Tax Liens and Deed Sales: Good starting point for beginning investors?

Hey REI members.

I’ve been doing a lot of research on Tax Certificates and Deed sales.

One thing that was very appealing was the supposed high yield of return (18-50% ROI)

Also, I notice some Tax Certificates can be bought for just a few thousand dollars.

Considering investing in Cashflow properties still require a lot of money down and good income to qualify, would it be a much better starting to put to start with Tax Lien Certificates?

I make about 30-40k/year right now in sales and have about 30k of investment money saved up.

Thanks for your advice. :beer

Tax deeds are scary investments. Site unseen usually and you don’t get to do an inspection. Tax liens on the other hand can be great if you are looking for somewhere to park your money. The problem being if you don’t follow your liens and they continue to accrue new ones year after year you lose priority. Of course it really matters what state you are investing in too.

Tax Lien states and tax deed states are ENTIRELY different.

Tax Liens and Tax deeds ALMOST always carry a redemption period.

Tax Liens DO NOT give any ownership rights.

Tax Deed give ownership SUBJECT to right of redemption.

DO NOT believe what the late night TV Gurus are saying. There is NOTHING, absolutely NOTHING guaranteed in this business. You can lose here just as with any other investment.

I suggest you go to your local courthouse law library and get all the info on what happens at the tax lien or tax deed sale. Read it at least three times.

DO NOT jump into the water with both feet…it can be VERY deep.

Your chances are about as good at the powerball lottery as with tax liens or tax deed of getting good property for pennies.

You will NOT get clean clear title from a tax lien or tax deed.

Investigate BEFORE you invest.

Can someone explain to me like I’m a 3rd grader how this type of investing works?

Every state that I know of has some form of tax lien or tax deed sales.

NO state generates revenue…they all depend on the taxes collected from their citizenry.

If that citizenry fails to pay the taxes then the state is either broke (Like CA now) or they sell the liens or tax deeds to get the $$$ now.

Tax Liens…in this scenario you are merely lending the state the money for the taxes due. You are actually paying the delinquent taxes for someone else. The taxing jurisdiction will collect them and pay you when the property owner pays up.

YOU have NO property rights, NO ownership, NOTHING but a lien.

If the property owner, or anyone else interested, fails to pay the taxes and the redemption period runs the taxing jurisdiction will issue a tax sale deed.

Redemption periods vary from state to state. Some very short and some very long…check on your state.

CAVEAT EMPTOR…this is just a form of quit claim deed and in order to perfect title you MUST go through a “Quiet Title Action” in the courts.

You may or may not get the property as a result. Most judges will lean over backward to give the property back to the original owner and all you will get is the interest and penalties. You probably WILL NOT get back your attorney fees, etc., expended for the Quiet Title Action.

Chances of getting a very valuable house or land for mere taxes is about the same as hitting the Powerball Lottery.

Buy tax liens for the interest and penalties and use those funds to buy property.

Tax Deeds…Many states do not use tax liens and instead go straight to a tax deed. In this case you actually get the deed to the property at the end of the sale. This deed MAY or MAY NOT be subject to a redemption period. Again CAVEAT EMPTOR…Investigate BEFORE you invest.

Nothing hurts worse than to put good $$$ into something and then learn that the owner has the right to redeem and your good $$$ are out the window.

This is about as simple and 3rd gradeish as I can make it.

I advise, go to your local courthouse and go to the law library and ask the librarian to assist you. Get all the statutes on tax sale investing…go home…read them at LEAST three times…legalese if confusing at times…then go and put them to use.

Good Luck,
Bill H

With tax liens (like here in NJ), after 2 years of tax delinquency the tax lien owner can initiate a foreclosure on the property to get the deed. This is if the property has no mortgage on it. If it has the mortgage company will of course protect their interest and pay off the lien. So if you’re the tax lien recipient all you make is interest on your money up to 18% in NJ. This is if you win the bidding. You would very rarely win a tax lien bidding if there is already a mortgage on the property because not only will the mortgage companies bid the interest to zero, sometimes they will pay an additional premium in the thousands to discourage any bidder.

This type of investing is a totally different animal. You need to study the industry not just research before getting involved. You may start with buying water & sewer liens to get your feet wet.

Sewer liens can be a good investments. They are usually smaller liens and the institutional investors rarely bid on them, so they are a little less competitive and you can start investing with smaller amounts. When you own a sewer lien or other utility lien, the taxing authority may offer you the chance to pay the subsequent taxes, as well as the subsequent sewer charges if the owner doesn’t pay them. Which keeps the property out of the tax sale. So you can potentially get 18% interest (in NJ) on your money and you didn’t have to bid at the sale!