Have you heard of real estate tax lien investing?
Interested in owning real estate for pennies on the dollar?
What are Real Estate Tax Liens?
Say you buy a home, every year you have to pay property taxes to the county in which you live. These taxes pay for road maintenance, schools, and other community infrastructure, and can be a substantial amount of money, depending on your community. In my case, my annual property taxes are almost equivalent to 3 months of mortgage payments.
Say you are short on money, and you don’t pay your property taxes to the county, what happens next? The county will place a lien on your property. This is a legal restriction on the property title so that if you declare bankruptcy or try to sell the property, the county will have to be paid out of the income from the sale.
Say you don’t pay the property tax? The county has an auction, and sells the right to the interest and penalties on the property tax. So you pay the property tax, and when the owner pays the property tax, interest, and penalties, you receive the interest and penalties. Benefit to you – cash flow. Benefit to the county – they receive the property tax revenue without having to wait for the owner to pay. This is real estate tax lien investing at its most basic.
I’ve been doing some independent research here at Enwealthen, including reading this book, and while it seems to be true, most people neglect to mention how competitive it’s become lately. But still, it seems to be a pretty secure investment, assuming you don’t get stuck with a damaged property (e.g. toxic cleanup required).
Regardless, Investing without losing : the complete guide to real estate tax liens and foreclosure deeds by Don Sausa is the first book I’ve read on tax lien investing. It’s a simple book – 99 pages with lots of pictures – but effective. It covers all the basics of tax liens and tax deeds, deed types, auction strategies, and legal requirements. Obviously, you’re not going to get too detailed an explanation of the complexities of tax / real estate investing, but it does seem to cover the high points.
The most useful piece of information in the book is a chart showing all 50 of the United States and how their property tax auctions are run.
While the author does provide some links to web resources, you are left with some pretty critical unanswered questions.
For example, before bidding on a property you want to do a property title search and check bankruptcy records for the property owner’s name. Sounds great, but there’s no mention of how to do it. Is this public information from the county? Do I need a title insurance company or realtor to do this for me? Presumably it varies from state to state and perhaps county to county, but an example of how to do this sort of thing would be a kindness.
It’s a short book, so this is a short review. It’s worth reading for a beginner to the field, hits the highlights, but it leaves several critical unanswered questions. This is a not a book that teaches you how to be a tax lien investor. You will need to read a more detailed book to find out how to start the process.
Unfortunately, I live in California which not only is a tax deed state, not a tax lien state, but also California counties only have property auctions every 2 years. I may have to wait a while before I give this a try. On the plus side, the waiting will give me more time to get incorporated and learn more about this.
I don’t recommend this book. If you have time to spare, it’s a decent overview. However, Profit by Investing in Real Estate Tax Liens by Larry Loftis is a better use of your time. For more information, you can read others’ reviews of this book or purchase it on Amazon.
Interested in tax lien investing? Join the Enwealthen mailing list to hear of my investing experiences, and eventual plunge into tax lien auctions.
Have any experience with tax lien investing? Know of a great resource? Leave a comment and let us know.
Public auction sign on foreclosed home courtesy of WikiMedia.