If you have read any of our previous posts, you know that we are always looking for ways to generate passive income. I have been particularly interested in tax liens ever since I first discovered their potential and profiting capabilities.
To help me with my analysis on the topic of investing in liens and deeds, I have compiled a list of common things you can do in order to profit like a champion, leveraging liens and deeds, as part of your investment portfolio.
To Do List For Tax Liens
Task #1
Know What You Are In For
First things first, make up your mind if you are going to invest your funds and earn interest without wanting to deal with foreclosing on a property, or are you interested in foreclosing and taking an ownership of a property?
To put things to perspective, if you opt out to do the former, you are most likely to look for a pretty home in good neighborhood that is less likely to be foreclosed on. Why? Because the owner is more likely to pay their property taxes and avoid foreclosure. Which means you have a better chance of getting all of your investment and interest. Would you give up your $300,000 property over a $3,000 lien?
I like to keep things simple and effective. Therefore, my personality and attitude is tailored more towards collecting interest on my investment and not dealing with foreclosure.
Task #2
Budget
Know your limits and your comfort level. What makes tax lien investing attractive is that you do not need a large amount of funds to start investing. However, you need to understand that you will need to have cash available immediately to pay for the lien and all of the administrative fees.
Keep in mind interest is not paid monthly. Instead, interest accrues and gets paid when the owner pays back their property taxes. These pay back periods could last months or several years. So budget carefully knowing that immediate assets liquidation is not an option.
Task #3
Narrow Down Your Search And Find Auctions
Find a city or a county you are familiar with and focus on a property based on your interest in task 1. It is important to start with a familiar place while you learn the ropes so that you don’t feel overwhelmed trying to learn a new market.
County clerk offices have information available regarding upcoming tax lien auctions. Some counties list their tax liens online, which are available for download free of charge. The list contains information such as location, type of property, price range, and so on.
For instance, I’m interested in finding out about tax lien sales in Frederick County, MD. By looking online at the county official website, I have all the information I need available at my fingertips. The same principle applies nationwide. Search each county official website for information relevant to the county you plan on investing.
Task #4
Do Your Homework
This is the most important step you need to do because end to end thoroughness is going to determine your return on investment. This is the part where you get to do a research about a property to find out if this property is going to end up being foreclosed or not.
Remember, you can’t physically inspect any property you intend to purchase a lien or deed on. So you have to rely on your due diligence and instinct when you make your final decision. Ideally, you want to do a drive by or use real estate sites to gain intel about the condition and location of the property.
Task #5
Bidding Time
The final step is to sign up for an auction, bring your cash and start bidding. If you intend to purchase liens in more than one state, you have the option to sing up online and bid in multiple states.
Each county handles auctions differently so your best bet is to look at your local county, municipality or parish for information regarding auction registration and calendar dates. As a starting point click here to find out more about auctions nationwide.
If you don’t like going to auctions, you can always head down to the county office and request to buy over the counter liens that were not sold at the auction.
To Do List For Tax Deeds
The to do list for tax deeds is pretty much the same as the to do list for tax liens, with the exception of one goal. To get the deed of a nice property and become a new owner.
Win big or go home is the attitude you need to have when dealing with buying deeds. Why? Because maximizing return on investment is all you care for. Not that you don’t care for ROI when dealing with tax liens but tax deeds cost more, like $20,000 or $30,000 more.
In order to maximize your return clearly you need common sense but most importantly an eye to identify a property with potential and at a price that is at least 10% below market value. The bottom line is to ensure you are not buying a property that is more trouble than it’s worth.
To Sum It All Up
There you have it, simple and pretty straight forward. Tax liens and deeds investment can be a viable option if you are looking to invest in the real estate market. Plus, require much less time and money than direct real estate investment. It could be a great opportunity for the wise and savvy, or a terrible one for those who are not diligent.
Whether you want another income stream from tax lien interest payments or looking to acquire properties for a fraction of their value, do not pass on this opportunity.
Happy Bidding!