Pros & Cons of Investing in Tax-Lien Properties

A tax lien is something no one wants on their record because it can be such a financial burden to overcome. When a owner of a property does not pay local or state taxes the government has the option to place a lien on the property. Once this takes place, the government issues a tax-lien certificate, which are usually sold in most counties and cities to people who are looking to invest in tax-lien properties through an auction process. Investing in tax-liens can have huge benefits but there can also be some risks to go with it. Here are some of the pros and cons of Investing in tax-lien properties.

Property Ownership

The taxpayer is granted an time period to pay off the tax-lien certificate.  If the taxpayer’s time is up and it is still not fully paid, then property is all yours! That’s right, all yours. You will be taking ownership of whatever property you held the lien on.

Homeowner Bankruptcy

A huge con for investing in tax-lien properties is when the owner of the property declares bankruptcy.  This is something no investor wants to be a part of because once the owner of the property declares bankruptcy there is strong possibility that your investment may be at risk. I know– that is not something you want to hear especially if you invest a great deal of already. The reason for this is because you won’t be the only one to have claims on the property… the IRS will too.

Return on Investment

When investors look to purchase tax-lien certificates, they gain property plus interest on the tax-related debt of the property. The investor then collects interest on the debt until it is paid off by the owner of the property.

Property Value

Investors should be doing some major research on properties before investing in a tax lien. The reason I say this is because there could be some significant damage done to the property and may require some expensive repairs that may not even be worth investing in. There are investors out there that take the chance, but it can be extremely risky because property can be worth much less than originally expected once inspecting it.

For more infromation on Investing in Tax-liens, check out: http://homeguides.sfgate.com/pros-cons-investing-tax-lien-properties-1191.html

 

New Jersey Is On The Fore Front of The Sale of Tax Liens

The tax lien system generates more than $325 million in annual revenue for New Jersey state’s municipalities and huge profits for the “suits” on wall street as well as other institutional players.  In Manchester, New Jersey the October 6 tax lien auction day is a sight to behold. Hunched over their papers , raising their hands to bid on tax liens, members of the community flock to the municipal town hall to take part in the tax lien sales. The sale of these tax liens took less than 90 minutes, and $160,000 deposited into the township treasury is testimony to the success of the day’s events.  In this sale, three institutional investors walked away with more than half of the tax lien.

The real challenge to this day comes from when the property owners realize how expensive and tasking it is to fall behind on property tax payments.  These small tax debts can quickly snowball , as it is considered debt now owned by a range of investors from private citizens to corporations and usually carry annual interest rates as high as 18 percent. If these debts are not paid in full within two years, the lien holder has the right to seize the property by means of a foreclosure, and it would not matter if the remaining debt is as small as $20, which was the case in the Manchester, New Jersey October 6 Tax Lien day.

States across the country use tax liens sales to ensure the on time payment of delinquent taxes. States like Delaware and North Carolina keep liens on properties until the debt is paid. New Jersey however, sells more liens than any other state a reported average of 400 per day.  Last year’s sales in the state of New Jersey amounted to more than 146,000 liens which totalled to $327 million in unpaid bills, according to the National Tax Lien Association.

According to The Daily Record,  “at least one homeowner impacted by the Oct 6 sale lien didn’t seem to fully grasp exactly how precarious her situation might be.” The article went on to relate on the lack of transparency of the New Jersey state officials in the sale of these tax liens. Most investors it seems. are interested in seizing the properties and this might be the root of some of the problems.

To learn more about New Jersey state tax lien sales , visit this article by The Daily Record.

Avoiding Mistakes: Things to Watch Out for in Purchasing Tax Liens

 

Have you ever heard of anyone speak about an issue of a tax lien? You may be wondering what a tax lien is and what it represents to an individual financially. To explain, If you can’t pay a federal tax bill and you also fail to setup a payment plan the government can try to collect the money by issuing a lien on your assets.

To issue a lien means that the government is placing a claim on your assets, be it your house, mortgage, car or even income. An individual can also be issued a tax lien through failure to pay property taxes or other state or local taxes. Tax liens are enforced to ensure that citizens comply with tax rules. Counties, federal and state governments require taxes, and one of the ways to ensure compliance in taxes is through the issue of tax liens on unpaid property.

In purchasing Tax liens, one thing to note is that the immediate purchase of a tax lien does not indicate an immediate ownership of the property. Here are some things to note about purchasing Tax Liens on property.

Most real estate investors go into the business making terrible mistakes. In an attempt to purchase tax liens one lethal mistake investors make is failing to make the right preparations. It is very important to be fully prepared before you attend the tax lien auction. To be fully prepared means that you are checking important details of the list. The first being, making sure to  register ahead of time and paying any fees needed for the sale. Reviewing a  list of the properties up for auction is important, in looking for a proper guide to the property available.

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Financial competence is also important and an often forgotten element of investing in tax liens. If you do not have enough money to purchase a certain tax lien, it might be counter-productive to move on with the investment process.

To learn more about the lethal mistakes real estate investors make, read more on this article by Bankrate

Important Factors To Consider In Building A Real Estate Career

I’ve always advocated for getting into real estate investment early, if this is the industry you are interested in. I started my business at a young age and it took me a lot of time and learning to really gauge what niche part of real estate I wanted to get into. Part of the learning process came with reading a lot of material, sitting in on seminars and seeking out professionals who were in a higher place than I am in the industry. Mentorship is just as important as the learning process, because it motivates the apprentice to learn from the master. These days, young people face numerous challenges when they try to get into real estate investment. Factors like student debt, and motions in the economy affect the choices a lot of young people make. You don’t have to be limited by these external forces. There are many ways you can shape your practice, and build systems in your personal life to facilitate your entry into real estate investing.

Some of the challenges young people face in real estate are intricately tied to their financial habits and what opportunities they have fiscally. Here are some reasons why young people have problems getting into real estate investing:

  • Lack of Motivation in pursuing real estate investment goals
  • Inadequate resources to understand traditional and modern real estate best practices
  • Not treating real estate investment as a school of thought
  • Financial limitations in the form of debt, lack of savings and unemployment

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Aside from these factors mentioned above, treating real estate investment as an education in and of itself is the best way to begin learning about the industry. You will not get very far if you don’t treat this as a learning experience. Education does not begin or end in the four corners of your academic institution. To run a business, you must treat education as a life long practice . Here are some of the best ways to be involved and learn about the industry:

  • Motivation
  • Mentorship
  • Time Management and System building
  • Financial Education
  • Industry Education
  • Practice Pilot

In my next post, I will write on each practice and how this can be effective in building your business. Thanks for stopping by.

To learn more about the important factors to consider in building a real estate career, click here 

Dustin Hahn is an internet entrepreneur, tax liens and deeds consultant and the owner of Dustin Hahn International. To Learn more about Dustin, visit his adventure site.