What is tax lien investing anyway and why is it such a good investment? What is the discrepancy between tax lien and tax deed investing and what are some of the misconceptions about this type of investment? Read on the find the answers to these questions...
Counties and municipalities depend on money from asset taxes to meet their budget. When asset owners don't pay their taxes, the county or municipality will sell the taxes to an investor. The investor is not buying the asset but paying the taxes on the asset and putting a lien on the property. Why would an investor want to do this? Two reasons; first they are getting a good interest rate on their money and secondly a tax lien comes before most other liens, so the investor is likely to get paid.
Knox County Property Tax Sale
In some states, when a asset owner does not pay their taxes, instead of selling a lien on the property, the county or municipality will sell the asset at a tax deed sale. In states that sell tax deeds you are well buying the property. In some states the asset is sold for back taxes and penalties, in other states the asset is sold for a obvious percentage of assessed value and in other states the asset is sold at market value. A tax deed can be a good investment, especially in states that sell the asset for the back taxes because the investor has a occasion to buy real estate at under market value.
Some states sell redeemable tax deeds, in which the county does sell the deed to the asset at the tax sale. But there is a redemption period in which the delinquent taxpayer can come back and redeem the property. In order to redeem the asset the delinquent taxpayer must pay the investor either a penalty or interest on their investment. Some redeemable deed states have a penalty and some have an interest rate. In some states the penalty or interest can be quite high, manufacture it very inspiring to the investor.
Because people have been told that tax liens are a great speculation and that they can make such good interest rates, they assume that interest is paid out by the county or municipality on a regular basis. The truth about tax lien investing is that you do not get paid a cent until the delinquent asset owner decides to redeem the lien. If they do not pay while the redemption period (which is different for every state) then you can foreclose on the asset in order to get paid on your lien.
Another misunderstanding about tax lien investing is that after the redemption period is over, the lien holder will automatically get the deed to the property. The truth about foreclosing on a tax lien is that in most states you need a lawyer in order to foreclose and get the deed to the property, and in other states (Florida for example) the asset will be sold in a tax deed sale, and will be auctioned to the highest bidder, so your chances of arrival away with the asset for what you have invested in it are not good.
Some people have the misunderstanding that tax lien investing is a good way to buy properties for pennies on the dollar. This does not happen very often. Especially in states where the value of real estate is very high, the tax lien will almost all the time redeem sometime while the foreclosure process. Tax lien investing is a way to get a high return on your money. If you are concerned in buying asset for under market value, you are better of with tax deeds or redeemable tax deeds.
The Truth About Tax Lien Investing
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