I’m Ted Thomas. I‘ve been involved in the tax lien certificate and tax deed business for more than 30 years, and I’ve been teaching and guiding others through the experience of buying at auctions, and selling, the whole process.
Today I’m answering your question about how to make money buying tax liens, and the topics I’m going to cover are:
- What Are Tax Liens on Real Estate?
- What Happens to Real Estate in Property Tax Default?
- Property Tax Redemption Periods in Tax Lien States
- Bidding on Tax Lien Interest Rates
- Acquiring Property at Tax Lien Auctions
- Acquiring Property at Tax Deed Auctions
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What Are Tax Liens on Real Estate?
Let’s talk about tax liens, which are a local phenomenon administered and managed by the local county government.
The process begins with the state legislature enacting laws which all property owners are required to follow. If they don’t follow the laws, the enforcement process is up to the local board of supervisors and county commissioners.
A tax lien on real estate represents an official claim to the property by the local county which is really representing the state government.
If you’re wondering why tax liens are sold, it’s really simple – the county needs money.
In order to generate money, or revenue, the local county government mandates that all property owners must pay property tax. The revenue from property taxes pays government employees and many other obligations.
What Happens to Real Estate in Property Tax Default?
Tax delinquent property owners will receive default notices from the county tax collector. Most property owners will pay the tax. However, many are late, and a tax lien certificate will be issued.
This can be advantageous to local investors who are interested in alternative investments.
If property tax is not paid, the consequences to the property owner are severe. Failing to pay local property tax can ultimately lead to seizure and confiscation.
Property Tax Redemption Periods in Tax Lien States
Millions of tax lien certificates are available nationwide. Approximately half of the counties in the United States will issue tax lien certificates, and each of those certificates will have a redemption date and time of usually 2-3 years.
The property owner is allowed to remain on the property during the redemption period, and the tax lien certificate holder has no rights to the property or to disturb the property owner.
The tax lien certificate owner will receive funds from the county when the tax lien certificate is paid.
In Florida, the property owner will have as long as 2 years to redeem, that is pay for, the certificate. If they don’t pay after two years, they will ultimately lose the property. Other states may have a longer redemption period.
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Bidding on Tax Lien Interest Rates
Now I’ll explain how to make money buying tax liens. Tax lien certificates pay outrageous interest rates. For example, Florida pays up to 18%, Arizona 16%, Iowa 24%, and Illinois 36%.
The purchaser of a tax lien certificate has bought a certificate that allows the buyer to enjoy a high rate of interest until the property owner finally pays for the property. The purchaser of the certificate will receive upon payment a return of the full amount invested plus the high interest rate.
Tax lien certificates are usually sold at a reverse auction. For example, in Florida the auction starts at 18% and then each bid is less. The bidder who will accept the lowest interest rate wins.
The same process takes place in other tax lien certificate states. Many auctions are online while simultaneously the county may be doing an offline auction.
Unpurchased tax lien certificates will end up at the county. Many can be bought over the counter and no bidding will be required.
Tax lien certificates are little known and considered an alternative investment. The certificates are not sold by bankers, brokers, or financial planners.
Acquiring Property at Tax Lien Auctions
In my opinion, states that sell tax lien certificates are benevolent. Why do I say that? Because the law allows the tax delinquent homeowner to stay on the property while the redemption period is running.
At the conclusion of the redemption period, if the property owner is still in default, then they will lose the property.
Bottom line, tax lien certificates are considered a predictable, certain, and secure investment. The purchaser of the certificate will either earn a high interest rate or be granted the property after a lengthy redemption period.
Acquiring Property at Tax Deed Auctions
In other states with no tax lien certificates, the local county government will confiscate the property and then resell it to the highest bidder. The property owner will lose all rights, and the highest bidder at the tax defaulted auction will own the property free and clear with no mortgage or deed of trust loan.
Wise investors do their research and look at the property condition prior to bidding on a tax lien certificate or tax deed property. The reason being, if the certificate is unpaid, you will become the new owner of that property.
If you haven’t looked, the property may not be in the neighborhood you wanted or in the condition you expected.
Conclusion
We hope you enjoyed Ted’s lesson, “How to Make Money Buying Tax Liens”
Tax lien certificates are sold at local auctions and pay interest rates of 16%, 18%, 24%, up to 36%. You either get paid the high rate of interest or you get the property mortgage-free.
The majority of tax lien states have a 2 to 3 year redemption period, and most tax lien certificates are redeemed, meaning you receive all your money back plus the interest on the certificate you purchased. However, there is a chance you could end up with the property so be sure to do your due diligence before bidding on it.
If you’d like to know more about how to make money buying tax liens, Ted Thomas provides full support and complete training with home study courses, Q&A webinars, live tutorials, workshops, web classes, and personal coaching with certified coaches.
Learn how to reap huge rewards from tax lien and tax deed investing! Get started today by taking advantage of Ted’s Free Master Class! Act now, it costs you nothing and will give you a big head start!
Ted Thomas is America’s Leading Authority on Tax Lien Certificates and Tax Deed Auctions, as well as a publisher and author of more than 30 books. His guidebooks on Real Estate have sold in four corners of the world. He has been teaching people just like you for over 30 years how to buy houses in good neighborhoods for pennies on the dollar. He teaches how to create wealth with minimum risk and easy-to-learn methods.
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