Tax Lien Certificates for Dummies
I’m Ted Thomas. I’ve been involved in the tax lien certificate and the tax defaulted property business for a little over 30 years. Today I’ll explain tax liens, tax-defaulted property and deeds. So let’s get going and talk about tax lien certificates for dummies.
If you’re going to buy tax lien certificates, you can earn 16%, 18%, 24%, and all the way up to 36% interest, but I think you are really after tax sales which occur when they sell the property. The official name for that is tax defaulted property, and all the counties across the USA sell it.
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How Counties Collect Unpaid Property Taxes
All private property is taxed except for schools and churches . Why? Because that’s what keeps the government going. Property taxes generate the revenue that runs the local government.
The legislature of the state created a tax entity called the county, and the county has a treasurer. The treasurer has the job of levying the taxes and collecting them.
When property owners don’t pay property taxes, the treasurer either confiscates the property or sells a tax lien certificate.
Property tax is usually in the 1% to 2% range, so a $100,000 property could bring in $1,500 dollars in tax each and every year.
What Is Tax Defaulted Property?
If the property owner doesn’t pay the property tax, it’s not some local person selling this property; it’s the state telling the county to make sure everybody pays taxes.
We have tax lien certificates, and we have tax defaulted property, also called tax deeds
There’s nothing benevolent about collecting these taxes. When the county seizes the property, they just want the money to pay their bills. So they usually sell the property at very close to the back taxes.
Let’s say it was a $100,000 property. It would probably be for sale for $5,000 or $10,000. However, that doesn’t mean you’re going to get it for that because other people will show up at the auction. Additionally, when they sell the property, it has no mortgage on it.
How Often Do Counties Have Delinquent Property Tax Auctions?
Tax lien certificates don’t work that way. A tax sale could be a tax lien certificate auction, but today we’re talking about a tax defaulted auction where you would get a tax deed.
There are over 3,000 counties across America, and all of these counties will have at least one tax defaulted auction every year. Some counties will even do this every single month.
For example, I live in Florida, and I know that in Orlando, which is Orange County, they have an auction about every 10 days or every 2 weeks for whatever properties that they have confiscated.
In places like Miami, they’ll wait until year-end and might sell 150 or 200 properties, so that would be a big auction. The little auctions are pretty easy because you can go there and watch. They usually sell just a few properties and only a few bidders will show up.
At a big auction, hundreds of bidders will show up. For example, in Los Angeles, they’ll have over a thousand people at the auction, and they might be selling 2,000 properties just in that county.
Learning About Tax Liens
Tax sale investing is really easy if you show up at the sale and buy the right property.
Should you just walk in the door and start buying? No. I would suggest you get educated.
You’ll want to know how much the property is worth. You want to research the property records and make sure there are no other liens on it, that it’s resaleable, and what condition it’s in.
It’s going to take a little time for you to learn some of those things. The average person could learn this on their own by attending auctions and observing.
How long would that probably take ? A year and a half to 2 years to learn it on your own, or you can come to a class and we can teach you a much easier way to do this.
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Should You Start With Offline or Online Tax Defaulted Property Auctions?
Is it better to start with online or offline auctions? Well, offline is nice because you can go there and watch. Of course, you can go and watch an online auction too.
I like the offline auction because I can go in the room and get a sense for it.
At small auctions, you’d get to see a lot. More than likely the auction would be conducted by a county employee.
At large auctions, they’re going to have an auctioneer there, running that price up as high as they can get it. That one is going to go so fast that you’ll have trouble keeping up with it. It’s up to you which one you like the best, but I’d definitely go watch online and offline.
How Much Money Do You Need for Tax Sale Investing?
What’s the minimum amount you’d need at a tax deed auction where you’re trying to get the property? Well, certainly don’t go there with $5,000 and expect to get a million dollar property. That’s not going to happen.
There will be other people at the auction, and they’re somewhat competitive. Educated buyers are the ones that always make all the money.
You can go with a small amount of money. However, if you only had $5,000 and could buy for 10 cents on the dollar, the biggest property you’re going to buy is something valued at $50,000.
What would $50,000 get you in Modesto, California vs. the south side of Miami? It’s going to be different in every part of the country.
There are plenty of properties available. One thing about this is that it’s a business of abundance. There are always too many properties.
We hope you enjoyed Ted’s lesson, “Tax Lien Certificates for Dummies”
If you’d like to know more about tax delinquent property investing, 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.
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