Tax Liens and Tax Deeds Investing Basics

While the process is not difficult, it does take a consistent and focused effort and strategies. So which is better? Tax liens or tax deeds? It really depends on our strategies - tax liens are less work, cheaper and don't have the liability of ownership. Tax deeds are more work, more expensive but can offer cash flow, appreciation or big profits from a quick flip. We can create our success, and we can do it by following and applying these process.

A. GATHERING INFORMATION

Start by learning everything we can about investing in Tax Lien Certificates or Tax Deeds. Don't try to learn everything all at once, as much as we can, gather all information.

There are over 3,000 counties in the United States, and each one of them has something a little different about the way they do things. There are some good books on tax lien investing, and many of the counties have a wealth of tax lien information you can get for free. There are a number of approaches we can take at this point. If we have very limited capital or are strictly looking for a guaranteed rate of return on our savings or investment portfolio, we may wish to concentrate on Tax Lien Certificates.

If our ultimate goal is to buy and sell real estate or to build a portfolio of investment properties, we may wish to concentrate on attending Tax Deed Sales. As we become more comfortable with the materials and our knowledge of how they can work for us.

Set up a series of simple steps designed to get us to our ultimate goal, and then go for it. We can try this as a start. Contact the Tax Collector or Treasurer's office per county and find out the answers to the following questions:

1. When will the county be conducting the next Tax Sale?
2. Where will the sale take place? (Get the address, room, and time of sale)
3. How can I get a list of the Tax Liens/Properties to be auctioned? (Sometimes, the county will have copies available at their offices. Most likely they will refer you to a local newspaper that prints the sale notice and list of properties or liens to be sold)
4. How can I get the Rules of the Sale? (The terms and conditions of the sale including pre-registration requirements and methods of payment).
5. If a it's a Tax Lien sale, what is the interest rate? How is it calculated?
6. Does the county have any unsold Tax Lien Certificates or properties from the last sale?

The answer to the above question is usually "yes." At which point, w should ask how to see a copy of that list. Then go review the list! Many counties have THOUSANDS of unsold Tax Lien Certificates.

If the answer to this is "no," ask the next question: What happens to any unsold Tax Lien Certificates? Many times, they will respond in a manner that gets us the answer we want. "Such and such department keeps that list" or "They are held by the county."
Once we know the date, time, and terms of a tax sale, get a copy of the list and start researching tax lien properties. We may be holding a list with descriptions of hundreds--even thousands of properties. If we are unfamiliar with real estate it looks like page after page of unintelligible words and numbers.

It is actually fairly simple to read once we "crack the code" so to speak. It may seem like an impossible task, but it works if we just break it down into manageable parts. As we look at the list, get beyond the fact that there are thousands of parcels and get over the feeling that we will never get through all of it.

Think of it as a treasure hunt for interest rates that are double or triple what we are earning now. We don't have to get through all of them, just find the ones we might want to buy.

B.START NARROWING YOUR LISTS

Whether it is called Tax ID #, or a Folio #, or a Parcel #, or a Real Estate # or something else, the function is the same--to identify that parcel and to assist anyone trying to obtain information on that parcel. That number will normally be all we need to:

1. Find the legal description if it is not already set forth on the sale list
2. Find the property address
3. Find the owner's name
4. Find the assessed value
5. Find the size of the parcel and what if any structures or improvements are on it.

Sometimes we can look up similar sales and come up with a fair market value by looking at comparables. How do we narrow down the list? Start with our own initial investment budget. We may want to try and buy more than one tax lien certificate to "diversify."

If we only have a few thousand or even only a few hundred dollars to invest, we can immediately eliminate the larger properties. Remember that although statistically more than 95% of tax lien certificates redeem, we may be one of those whose certificate is not.

Think about this when we are deciding which tax lien certificates to buy: Do we want improved or unimproved property? Do we want residential or commercial property? Do we know which parts of town are more or less desirable? The property descriptions will give us the answers to these questions.

Once we have narrowed our list to the tax lien certificates we are actually interested in, we can either go Online to the county web site or visit the County Land Records office to continue our search. Take into account that there may be tax liens from previous years attached to the property.

Our goal is to find tax lien properties that are worth far more than the back taxes owed. This would virtually guarantee one of two things: Either the owner will find a way to pay the taxes to avoid losing the property, or we will obtain a property that can be sold at a profit. If we keep to that conservative mindset, we are assured success.

C.START TO BID!

Make sure we understand the bidding process and how it will works in per state. This is one of the reasons why it is so very important to understand the process BEFORE we bid.

It is not a complicated process once we understand it, and it makes much more sense if we attend an auction and see how it works firsthand. Even if we do not plan to bid, we should attend at least one auction. It is the best way to see how simply it works. DUE DILIGENCE, PAYS OFF!

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About the Author

J Fraze Villarampa is the Virtual Assistant of http://www.jeffersonrealestate.org/