Investing in tax lien certificates and tax deeds is considered safe, secure and predictable. However, one cannot enter a business without completely understanding the process and rules behind it. Few basis should be covered before investing.
Tax lien certificates and tax deeds have become a lucrative investment due to its abundant supply. But the business can be a gamble unless you equip yourself with reliable investment strategies. Here are the common beginner mistakes you should avoid.
1. Not researching thoroughly. Every investment requires you to be mentally prepared – do your homework. Most beginners think that attending an auction, buying a tax lien and selling it is enough. Research and understand the whole process.
Start by asking the right questions – what is a tax lien certificate, what is a tax deed, how can you benefit from them or why is it profitable? Getting answers can help you decide if you really want to enter this type of business.
Tax Lien Certificate vs. Tax Deed
To simply put, a tax lien certificate multiplies your investment by getting your money back plus interest and other penalties. A tax deed entitles you to become the property owner so that you could keep the property or sell it at a higher price.
Where can I get them?
The local government makes the list of delinquent property owners on a regular basis. You, as a citizen, can request the list directly from a county office. The list is also published in newspapers and can be searched online.
What if the home owner doesn’t pay?
Although it seldom happens, there are times when the property owner disregards the property. The certificate holder is then given or can apply for a tax deed. This gives the holder right to ownership to either keep the property or sell it.
2. Not realizing the risks involved. Tax liens offer a high rate of return which may be quite tempting for some beginners. You should know that not all properties are worth paying taxes – you should go for usable and sellable estates.
Although 95 to 97 percent pay their debts, there is still a 3 to 5 percent chance the owner won’t pay up. You’re lucky if you’ll end up with a sellable property. Imagine if you wind up with a clunker of a house, selling it won’t be that easy.
What am I buying?
Ask yourself if you’re more interested in buying tax lien certificates or you want to invest in tax deeds. Know the difference before raising your hand at tax deed auctions. Smart investors only bid for properties with high investment returns.
See it for yourself
The list of delinquent properties may include pictures and information but does not necessarily provide an accurate assessment. The description might be old or the property may have suffered flood or fire. You can actually drive by and see it for yourself.
3. Never getting started. It’s good not to ‘rush’ things but you have to get started eventually. Some beginners tend to focus on research that they get paralyzed by the amount of information they learn. They don’t know what to do with it.
Take some time to learn and don’t be afraid to take action. You’ll get some additional knowledge every step of the way. Get some advice and strategies from experts and you’re on your way to making your very first deal.
Attending tax sale auctions
Some auctions require you to attend in person, while others are holding it online. Make sure to confirm the form of payment and check on the condition of the property before bidding. Decent properties sell fast, that’s why you need an effective strategy.
When you buy tax lien certificates, you’re actually helping fund community functions. In return, the government helps you multiply your investment risk-free. Backed by the law, it is the best way to put your money to work.
