Maybe you have heard about tax lien sales and want to learn tax lien investing. Maybe you have heard it is an easy way to make big bucks and get rich. You probably think it is too good to be true.
You’re about to find out that tax lien certificates are a highly lucrative passive investment, and you’re in the right place because Ted Thomas is America’s authority on tax liens and tax deeds.
If you want to learn tax lien investing, or just want more info to decide if it’s right for you, be sure to get Ted’s Safe Haven home study course now while he’s offering it as a FREE gift.
Ted is a recognized expert, and highly respected news organizations come to Ted Thomas when they need an expert on the subject.
This US News & World Report article where Ted is quoted also agrees that you can make big profits, if you know the rules and do your homework.
Let me share 10 things you need to know to learn tax lien investing. Then YOU make an informed decision for yourself.
So let’s get started on the things to know about investing in tax liens in the United States.
LEARN TAX LIEN INVESTING – 1) TERMS
A few terms you should know if you want to learn tax lien investing are:
Homework – Your homework is things you need to know about the property. This includes all past-due taxes, the value of the property and as much information as you can get about the condition of the property. You must do your homework to be successful.
Lien, Tax Lien – In this instance, a lien is recorded by the county tax collector on the property. Until this lien is paid, the property cannot be sold or refinanced. If the owner does pay the past-due taxes, the tax collector sells this lien in a public auction.
Rules – The rules are state laws setting the terms for a tax sale and each county’s rules are based on state law. Every state has different laws, and each county in that state has different rules based on state law. You must know the rules to be successful.
Tax Defaulted Property – This is property that has unpaid property taxes that goes into a sale. The county tax collector files a lien on this property to collect the past-due taxes. When the owner does not pay, the tax collector puts the property into a sale.
Tax Deed – This is one of the two kinds of tax liens you can buy. I’ll explain more below.
Tax Lien Certificate – This is the other kind of tax lien you can buy. I’ll also explain more about this below.
LEARN TAX LIEN INVESTING – 2) A BRIEF HISTORY
A brief history of property taxes goes back to ancient times. What we know as modern property taxes are based on a tax system in Europe in the 14th and 15th centuries. When North America was settled by Europeans, they brought this tax structure with them. Property taxes in the United States are as old as the Colonies themselves.
“In pre-commercial agricultural areas (farming areas outside Colonial cities) the property tax was a feasible source of local government revenue and equal taxation of wealth was consistent with the prevailing equalitarian ideology,” writes Wichita State University Professor Glenn W. Fisher in his article on the History of Property Taxes in the United States. Taxes, as most know, was a driving reason behind the Revolutionary War.
After the War of Independence, taxes were levied. “Land was taxed in a variety of ways, but only four states taxed the mass of property by valuation. No state constitution required that taxation be by value or required that rates on all kinds of property be uniform,” Professor Fisher said.
The first state-wide rules for property taxes started in 1818 in Illinois. The Land of Lincoln is one of the top states for tax lien investors today. You can earn as much as 36% interest per year on a tax lien there. Today, every state in the US, the District of Columbia and US territories all have a property tax system in state law.
Every state has its own set of laws for property taxes, collections and the tax lien and tax deed system. Every county in each state has different rules based on the state’s law. To learn tax lien investing, you must know the local rules to be successful and make big profits.
LEARN TAX LIEN INVESTING – 3) LEGAL
Selling property to collect the past-due taxes is legal.
What you need to know about tax lien investing is every state and US territory has a set of laws in the books making it legal. These laws are tested in courts.
The US Supreme Court has ruled on tax lien cases over the years. The High Court has always ruled these sales are legal. The most recent decision was Jones v. Flowers in 2008. The Court split 5-3 on the decision, but all agreed the tax lien sales are legal and necessary.
Writing for the dissent, Justice Clarence Thomas said, “The methods of notice employed by Arkansas were reasonably calculated to inform petitioner of proceedings affecting his property interest and thus satisfy the requirements of the Due Process Clause.” In other words, selling the house to collect the past-due taxes is legal.
Writing for the majority, Chief Justice John Roberts said, “[T]he common knowledge that property may become subject to government taking when taxes are not paid does not excuse the government from complying with its constitutional obligation of notice before taking private property.” In other words, selling property to collect past-due taxes is legal.
LEARN TAX LIEN INVESTING – 4) SALES
Among the things to know to learn tax lien investing are the types of sales. You can buy a tax lien. You can buy a tax deed.
Be sure to visit the maps showing you tax deed states and tax lien states to help you determine the best states for tax lien investing for you.
How do you profit from a tax lien?
Here is what you need to know about tax lien investing and tax deed investing.
Tax Lien
When you buy a tax lien certificate, you are buying the right to collect the past-due property taxes plus interest. Your interest can be as high as 36%. “The bid represents the rate of interest that would be earned by the tax buyer on the purchase amount during each six months of the redemption period, if the owner redeems the sale. By law, the maximum interest rate bid is 18%,” says the DuPage County, IL, tax collector’s website.
When the owner redeems the property, he pays the county tax collector for everything you spent in the sale, plus the interest you are allowed to collect. The tax collector then sends you a check.
About 95% of tax lien certificates are redeemed.
If the owner will not redeem the property by paying the past-due taxes and interest, you can foreclose and own the property. I recommend hiring a real estate attorney to help with the foreclosure process.
Tax Deed
In a tax deed sale, you are buying the property. The owner cannot redeem it. “Property that is tax-defaulted after five years … becomes subject to the county tax collector’s power to sell that property in order to satisfy the defaulted property taxes,” says the California State Controller.
Hybrid
A few states have a hybrid sale, combing elements of the tax lien and tax deed.
Georgia sells a redeemable tax deed. When you buy a property in a Peach State sale, the owner has a year to redeem the property. “[The] delinquent taxpayer has the ability to redeem his/her property within 12 months of tax sale by paying what the successful bidder paid plus a 20% premium (interest),” says the Richmond County tax collector.
If the owner will not redeem the property, you can foreclose and own it. Hire a real estate attorney to help.
In the Best Ever YouTube show on investing, Ted Thomas and host Joe Fairless talk about tax lien investing and the differences in the types of sales.
LEARN TAX LIEN INVESTING – 5) WHICH TAX SALE IS BEST
Which tax sale is best? That depends on you and your investment strategy.
Money
If you just want money, invest in a tax lien sale. More than 95% of tax liens are redeemed. On the rare occasion the tax lien certificate is not redeemed, you can foreclose to own the property. You can also sell your tax lien certificate.
In states like Illinois, the interest is added monthly. In states like Georgia, a “premium of 20% for the first year or fraction of a year” is added immediately, says the informative legal information website Nolo.
That 20% is added immediately in the Peach State. If the owner redeems the property the day after the sale, you earn 20%!
Depending on the state, the owner has a few months to four years to redeem. Interest will accumulate as allowed by state law. Alabama allows the owner three years. You earn 12% interest in the Cotton State. In Maryland, the time varies between six months to two years. You earn 18% interest in the Old Line State. Wyoming allows four years and adds 15% to the past-due taxes.
Property
If you are interested in owning property, buy in a tax deed state.
When the paperwork is completed, you own it. You can live in the house. You can sell it and realize a big profit, or you can rent it for a monthly income. Real estate website Trulia has a guide for landlords.
If you want monthly income but do not want to be a landlord, contract with a real estate agency to handle the rent. The real estate website, Zillow, will tell you a reasonable rent amount based on the property’s location. The rental agency adds their fees to that.
Lee Lineberger is a Ted Thomas investing client. Hear how tax lien investing worked for him in this video.
LEARN TAX LIEN INVESTING – 6) FORECLOSURE
The foreclosure process is definitely part of what you need to know to learn tax lien investing properly.
When you invest in tax lien certificates, eventually you will buy something and the owner will not redeem it. You have to foreclose or sell your tax lien certificate to someone else who will foreclose. If you do not do this, you lose your investment.
Foreclosure rules are different in every state. This is why you need a real estate attorney to help you with the process.
How much can you make investing in tax liens?
The Motley Fool is one of the world’s top investment advisement firms. In Liz Brumer’s Feb 04, 2021 article, Tax Lien Foreclosure: What It Is and How It Works at the Motley Fool website, Ms. Brumer says one of her friends invested in a property tax lien and 15 months later, “[a]fter closing costs, interest to his lender, and Realtor fees, he netted roughly $112,00 when it was all said and done.”
He bought the lien for $2,200, spent $5,000 in legal fees for the foreclosure and then opted to borrow $105,000 to make renovations to the property.
Brumer’s friend could have sold the property without making renovations and still realized a big profit. The remodeling work was a decision made after he took possession of the home. You do not have to remodel.
LEARN TAX LIEN INVESTING – 7) OTHER TAXES
Other taxes are one of the important things to know to learn tax lien investing. Property taxes are collected by cities, counties, the state, school boards and special tax districts.
One sale may not cover everything owed. The county tax collector can hold a sale for a property located within the city limits. The county sale only covers county taxes. The city must hold its own sale to collect city property taxes. The same goes for a school board and taxes owed to it.
Part of your homework is knowing what these other taxes are. The total amount you plan to spend must cover the other taxes. If you do not pay the other taxes, someone else can buy them and jeopardize your investment.
You can charge interest on the other taxes.
While you wait for the owner to redeem the property, pay property taxes as they come due. You get to charge interest on these taxes as well. If you do not pay these taxes, someone else can buy them and jeopardize your investment.
LEARN TAX LIEN INVESTING – 8) IT’S SAFE
What are the risks of buying tax liens? Is tax lien investing safe?
Yes, it is safe.
1) Mortgage gone. When you buy a tax defaulted property at a sale, your claim goes to the top of the list. It goes ahead of any mortgage on the property.
“If the property in question is security for a deed of trust or a mortgage, the lender most likely will not step aside and allow you to foreclose or receive a tax deed. Because the lender isn’t a priority lienholder, it will lose its interest in the property if either of these things occur,” says Beverly Bird in her article, What Happens if You Purchase a Home At a Tax Lien Sale & There Is a Mortgage Lien Owed? at Zacks, the world’s second largest investment research firm.
If the bank wants to protect its investment, it has to pay you for everything you spent at the sale, plus any interest. If the owner does not pay and the bank does not pay, the mortgage is set aside.
2) Legal. In the Legal section above, I discuss how this is legal and why.
3) Backed by real estate. Tax lien certificates and tax deeds are backed up by the property. You can see and touch the property. It is called “real” estate for good reason.
Compare this to stocks. If you buy stocks in a company, you are gambling the company will make enough profit to pay dividends. When you buy stocks, you are told, “past performance is not indicative of future results.” That statement is actually required by the Securities and Exchange Commission (SEC), says John Brown at Forbes Magazine.
The national newspaper USA Today has a story about many once-profitable companies that closed completely. Investors in Toys R Us and Pier 1 lost everything they put into those companies’ stocks.
4) Homework. You have to know as much as you can about the property. The real estate website Zillow can tell you everything you need to know, and Ted Thomas can teach you how to use Zillow.
Some homework questions you should ask are:
- Is the property worth buying?
- What can I do with the property?
- What other taxes are owed?
5) Mistakes. Sometimes tax collectors make mistakes. If the tax collector goofs, you get a refund. Everything you spent at the sale comes back to you.
If a business closes its doors forever and you have stock in that business, you lose your money. You cannot get a refund.
LEARN TAX LIEN INVESTING – 9) THE SALE
Tax defaulted property sales are public auction. You must know the rules. Every county has different rules for its sale.
In California, some companies have online auctions. You can participate in the online auction from anywhere in the world. Some counties have in-person only auctions, and you must be present to bid. The California state controller has a link to each county’s tax collector. Click through to the county website to get that county’s rules.
You need know:
- When the next sale is planned.
- What properties are listed in the sale.
- How to register for the sale.
- How to pay for your winning bid.
- And how long it takes to get your paperwork from the tax collector.
All this is available from the tax collector’s office, and a tax lien properties list can be found on the county’s website and published in the local newspaper.
Pick a state. Pick a county. Get the county tax collector’s phone number. Call to get the answers you need.
If you do not follow the rules, you can lose all or part of your money. You might get banned too.
“If the successful bidder fails to return with full payment by that time [within 24 hours of the sale or 11 a.m. the next business day] then the Clerk’s office shall retain the deposit and apply it towards the re-advertisement and resale of the property. The bidder will be banned,” says the Polk County, FL, clerk.
LEARN TAX LIEN INVESTING – 10) MORE INFORMATION
This article briefly covers what you need to know to learn tax lien investing. Ted has so much more information you can get for free. You can watch videos and read blogs or receive a free copy of our Insider’s Report.
In fact, Ted will even go beyond that today and give you his Safe Haven home study course that’s normally $197 absolutely FREE.
Once you digest this information, you can decide if tax lien investing is right for you.
IN CONCLUSION
To learn tax lien investing, it’s important to know the rules and do your homework. First, you need to learn the terminology, which can vary from state to state, and even county to county.
Be assured that tax lien investing is perfectly legal. It’s a 200-year-old government program with its roots in a history that goes back to ancient times.
As you learn tax lien investing, you discover that there are 3 distinct types of tax sales, tax lien, tax deed, and hybrid. Each has its own advantages for you as an investor, depending on your needs and preferences.
If you’re interested in a safe, passive investment that pays high rates of interest, then you may be more interested to learn tax lien investing. If you want to acquire property, then you’d want to learn more about tax deeds.
Since tax liens are secured by real estate, this is one of the safest investments out there, but you do need to know what you’re doing.
There is no one better than Ted Thomas to show you how.
Ted Thomas is America’s Leading Authority on Tax Lien Certificates and Tax Deed Auctions. He’s an educator, publisher and author of more than 30 books.
Ted is an American Original, and he’s been teaching people just like you for over 30 years how to buy homes in good neighborhoods for cents on the dollar and how to sell those properties for big profits.
Ted Thomas has the complete training, guidance and support package for anyone wanting to learn tax lien investing, and no one provides better support than Ted and his team of experienced coaches and facilitators.
Ted’s so committed to helping you learn tax lien investing that he wants to make it easy for you to get started. Today Ted’s offering you a FREE home study course, the Safe Haven Investor System (valued at $197). You’ll love it.
Safe Haven is 2 hours of streaming videos and a 100-page illustrated manual that teaches you all about tax liens & tax deeds, and this is your chance to get the course absolutely FREE, so act now and get your Safe Haven course today.
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