Buying Cheap Land Through Tax Lien Foreclosures
There is a way to buy a property for only five or ten percent of its value - it’s called tax lien foreclosure. Each year, thousands of property owners in the United States fail to pay taxes on their properties. Because of this, eighteen states in the country have implemented laws that mandate individual counties to hold tax lien auctions. During these auctions, delinquent taxes are bid on by eager investors in exchange for many property rights.
Right #1 – The Buyer Has A Right To Collect An Interest Rate
Usually, this applies to high interest rates, which is why so many are eager to invest in delinquent tax properties. Most states have interest rates that reach upwards of 16%. Generally, interest rates range between 12% and 36% unless a rate is prorated, meaning that the owner comes forward during a redemption period and pays off his or her taxes. If an owner chooses to do this, he or she has to pay a fixed percentage that doesn’t change based on when they redeem the property, be it one week or a month.
Right #2 – The Buyer Has The Right To Foreclose A Property
After a buyer has paid off delinquent property taxes, a lien is put on the property to ensure that he or she makes a profit once the property is sold. In some cases, though, a property isn’t sold or the owner chooses not to redeem the tax lien during the redemption period. In this case, the investor can foreclose on his or her newly acquired property. Depending on the state or county, a foreclosure can range from a few days to a few months. Generally, a foreclosure means it generates a no strings attached title to the property, but there are a few exceptions, particularly when it comes to federal and state IRS liens. In almost all states, however, a tax lien trumps other liens, such as bank mortgages and mechanics liens.
Right #3 – The Buyer Has The Right To Buy Tax Liens In Advance Without Competition
In most states, there’s a regulation that mandates tax liens holders are able to buy the following years’ taxes the moment they’re claimed delinquent. Buyers are offered this right without having to compete for it with others. Often times this is done several months before the next auction. This is one of the main reasons why people buying tax liens are making a very wise investment. It’s incredibly safe because the worst that can happen in the deal still won’t cause an investor a loss. Often times a buyer will find that a property they buy for very little will end up being worth 20 times the amount they paid in property taxes. An example is this. Say you invest in a tax lien on a property worth $100,000. The annual taxes for that property are around $1,500. If the owner does not choose to redeem the tax lien throughout a redemption period of three years, the investor will only pay $1,500 a year. Once the redemption period is over, the investor will most likely decide to foreclose the property, likely costing around $1,000. In the end, the investor has only spent $5,500 and is getting a property worth $100,000. This is a dream come true. The investor now only has to decide what it is he or she wants to do with their property. They can sell it to make a profit, move in to it or build something on it if it’s a vacant lot. The possibilities are endless. The point is, he or she didn’t spend that much and ended up with so much more.
Disclaimer: Original article idea from Jack Bosch.
