Using Tax Lien Certificates for Real Estate Investing

Buying tax liens certificates is an excellent investment opportunity for the new, or otherwise untrained real estate investor. While profit is almost guaranteed with this type of investment, there are several things to consider when purchasing a tax lien:

• Be clear as to what you are purchasing: a tax lien certificate, or a tax lien deed. Remember, purchasing a tax lien certificate is similar to lending the property owner the money for their taxes, with the promise of being "paid back" in a timely manner, with interest. Profit yield can be relatively low in this type of investment, unless the property owner fails to pay the lien certificate on time and the buyer assumes ownership.
• Do your homework. Always investigate the property prior to auction. Most tax lien auctions do not give any details (other than a lot number), for liens being sold. Investigate the property beforehand to ensure that it is indeed worth more than the taxes owed. It is not unusual for the owner of a severely distressed property, or unusable parcel of land, to let it be acquired for back taxes in order to get out from under its ownership.
• Have cash. Becoming a viable bidder for most tax lien sales require cash in hand. While some county and state authorities will accept a bank issued letter verifying funds available, most require payment in full either at the time of sale, or within 48 hours.

If the owner fails to pay the lien certificate holder in accordance to the date listed on the auction bill of sale, the certificate holder may then repossess the property, and sell it at a tax deed auction; repair and remodel it for sale on the open market (otherwise known as real estate flipping); or sell it as is.

Tax liens are a win-win investment opportunity, both for the current owner (who is freed of his debt at the time of sale), and the investor, who may have the potential of making thousands when they resell the property.

As in all investments, the key is to learning the laws and requirements surrounding tax lien investing in your area and state, and having the know-how to make good solid choices in the liens you ultimately purchase.