We have written a number of articles on tax lien investing in the past. TAX LIEN SEMINARS’ utmost concern is the concern of its huge clientele with their investment money. For that reason, since no business is without risks, we would like to give some potential investors some of the major danger or risks associated with tax lien investing:
1.NOT UNDERSTANDING THE SALE: A lot of people get confused and think a tax lien sale and a tax deed sale are the same thing. They are not. Knowing the difference is important. This was extensively discussed in our previous articles
- DO YOUR HOMEWORK: You have to examine the property. You need to understand what you are buying, where you are buying and what you can do with it. This means checking out the property as much as possible. If you are new to tax lien or tax deed investing, call your tax collector and ask when the next sale will be. Get a list of the properties for sale and when you have the list, go and look at likely properties. Some questions to ask are:
What is the house like? Is it in good shape? Is there any obvious exterior damage? The condition of the yard can also give you a good idea of what the house’s inside is like. A well-kept yard means the inside is likely in good shape. A yard that’s a mess indicates the homeowner feels the same about the interior.
What is the neighborhood like? If you get the house, can you easily sell it or rent it?
If you are buying a house to live in, is that house you want to live in and a neighborhood you like?
Unfortunately, you’re probably not going to be able to actually go in the house for a physical
3.Worthless property: Some properties for sale are worthless. Maybe because it is such in a bad shape or is in a bad part of town that has likely went into tax foreclosure because it isn’t worth anything. Some are in swamp lands. Some are vacant lots with no development possibility.
4.Other Encumbrance /Tax: Some properties have outstanding property taxes owed to one department and other taxes or liens owed to another department. This could happen in states where homeowners pay city taxes, county taxes and school district taxes.
5.Overbidding on Properties: Sometimes, because of too much excitement you tend to overbid. It’s best to stick to whatever bid you have in mind before.
6.Forgetting important events: Some investors fail to remember the redemption period. If they don’t start foreclosure proceedings after the redemption period is completed, they will lose their investment.
7.Negligence in paying other Taxes: Some investors fail to pay the other taxes on the property. Then, they lose the property because others buy it at auction for the other tax payment.
8.Initiation of Bankruptcy Proceedings: Property owners who file for bankruptcy can disrupt the payment of local taxes. Therefore, investors have to wait before they get paid.
As you may well know by now, investing in government tax defaulted properties sold at public auctions for 10 cent or 20 cents on the dollar is quite rewarding. You have also learn that tax lien certificates on the other hand pay a guaranteed return of 16%, 18% or up to 36.