Are you looking to expand your investment portfolio, but have limited funds to do so? In this situation, you may wish to look into purchasing tax liens. When you purchase a tax lien, you obtain a property in which the owner has failed to pay their taxes.
Many investors find they can obtain the property for pennies on the dollar, as they are only required to pay the back accumulated taxes. Each state has their own laws governing this type of sale, and local governments are responsible for administering the sale procedures, but this is a great way to obtain property for investment purposes, so one should be looking for annual public auctions offering property of this type.
The following are Tax Lien States :
- New Jersey
- New York
- South Carolina
- Washington DC (although not a state, it still sells tax liens)
- West Virginia
Individuals choosing to make use of the option find they have very little risk as government entities control the process. If the owner doesn’t pay the taxes in a timely period to clear the lien, the investor receives the property. The value of the tax lien won’t fluctuate and won’t be affected by other economic factors, as stock and bonds will.
One advantage of choosing this option is there tends to be a large supply. Most investors aren’t aware this option is available to them, and those that aren’t don’t understand how the process works. For individuals who do, however, the return on investment tends to be very high.
Most states do have a statutory homeowner redemption period. If the homeowner does pay the back taxes within this time frame, plus any fees and interest charged by the state, he or she may reclaim their property. The investor does not lose in this situation though. He or she receives this interest.
If you are interested in purchasing tax liens, be aware that you must have the funds to pay the winning bid in a short period of time, often 24 to 72 hours. Before you start searching for property, be sure you have these funds. You don’t want to find the perfect property, only to lose it because you can’t pay. Once you begin purchasing property this way, however, you’ll want to do it again thanks to the benefits.