Purchasing Investment Property Through Tax Lien Certificates

Declining real estate markets can provide many opportunities for the real estate investor. A smart investor can use several different ways to make money in today's real estate market. Most investors use one or two preferred methods of acquiring and selling real estate that has worked in the past for them. If you are new to the real estate investment industry, or even a seasoned veteran, consider using tax lien certificates as a way of acquiring real estate.

Liens are created when a property owner is late on paying their real property taxes. A tax lien certificate is issued in the county or municipality where the property is located, usually after an extended time period. Some states allow the tax lien to become the first lien on the property, even ahead of the first mortgage, which is then turned around and sold at auction as a tax lien certificate.

After bidding successfully, buyers of a government issued tax lien certificate will get one of two items:

1. A state mandated yield from the lien which the delinquent taxpayer must pay to release the lien, usually the original taxes plus interest and fees.

2. Title to the real property (after a period of time set up by the jurisdiction) if the delinquent taxpayer does not pay the taxes, interest and fees.

A fixed percentage rate, mandated by a government agency, or the title of the property at a significant discount are some of the benefits that have attracted more real estate investors to tax liens. It is the relatively low cost involved with the purchase of a lien certificate that is so attractive to buyers. This benefit is rarely seen with other types of real estate transactions.

Some of the drawbacks to purchasing these types of liens are that if the proper title and bankruptcy research aren't done correctly, and the appropriate due diligence isn't conducted, the lien can become worthless. Bankruptcy filing can make a tax lien holder take a back seat to any and all creditors, especially the IRS. Purchasing property without inspecting it personally or through a reputable real estate agency or appraisal service is unwise, especially if the property has undesirable features not noted in the county description, such as condition issues. Do the research before purchasing any tax lien certificate. Paying a small appraisal fee and title research fee to confirm the property status can save a lot of trouble and money overall.

Lien sales purchases are usually made in cash only. Sometimes payment can be made in 48 hours, while others require payment in full at the sale or auction. Several online sites have made arrangements with many county officials to sell distressed properties their sites. Check with your county or the county you are interested in about online availability of sales.

Tax lien certificates can bring a substantial return on investment to the investor. Do your homework before any purchases are made, and the effort will be worth your trouble.
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Karen Jackson is a real estate appraiser and agent with over 11 years experience in helping others buy and evaluate property. See http://kjreestinvestor.blog.com/ for more information.

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