If you are interested in making a big profit and want to own real estate, you need to look at Texas tax lien sales. The Lone Star State has plenty of opportunities for you to invest in real estate tax sales.Before you invest, you need to know the rules and do your homework. Every state and every county in each state has different rules for their own tax sale. The homework is unique to each property, but the process is the same.I’m Ted Thomas and I’ve made a fortune investing in tax lien sales and tax deed sales across the United States. Now, I teach other people how to make big profits and retire early, if they want to.
What Are the Different Types of Tax Sales?Tax sales are grouped into three categories.
1: Tax Lien CertificateIn a tax lien certificate state, you pay the past-due property taxes and you collect as much as 36% interest on your investment. You do not get the property.The owner redeems his property by paying the back taxes, premiums added by the tax collector, and the interest you collect. He pays the tax collector. The tax collector sends you a check.
2: Tax DeedIn a tax deed state, when you buy something in the tax auction, you own the property when the paperwork is completed. The owner cannot redeem the property.
3: HybridA few states have a hybrid auction, combining elements of the tax lien certificate and the tax deed. Texas offers a hybrid auction.In the Lone State State, when you buy a property at the tax auction, you get a redeemable tax deed. Smith County calls the redeemable tax deed a “sheriff’s deed.”The name does not matter. What matters is, if the owner does not redeem the property, you own it.If the owner does redeem the property, you earn interest on what you invested. The Smith County tax office says “The owner may redeem the property at any time up to six months to two years after the sale. The redemption period varies for each property according to the type of property, the length of time we have been trustees, etc. When an owner redeems the property, he must pay the investor the amount paid at time of sale plus 25% and any costs of sale during the first year of redemption. During the second year, the investor is entitled to the amount paid at the time of sale plus 50% and any costs of sale.”Homestead and farmland properties have a two-year redemption period. Other properties are limited to six months redemption.More than 95 percent of all properties in a hybrid auction state like Texas are redeemed.
It Starts With a Texas Tax LienIn all cases, the process starts with a lien. The local tax collector puts a lien on the property for the back taxes. The property cannot be sold, transferred or refinanced as long as this lien is in place. When the lien goes to the sale, it becomes a tax lien certificate or a tax deed, as I explain above.Here is a more detailed discussion on a tax lien certificate. Learn more about tax deeds here.Now, let’s talk about what you need to know about investing in Texas tax lien sales.
Before Bidding at a Texas Tax Auction: Do ThisYour homework is critical to your success as an investor. In short, learn as much as you can about a property. The real estate information website Zillow is a free resource. It is one of the top websites for real estate. I have videos on my website that teach you how to use Zillow.You need to know if the property is worth at least the minimum bid at the auction. Sometimes you may find the property is not worth buying. If that is the case, walk away. Find another property or another auction. Tax lien sales are held every week across the nation.If the property appears to be worth at least the opening bid, then do more research. Start with Zillow. If you can, drive by the property. If you cannot go see it in person, call a real estate agent in the area and ask for a professional opinion of the property’s value. Call the county’s Building Department and see if they have any information.You must know what the property is worth because the tax collector does not give you that information.“All sales are sold ‘as-is’ to the highest bidder on a ‘Buyer Beware Basis’. Any and all questions concerning the properties offered for each sale should be directed to your attorney. The Sheriff’s Office will not answer legal questions,” says the Denton County tax collector’s office.A few other things you want to know about Texas tax lien sales are:
- The size of the property, including the heated square feet in the home and the lot size.
- The neighborhood. This will tell you about the area you are investing in.
- Your total. You need to know the minimum bid and then decide how much more you will spend to get the property. Stick to your budget.
You Must Understand Texas Property Auction RulesEvery state holds tax lien sales. The laws in every state are different. Every county then has its own rules about the auction. You must know these rules.The Texas state legislature created the set of laws that every Texas county’s rules are based on. Much of the code section deals with the technical aspects of Texas tax lien sales and the right of redemption.A major part of the law is you cannot owe past-due taxes in the county where you want to buy a property at the sale.Another Texas tax lien sales rule is once you buy the property, you are the owner and have a right to go on the property. This is different from Georgia, another hybrid state.Georgia’s tax deed does not give you permission to go on the property until you complete a foreclosure process.Let’s take a look at two different Texas counties so you will better understand what I mean.
Example 1: Williamson CountyIn Williamson County, the tax office makes it easy for you. The tax collector posted the complete list of rules on the county website.Here are highlights:
- Tax sales are held 6-8 times a year, not every month as in some counties.
- The law firm McCreary, Veselka, Bragg and Allen handles the sale.
- This is an in-person auction. You have to be there or have someone represent you at the sale.
- You have two hours after the sale to bring the money to pay for your winning bid.
Example 2: Galveston CountyGalveston County also has a list of rules. Here are the key differences that set Galveston County apart from Hill County:
- Online only. While the county uses the Linebarger Goggan Blair & Sampson law firm to oversee the sale, it uses Real Auction as the online platform. This means you can be anywhere in the world with an internet connection and you can participate in this auction.
- You must register with Real Auction.
- A bid deposit is needed. You need to know the maximum amount you plan to spend and then send five percent of that to the Galveston County’s Sheriff’s Office.
- You have until 4:00 p.m. on the day of the sale to wire the full payment to the Sheriff’s Office.
What Are ‘Struck-Off’ Properties in Texas?Sometimes property does not sell at Texas tax lien sales. If that happens, the real estate is listed as “struck-off properties” or “resale properties.” You can find some great deals in these sales if you pay attention and do your homework. Here is what happens:
- The property is offered at the regular auction. It does not sell.
- The tax collector prepares a deed for the local Board that collects taxes on that property. In Texas, several local Boards can collect ad valorem taxes; they are: the county, school board, special tax districts and if the property is located in a city, the city can collect taxes. Ad valorem is Latin for “according to the value.” Property taxes are sometimes called ad valorem taxes because the amount of the tax is linked to the value of the property.
- This deed is offered for sale at a later auction, usually at a lower price.