What is a Tax Lien and How Can You Profit From It? Frequently
Asked Questions About Tax Liens
1. What is a Tax Lien Certificate?
A tax lien is the name of the claim that a taxing authority,
such as the local or federal government, makes when an
individual has not paid taxes for a lengthy amount of time. Tax
Liens are most often applied to homes. Essentially, the
government ceases control of the property, pending payment on
taxes.
The taxing authority, will then sell a certificate for an asset,
such as a piece of real estate or boat, if the owner of the
property has been negligent in paying his or her taxes. Anyone
can purchase a certificate by attending a tax lien sale
auction in the county in which the unpaid taxes are owed.
2. How can I make money from my tax lien certificate?
You may be surprised to know that Tax Lien Certificates are
far more profitable than Certificates of Deposit and just
as safe. Tax Liens are also safer than the stock market and
offer an equal rate of return.
If you invest in a tax lien certificate, you can earn a very
high interest as much as 25% on the unpaid taxes from the
owner of the property, which will be owed directly to you
instead of the government.
Since the interest earned currently on a CD or a regular savings
is only about 3-4%, it really pays to check out the tax lien
strategy to get a higher payback.
Essentially, you are acting like a bank and gaining interest
even though you never made the loan because you owe the
certificate. Once all of the interest and taxes are paid, then
the property owner can reclaim the property by gaining control
of the tax lien certificate from you.
However, if the owner never claims the property or pays the
taxes, then you will gain ownership of the property deed. Either
way, you'll be in a position to make money from the tax lien on
the property by gaining either interest or the property itself.
3. Can I purchase a tax lien in a town in which I do not
reside?
Yes. You can purchase a tax lien in any town, even if you are
not a resident of the particular town. The only trick is that
you have to actually travel to the town in order to attend the
tax lien sale auction.
4. What is a tax lien sale auction?
A tax lien sale auction is the method by which tax lien
certificates are sold. Like any auction, bidders will bid for
the property or tax lien properties that they are most
interested in purchasing. You can bid for as many properties at
one time as you desire.
5. Where do I find out where the tax lien auctions are?
Information on tax lien sale auctions are matters of public
record. You can contact the local government in the town in
which you choose to purchase a tax lien, or you can subscribe to
a service online that provides that data to you. Visit http://www.liensource.net/ for more information
on subscriptions to information.
6. How often do tax lien sales occur?
That varies. There are generally 1-3 tax lien sales a month per
locality. Check with the local government for more information
and to obtain a tax lien sale calendar.
7. How much capital do I need to begin?
The amount of money you need to invest into your tax lien
purchase business depends entirely on the particular properties
you're interested in purchasing. Properties range from small
homes to mansions.