Are secondary tax liens for you?
There are two types of tax lien investors; those who invest to get double-digit returns on their money and those that invest for the possibility of owning properties for the back taxes. Which are you? Tax liens are not a way to get property for back taxes, but it does happen once in a while. Investors who want to own property have a better chance of getting the property with tax deeds, or redeemable tax deeds. However, did you know that there is a way to invest in tax liens and have an increased chance of getting the property?
You can increase your chances of foreclosing on a tax lien by buying secondary tax liens from another investor, that are ready to foreclose on now. Why would an investor want to sell you their lien when the redemption period is just about over and it’s ready to foreclose? Some investors buy liens for the return, and they are really not interested in owning property. They may be investing from another state or another country and don’t want to own property where they purchased the lien. They would rather have the return on their money then pay the foreclosure costs and wait for the lien to foreclose and then have to deal with having to rehab, sell, or rent the property. They would even prefer to have a smaller return, but get it sooner, than wait until the lien redeems and take their chances of going through the foreclosure process.
Large institutional tax lien buyers sell off their liens all the time, but they usually sell them in bulk to banks, fund companies, and large investors. They don’t cater to small investors. And because they buy in such large quantities they aren’t always as careful with their due diligence as you would be when purchasing a tax lien with your own money.
Another problem with purchasing secondary tax liens besides finding someone you can trust to purchase from, is that there is not always enough interest built into the lien for both the seller and the buyer to make a profit. Depending on what the seller of the lien is asking, the buyer may not make a profit when the liens redeems. The interest or penalty that is paid out when the lien redeems is only paid on the certificate amount, not on the full purchase amount when you are purchasing a lien from another investor and paying the redemption value.
For instance if you purchase a lien for the redemption amount that was bought by another investor a year ago and it was purchased at 10% interest – and the lien redeems right after you purchased it, you make nothing. So in order for you make money on a secondary lien, you have to buy it right and there has to be enough interest (or penalty) built in, that both the seller and buyer can make money.
That’s why Illinois secondary liens are a good investment. In Illinois the statutory interest on tax liens is 18%. But it’s not an interest payment, it’s a penalty, and it’s added every six months. Every six months for the 2 1/2 year redemption period 18% is accrued to the certificate amount. (Assuming that lien was bid at the statutory rate). This gives plenty of room for both the original buyer of the lien and the secondary lien buyer to make a profit.
One of the benefits to being a subscriber to the Tax Lien Profit Accelerator™ (TaxLienLady’s Members Area) is that you get access to a list of Illinois secondary tax liens each year. These liens have already been researched. The list provided includes pictures of the properties and notes about the property from recent research that is done by the agent who purchased the liens. The list also provides the amount of the original lien, the market value of the property, what the county values the property at, and any outstanding taxes owed.
In the past one member made 30% on his investment in only 9 months on one of these secondary tax liens. If the original owner of the lien had held onto it instead of selling it, they would have doubled their money in 3 years. But that would be before paying fees to the agent who purchased the lien and did the due diligence. When you purchase a secondary tax liens from an agent the fees are much smaller, since the original buyer already paid them.
You can get the replay to a complimentary webinar training on secondary tax liens at TaxLienLady.com/TaxLienTeleseminars.htm.
Follow Us!