All About Tax Lien Certificates
Most experts agree that real estate is one of the safest and potentially most profitable investment options out there
. Most investors understand the principle of buying homes, such as foreclosed properties, at a low price and turning around to sell them at a high price. But what you may not know is the fact that you can also invest in properties without actually purchasing the home itself. To do this, you must understand how to purchase tax lien certificates.
All real estate owners must pay real estate taxes on the properties they own. If they fail to do so, for any reason, the county will place a tax lien on the property. However, doing this does not help the county fund the various services it provides to the community. The county needs the funds due them from the unpaid taxes. After a period of time, which is specified by local laws, the county can try to recoup some of those funds by selling the tax lien certificates at auction.
This is where investors come in. if you are interested in benefiting from these sales, you must be the winning bidder at one of the auctions. Once you win, you pay the amount owed to the county, giving the government the funds it needs. In return, you will receive a document that entitles you to the monies brought in when the homeowner pays back what is owed. You benefit from this transaction through the interest the homeowner must pay on the bill. That interest is your profit to keep from the transaction.
Sometimes the owners will not find a way to pay back what is owed. In this case, the tax lien certificates entitle you to foreclose on the properties attached to them. You then benefit by reselling the property at a profit, provided the amount you paid at auction to cover the taxes owed is much less than the property's actual value.
So with these auctions, you benefit in two potential ways. If the homeowner decides to keep the property, you earn interest on the amount you pay. Choose auctions that have an interest rate higher than what you can earn on your other investments. If the homeowner doesn't pay the bill, you end up with a property for a fraction of its actual value, which you can then quickly flip for a huge profit.
Either way you benefit from investing in real estate with much less initial capital than you would need to invest in foreclosures or other discounted properties. Whether you are new to real estate investing or want to expand an already brimming real estate portfolio, consider investing in tax lien certificates for a sizeable potential profit.
by: Andrew Stratton
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