Making money with tax liens is a viable way to keep ahead of inflation. Tax lien certificates pay guaranteed returns of 16%, 18%, 24% and even up to 36%. They’re government backed and secured by real estate, making tax liens among the safer investments for investors who know the rules and do their homework.
Today I’m answering your questions about making money with tax liens, and the topics I’m going to cover are:
Making Double-Digit Returns With Tax Liens
You can be making money with Tax Liens if you know the rules and do your homework.
Jean Norton told CNN about her experiences in this kind of investing. Jean attended a class that taught her the basics of tax lien buying. “Soon afterward, she bought more than $20,000 in tax liens at auctions in foreclosure-riddled Florida that were promising to pay 17% to 18% in interest. Within two years, she got her entire investment back, plus double-digit returns,” CNN reports.
When you buy a tax lien you are investing in tax defaulted property. The liens are sold at tax defaulted property auctions. If you know the rules and do your homework, you can make money with tax liens safely since tax liens are secured by real estate.
What is a Tax Lien and Where Can You Buy One?
A lot of people wonder how to make money with tax liens. For this kind of investing, the proper term is a tax lien certificate. Another type of sale used in some states to collect past due taxes is a tax deed sale. You can make big profits investing in each one, but they are different.
Both are sold at tax defaulted property auctions. When a homeowner does not pay his property taxes, the county goes through a collection process. It ends with the tax defaulted property auction. This is your chance to invest and make big profits.
What Happens When You Buy a Tax Lien?
What happens when you buy a tax lien? When you buy a tax lien certificate, you are buying the right to collect the past due taxes plus interest.
A federal court case from Illinois explains the tax lien certificate auction prices. “The winning bidder has the right to collect the amount of the lien from the delinquent taxpayer, along with the winning interest rate, in addition to any subsequent taxes paid by the winning bidder and applicable interest and penalties,” the court said in the opening statement. The opening statement presents the undisputed facts of the case.
In Illinois, you can earn as much as 18 percent interest every six months (36% annually) on your investment.
Illinois sells tax lien certificates in public auctions. The DuPage County treasurer explains it this way, “After the Tax Sale (the auction), the tax buyer is issued a certificate of purchase, which represents a lien on the property. The property owner has a 2 to 2½ year redemption period, depending on property classification. If the tax lien is not redeemed by the owner, the tax buyer must petition the circuit court for a tax deed after first fulfilling all of the legal requirements. The tax buyer may also pay all unpaid taxes for the next two subsequent years at a specified time and record the payments against the Sale.”
When the owner redeems the property, you make big profits. Redeeming the property means the owner has to pay to you:
- The past due taxes you bought at the tax defaulted property auction.
- Any other property taxes you paid.
- All the premiums added by the county.
- Up to 18 percent interest.
More than 95 percent of tax lien certificates are redeemed. You either make money with tax liens via high interest rates, or you get the property.
Make Money With Tax Deeds
In a tax deed auction, you are buying the property. California’s tax defaulted property auctions sell tax deeds. California does not sell tax lien certificates. This is important. If you want to own property, then invest in a tax deed auction.
You do need a plan for the property once you get it. You can visit our site and watch videos and read articles that teach you how to sell property you buy at a tax deed auction.
A California tax defaulted property does not have a redemption period after the auction.
Nolo is a very respected legal information website. The article “Getting Your Home Back After a Property Tax Sale in California” tells homeowners they probably won’t get their home back after a tax defaulted property auction. “If the county sells your home in California for failure to pay taxes, very rarely can you get it back,” the article says. “If you lose your home to a property tax sale in California, you generally can’t get it back, except in certain limited circumstances where the county decides to rescind the sale.”
Rescinding the sale is very rare. If that happens, you get your money back.
Know the Rules of Tax Lien Buying
To make money with tax liens, you have to know the rules for the auctions. Every state has laws setting up tax defaulted property auctions. Every county has rules based on those laws, and every county is different. For instance:
• Some counties require a deposit. This is applied to any purchase you make. If you don’t buy something, it is refunded. Orange County, CA., requires a $1,500 deposit. Humbolt County, CA, requires a $2,500 deposit. Adams County, IL, requires a . Sangamon County, IL, only wants a $200 deposit.
• Some counties hold in-person auctions. You have to be present to bid or have someone represent you.
• Some counties hold online auctions. You can be anywhere in the world and bid if you have a computer and an Internet connection. Online auctions sometimes give you a few days to mail in your payment. Other counties require an electronic payment. Bid 4 Assets contracts with California counties to conduct online tax defaulted property auctions.
You can get a list of tax sale properties and the auction rules from the county treasurer or tax collector’s office. This is a first and very important step. To make money with tax liens you must know the rules and what’s available for sale.
What are the Different Tax Sale Auction Types?
The auction type depends on the state and what is sold at the tax defaulted property auction. In all cases, the opening price for the tax defaulted property is set by state law. That amount is:
- The past due taxes
- Interest added by the county
- Penalties added by the county
- Advertising fees associated with the auction
Other fees, expenses or add-ons that vary by state and county. An example of another fee is a recording fee or document fee. This is the fee charged to record the deed or certificate in the courthouse record books. In Orange County, CA, the fee is 55 cents per $500 of the sales price.
Tax Lien Certificate Auction
To make money with tax liens, when you buy a tax lien certificate, you collect interest on all of what you paid when the owner redeems the property.
Tax lien auctions are one of two types:
- Bid Down
- Straight Bid
In a Bid Down auction, the price for the property is set and does not change. Instead, bidding lowers the interest rate the buyer is willing to accept. In Illinois, the interest rate starts at 18 percent. It goes down until no one is willing to accept less interest.
In a Straight Bid auction, the interest rate is fixed. The bidders raise the price they are willing to pay until no one else bids higher.
Tax Deed Auction
In a tax deed auction, the total of the items listed above is the opening bid. The purchase amount goes up. It is a Straight Bid auction. You don’t collect interest on your investment. You get the property. You get legal title to the property after the county finishes the paperwork and sends you the deed. Recording the deed and finishing the paperwork may take a few days to several weeks depending on the county.
Learn More About Tax Lien Investing
This is just a brief introduction of how to make money with tax liens.
If you’d like to learn more about government tax defaulted real estate, which is sold at public auctions for 10, 20, or cents on the dollar or making money with tax liens which pay guaranteed returns of 16%, 18%, up to 36%, then get started today with this Free Gift.
Ted Thomas is the only one who provides full support and complete training with home study courses, Q&A webinars, live tutorials, workshops & web classes, and personal one-on-one coaching.
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.