Buying Tax Liens on Real Estate
One type of investment that is growing in popularity is the buying of Tax Liens on Real Estate. While on the surface, this investment seems like a sure fire winner, there are some pitfalls in the process.
A Tax Lien is a claim against a property for the non-payment of taxes. In the case of Real Estate this is usually the local property tax. When the property owner fails to satisfy his tax obligation, the taxing municipality will place a lien on the property. The tax lien does not allow transfer of ownership to pass to anyone until the lien has been released. The municipality will then issue a Tax Lien Certificate that they will sell at auction.
The Tax Lien Certificate will require the property owner to pay off the lien at a mandated yield amount to the lien holder. If the homeowner fails to pay the yield in a set amount of time, title to the property passes to the lien holder. These yields and times are a bit vague here because they are established by the local jurisdiction and vary widely from one to another.
The idea of Tax Liens seems to be an excellent investment choice on the surface. You are going to either get a guaranteed and known yield and return on your investment, or you are going to receive title to a piece of property at a cost that should be considerably under market value creating instant equity. It is little wonder that auctions of Tax Lien Certificates are popular with Real Estate Investors.
There are a few things that cloud this rosy picture. As with all investments, there is some risk. One problem is that other creditors and the Internal Revenue Service might have a prior claim to the property in the case of bankruptcy of the original owner. Also, most Tax Lien Certificates are sold with only very skimpy details as to the actual condition of the property. It is almost a sight unseen type of auction. This is obviously risky. You might be visualizing a big house with a cozy white picket fence only to discover the property is actually a run down shack on a dusty lot.
This should not discourage the Tax Lien Certificate investor. What it should do is remind him that all Real Estate investment requires caution and a lot of preparation and legwork to insure success. The potential rewards are well worth the effort. In the case of buying Tax Lien Certificates, this legwork involves actual inspections of the property and research into the title and bankruptcy status as well.
Learn how to use a self-directed Roth IRA to invest in real estate at UFCAmerica.com.
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