HOW TO BUY TAX DEFAULTED PROPERTIES
To understand how to buy tax defaulted properties, you first must know the difference between a tax lien certificate and a tax defaulted property (tax deed).
Before you begin investing, it’s vital that you understand how a tax deed works.
Can you buy a house by paying the back taxes? Yes, you can, and often inexpensively.
You can purchase tax-defaulted real estate for pennies on the dollar, 5 cents, 10 cents – but it’s only profitable if you know what you’re getting when you bid on the property.
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HOW TO BUY TAX DEFAULTED PROPERTIES – WHAT ARE TAX DEEDS?
In a very basic sense, every piece of land in the United States is owned by the federal government. The government allows you the right to own the property as long as you pay taxes on it.
Many years ago, the U.S. Congress enacted laws that allowed individual states to handle governmental duties and obligations at the local level. The states further designated counties to handle the taxation part of those duties and obligations.
When you pay taxes to the treasurer or assessor’s office, those funds are used to pay for public schools, police and fire departments, and any number of other civic services.
The local government that manages and runs these services is primarily funded by property taxes.
Ever year thousands of people neglect to pay property taxes for various reasons. So what happens then?
The remedy for local government is to hold a tax-defaulted property auction. Many of these auctions use a public oral bid system and are increasingly online.
To quality as a bidder is simple; you just need to register before bidding. The starting bid is always the amount due the local government for back taxes plus penalties and interest. If you win, you must immediately pay for your purchase.
It doesn’t matter where you live; county governments in all 50 states are authorized to hold auctions to recoup back taxes.
Some states offer tax lien certificates, as defined in Part 1 “Tax Lien Certificates Definition – What Is a Tax Lien Certificate?”
Other states offer tax deeds, which are used to collect the delinquent property taxes owed.
The difference? A tax lien certificate entitles you to collect the amount of tax you paid plus penalties, and a tax deed allows you to become the owner of the property.
That’s right – the deed entitles you to foreclose on the property owner if the local county hasn’t already done so and actually keep the real estate or dispose of it as you wish.
HOW TO BUY TAX DEFAULTED PROPERTIES – INVESTING BASICS
The secret of how to buy tax defaulted properties and become a successful investor is to know the who, what, when, where, why, and how these tax auctions take place.
Golden Rule #1
The first rule of how to buy tax defaulted properties is know what you’re buying.
This includes the size of the parcel, how many buildings are on it, zoning, restrictions, easements, the annual amount of property taxes, the appraisal value, previous sale prices, and current condition.
Taxes are usually assessed at 1 to 1.5 percent of the property’s value. So a piece of real estate valued at $100,000 will be assessed somewhere around $1,000 in taxes.
Three years of back taxes would equal $3,000, and the county will probably ask for a minimum bid at the tax defaulted property auction of $3,500 because the county will add penalties.
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HOW TO BUY TAX DEFAULTED PROPERTIES – THE AUCTIONS
The next question that must be answered is where and when are the auctions taking place?
Normally auctions are conducted at county offices, but not always. Regardless of the location, it will be announced in advance of the auction.
Some counties hold one big annual event while others schedule tax defaulted property auctions monthly.
HOW TO BUY TAX DEFAULTED PROPERTIES – THE BIDDING PROCESS
Secondly, you must know how the bidding process works. Rules vary from state to state, taxing district to taxing district.
Many counties use an online bidding process which is becoming more and more popular, but others will still hold live auctions you may attend in person.
At the auction, each parcel number is announced in turn, then the auctioneer asks for opening bids. It works much like any other auction; the bidding goes up until there are no more bids.
The person who wins with the highest bid gets the tax deed from the county treasurer’s office. Make note there are dozens of unique bidding processes; this is only one.
HOW TO BUY TAX DEFAULTED PROPERTIES – INVESTMENT TIPS
When you know how to buy tax defaulted properties successfully, you could very well get a valuable piece of property for just pennies on the dollar.
Make sure you know the auction rules. The difference between making a good investment or not is preparation.
You may be required to have certified funds in order to pay for the tax deed, then by all means, have certified funds available.
If you are a winning bidder and don’t have the correct form of payment, then you lose out to the next bidder.
When you have the winning bid, you then must decide what to do with the real estate, sell or hold.
One option is to “carry the paper” on the property, that is, sell it and provide financing for the buyer. The more favorable the terms of your contract, the more likely it is you will quickly find a buyer.
It’s wise to be apprehensive about buying tax defaulted property at auction. Real estate – whether it’s a parcel of land or a developed lot with a home or commercial building – does not always hold its value.
Tax defaulted property auctions allow you to buy low and resell low, thereby making a quick profit.
With tax defaulted property investing, you can get bargain real estate.
In a tax deed state, when a county seizes properties for non payment of back property taxes, they’ll auction those properties off, often for pennies on the dollar.
Before you bid, it’s necessary to know what you’re buying, when and where the auctions are, the auction rules, and also have an exit strategy for what you’ll do once you’ve acquired the property.
So do your research, learn all about how to buy tax defaulted properties, and you’re bound to find success!
There’s no one better and more dedicated to teaching you than Ted Thomas, America’s leading authority on tax lien certificates and tax defaulted property.
Ted can show you how to profit. He is famous for showing both newcomers and more seasoned investors how to earn 6-figure incomes within a year of completing his training.
Ted has a team of coaches and facilitators helping students with research and providing expert answers to questions about tax liens and tax defaulted property.
Ted Thomas is the only one who offers full support and complete training via home-study courses, personal coaching, Q&A sessions, live web classes, and workshops.
Learn more about how to buy tax defaulted properties today. Begin your education absolutely FREE with Ted’s Safe Haven Investor System course (valued at $197).
Safe Haven is 2 hours of streaming videos and a 100-page illustrated manual that teaches you how to buy tax defaulted properties and tax lien certificates. So be sure to act now and get your FREE Safe Haven course today.