Are you an investor interested in new options in a weak economy? Those with the financial means to do so should look into purchasing a tax lien at a tax lien sale. Never heard of that before? What follows is a basic but informative description to get you better acquainted with whether this is an appropriate investment strategy for you.
Homeowners can have tax liens imposed against them by local municipalities in the event that they become delinquent on their property taxes in a particular year. Property tax liens and foreclosures are often inherently linked, since the majority of people who fail to pay their property taxes are also in default on their home mortgages. As a result, taking advantage of tax liens sales will allow a savvy investor to earn interest each year from the purchased tax lien. Properties that have gone through foreclosure might also be able to be taken ownership of by an investor.
The process is different from state to state, so potential investors should research the relevant statutory law in their respective jurisdictions. Most states guarantee a return on your capital, plus any interest that the lien has earned, should the homeowner end up redeeming the property by catching up on mortgage and property tax payments. The rate you can earn on interest, however, varies from state to state, as does the time allotted for the homeowner to redeem the property.
A practical investor has the potential to further increase their earnings when a homeowner is isn't able or refuses to redeem the property. An investor may attempt to gain title of the property in question by filing suit. If done properly, the investor can officially own the property, although the process of filing suit can at times take a long time, be complicated and costly.
There are risks involved with purchasing a tax lien, though. It is important that an inspection take place on the property before an investor decides to buy a tax lien to ensure any home that remains on the property is also undamaged. It should also be confirmed by an investor that the applicable municipality worked in compliance with statutory guidelines during the time the tax and lien on the property was actually imposed. Also note that if the redemption period in the state where the tax lien was purchased exceeds a year, an investor must pay taxes each year to attain another lien.
The purchase of tax liens via a tax lien sale consequently has the potential to be a prudent investment opportunity, if an investor takes steps to understand both the risks and the overall tax lien sale process. Ultimately, patience is key to reaping the investment benefits a tax lien can offer.
Homeowners can have tax liens imposed against them by local municipalities in the event that they become delinquent on their property taxes in a particular year. Property tax liens and foreclosures are often inherently linked, since the majority of people who fail to pay their property taxes are also in default on their home mortgages. As a result, taking advantage of tax liens sales will allow a savvy investor to earn interest each year from the purchased tax lien. Properties that have gone through foreclosure might also be able to be taken ownership of by an investor.
The process is different from state to state, so potential investors should research the relevant statutory law in their respective jurisdictions. Most states guarantee a return on your capital, plus any interest that the lien has earned, should the homeowner end up redeeming the property by catching up on mortgage and property tax payments. The rate you can earn on interest, however, varies from state to state, as does the time allotted for the homeowner to redeem the property.
A practical investor has the potential to further increase their earnings when a homeowner is isn't able or refuses to redeem the property. An investor may attempt to gain title of the property in question by filing suit. If done properly, the investor can officially own the property, although the process of filing suit can at times take a long time, be complicated and costly.
There are risks involved with purchasing a tax lien, though. It is important that an inspection take place on the property before an investor decides to buy a tax lien to ensure any home that remains on the property is also undamaged. It should also be confirmed by an investor that the applicable municipality worked in compliance with statutory guidelines during the time the tax and lien on the property was actually imposed. Also note that if the redemption period in the state where the tax lien was purchased exceeds a year, an investor must pay taxes each year to attain another lien.
The purchase of tax liens via a tax lien sale consequently has the potential to be a prudent investment opportunity, if an investor takes steps to understand both the risks and the overall tax lien sale process. Ultimately, patience is key to reaping the investment benefits a tax lien can offer.
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