When considering any real estate investment, tax lien certificates should also be considered. This type of investment can be profitable when purchased properly and executed effectively. Many investors are making the most of real estate investment. Tax lien certificates can be part of their investment portfolio.

As a real estate investment, tax lien certificate investing may seem more complex than it is. An investor purchases the tax lien from the government on a house where the owners have failed to make tax payments. The homeowner may be given a set amount of time to settle the claim with the investor. When this does not happen, the investor owns the property. Keep the following in mind when considering these investments:

1. Buy tax lien certificates with money that is expendable, as it can take time to realize profits.

2. Learn about tax lien certificates for sale from qualified agencies, including the treasury offices of local counties.

3. Avoid tax lien certificate investing without proper knowledge of the process and potential risk factors.

Action Steps
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Hire an attorney to expedite tax lien certificate management

Although not necessarily required, attorneys can minimize legal responsibility to the lien holder in many situations. Hire professionals in real estate investing who can guide you through the process of purchasing and managing tax lien certificates.

I recommend: Locate these professionals first to provide tax lien certificate information for investors. Real Estate Lawyers provides a listing of real estate attorneys and information related to property liens. FindLaw also offers a complete listing of real estate attorneys.

Get free tax lien information from research

Buying tax lien certificates should not be done unless all information has been considered first, including what the local real estate market is like. Gather information on property value trends, real estate market trends and the approximate value of the property in question prior to investing in certificates. This gives the investor an idea of what profit can be made from the investment.

I recommend: Find tax lien listings online and through county government listings. Determine potential investments then research those properties. Use Zillow to determine the best estimate of the property's value. This service is also excellent for showing trends such as price values rising or falling in the area. Market Watch is another useful tool for spotting market trends. Use this information to determine the value of the property now and in the near future.

Determine intentions prior to investing in tax lien certificates

Seek out as much information as possible on how to buy tax lien certificates prior to investing. Determine if the property owner currently will be given time to settle, with interest. Also determine what will happen if the property debt is not settled with the current property owner, such as turning it into rental property or flipping it. Estimating these items beforehand allows the investor to make decisions based on their desired return on investment.

I recommend: Gather information and legal requirements then buy tax lien certificates. Get information regarding local procedures for tax lien certificates. Often, this information is available through county tax collectors or treasury services, such as Florida's Miami Dade County. CRE Online provides extensive information on how to invest in tax liens, including what to do with property after obtaining ownership.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Tax lien certificates often require a large amount of money up front. The value of the delinquent taxes is much less than the cost of purchasing the certificate. Each county office will provide information on these costs.

An alternative to a traditional real estate investment, tax lien certificates are a popular way to acquire real estate at a budget price. Such liens attach to a property when an owner fails to pay the real estate taxes due. When this occurs, the government auctions the responsibility for payment of the tax to the highest bidder; after the winner fulfills certain conditions, he owns the property.

Before you attempt any tax lien certificate investing, learn how to find tax lien sales in your area. Depending on county officials, they may announce tax liens online, in the paper or on a list at the courthouse. Delinquent non-tax-paying individuals (or companies) are subject to tax liens. Follow your area’s specific process to attempt to purchase a tax lien. Some states have tax sales annually. In many counties in Georgia, you must show up at the courthouse the first Tuesday of each month. A county official announces the tax liens up for auction; the winners are the highest bidders, who must pay that day in cash.

When attempting to purchase real estate tax liens, some points to consider include:

1. Realize that it takes awhile before you can recognize profit from a tax lien certificate.
2. Know that if the homeowner does not pay you back after a year, the title to the house passes to you.
3. Know the downsides associated with tax liens.

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Realize that it takes awhile before you can recognize profit from tax lien certificates

In many states, the homeowner has up to a year to reimburse you for paying his delinquent taxes. In Cobb County, Georgia, 'the redemption price is the bid amount, plus any taxes paid by the purchaser after the tax sale, plus any special assessments on the property, plus a 20% premium of the amount for the first year or fraction of a year which has elapsed since the date of sale, and a 10% premium for each additional year or fraction of a year thereafter, plus the sheriff and advertisement costs.'

I recommend: Don’t bid on any tax liens unless you have expendable money that you don’t mind being tied up for a year or more. Read up on various state and municipal guidelines regarding tax liens. Here are some from Florida, Maryland and Alabama.

Retain the title to the property if the taxpayer doesn't reimburse you

Why do people bid on real estate tax liens? The potential exists to acquire a house far below its value. You cannot modify or improve the house during the one-year grace period, nor can you rent it, renovate it or evict current tenants. After all, you don't own the house yet. If the homeowner does reimburse you for paying off his tax lien you, you still earn a great rate of return.

I recommend: Research potential rates of return you can achieve through the use of tax liens. (Rates may change from year to year). Here are a few examples of returns you can earn in New York and Georgia.

Know the downsides associated with real estate investment tax lien certificates

You must have a great deal of cash to be able to buy a tax lien, as they usually sell for far more than the outstanding tax debt. If a property has an outstanding $2,000 tax lien, and you purchase the tax lien for $30,000 on a house that is worth $100,000, you may be able to get the house for one-third of the price. Obviously, you have to have a lot of liquidity, and you have to be able to do without the $30,000 for a long time before you realize any return. In many states, it is also your responsibility to foreclose on and/or evict the current owners at the end of any grace period.

I recommend: Here’s how to evict a tenant. If you’d rather have a professional company do it for you, here is a list of nationwide tenant eviction services.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Never bid on a tax lien certificate without visiting the houses or land first. Municipalities release lists of properties before the auctions so you can check them out. Do your research before undertaking any tax lien certificate investing.

A form of real estate investment, tax lien certificates may sound like an excellent solution to avoiding the traditional real estate market, but be cautious. They can be very lucrative as a real estate investment. Tax lien certificates basics should be fully understood first. When homeowner fail to make payments on real estate taxes, investors can purchase the properties' tax lien certificates and then require the homeowners to repay them within a specific amount of time. If no repayment happens, the investors own the property.

Learning the specifics about these tax lien certificates is essential. State laws are different from place to place and investments can be risky. The amount due on these certificates is also usually several times higher than the amount of the actual delinquent taxes. When considering the investment, consider the following:

1. Determine if tax lien certificate investing is within your risk tolerance level as they can be a riskier investment in some situations.

2. Buy tax lien certificates only after thorough investigation of the property and title.

3. Find tax lien certificates for sale from only approved sources.

Action Steps
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Gather tax lien certificate information

Learn how to buy tax lien certificates safely by first learning about them. Investors should be aware of the process and procedures required prior to getting started.

I recommend: Get information on these certificates prior to investing. Free tax lien information is available online. CRE Online offers a detailed outline of investing in these certificates. REIClub offers an excellent resource outlining the process of investing and the risks of doing so.

Find tax lien listings

Buying tax lien certificates directly from county offices is best when possible. Some third-party companies are available as well. Research options within each county and state since laws change from place to place.

I recommend: Buy tax lien certificates after full research of options. First, find county websites and addresses from the National Association of Counties, a resource of all participating counties in the country. Use local county treasury websites to gather more information about the availability of tax lien certificates in that county, such as Lake County, CA. Not all provide them.

Estimate the costs of investing in tax lien certificates

When working with tax lien certificates, it is essential to have proper funding for each investment. Funding ranges from county to county, but most will require between 10% and 20% of the property's value invested.

I recommend: Take care when considering this real estate investment. Tax lien certificate investing is profitable when done properly. Learn more about the costs and profit potential from the Tax Lien Certificates Network. IdeaMarketers provides a good look at the risks, costs and benefits of tax lien investing.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  A tax lien certificate is considered one of the safest choices available. There are some companies looking to take money for information, though, which should be avoided. Rather, consider a course or an investment partner to get the necessary education.

When you know real estate investment tax lien certificates key terms, you'll be able to identify whether or not the pros and cons of this type of investment are worth the risk. Tax liens are a specific way an investor can attempt to purchase property, but there isn't a guarantee that the investor will wind up owning it. There are other things to consider, such as the grace period and the redemption price.

Action Steps
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Tax lien sale

When a person, company or organization fails to pay the taxes owed, the government places a tax lien on the property. After a set amount of time, the government may use an auction to sell the tax lien to real estate investors. The investors pay the tax lien and then have options on ways to recoup the investment, and in some cases, make a profit.

I recommend: Nationwide Environmental Title Research offers details on a tax lien sale and includes information for investors wanting to know how the process works.

Real estate taxes

The county and state determine the tax owed for properties that fall within their jurisdiction. The government bases taxes on the property's value as it relates to other properties in the area.

I recommend: The NY Office of Real Property Services provides an overview of how property tax works.

Grace period

The grace period, or the redemption period, is the amount of time an owner has to pay the taxes and any fees associated with the tax lien. If the owner completes the payoff within the grace period, the title reverts to the mortgage lender or property owner. The redemption period varies by state.

I recommend: Delinquent Tax Sales offers a list of redemption periods for different states.

Special assessment

A special assessment is a fee owed by an owner for certain improvements to the property. This can include installing city sewer or water to a subdivision. Failure to pay a special assessment may result in a lien on the property.

I recommend: The official website for Larimer County, CO describes how the county may originate a special assessment against a property.

Redemption price

The redemption price is the amount a property owner must pay in order to clear the tax lien. It can include the original amount for taxes plus additional fees like interest, special assessments or auction fees.

I recommend: Carreon and Associates offers information that tells how home owners can settle and remove a tax lien.

Tenant eviction

When a property owner fails to pay the tax lien, the tax lien holder, or investor, gets the title to the property. In order to claim ownership, a tax lien holder may need to evict the owner and/or file for foreclosure.

I recommend: Fein, Such, Kahn and Shepard covers how a tax lien foreclosure works.