impossible, but using tax liens as an investing vehicle can offer you just that. Let's look briefly at the tax lien process and how real estate heavyweights can use it as a dynamite investing niche.
Almost every state in the US has a process that is used to collect delinquent property taxes. The process can be separated between two general types of systems: ‘tax lien systems' and ‘tax deed systems'. While both can be used as investing tools, we will focus on the tax lien system in this article, since as of this writing, it is the dominant type used in the US.
Counties will sell their lien for unpaid property taxes. This lien is an enforcement right held by the county. The lien doesn't grant full ownership rights to the property, but it does give the investor two powerful rights: First, the right to receive interest penalty charges if the lien is paid off by the property owner, and second, the right to foreclose and take title to the property if the lien isn't paid. The property tax lien is a high priority lien superior to mortgage and other liens. That means that if you do foreclose, then you will have a relatively clean title. Also, since the property tax lien is usually for a small fraction of the properties' market value the investment is VERY secure.
Once you the investor have purchased the tax lien, there is a period where the original property owner can redeem their property. This period can be anywhere between 6 months or a couple of years. Does that mean you lose your investment if they pay off the lien? Absolutely NOT! It means that in addition to paying you back your money, they have to pay you an extra 16% to 50% in interest charges.
And what if the property owner doesn't pay the lien? In that case, you, the investor, get FULL OWNERSHIP RIGHTS to the property, regardless of what the original purchase price was! That means that if the tax lien amount was, say, $2,000 on a property valued at $130,000, you would have basically purchased the property for only that $2,000 you invested!
This is just a high level overview of how tax lien investing can be put to work for you. There are certain techniques and skills you'll need to acquire in order to work these deals properly. But as you can see, it's WELL worth your time to learn them. Many gurus out there can provide an aspiring real estate heavyweight some level of training. The expertise offered by Darius Barazandeh in particular is very good and up to date.
This article is based a chapter of book Be a Real Estate Heavyweight, entitled Tax Lien & Tax Deed Investing by Darius Barazandeh. For more information on the book, be sure to check out www.RealEstateHeavyweight.com.
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