Enjoy this Guest Article about what you need to know before investing in tax liens by Preston Guyton, Managing Partner of CRG Companies.
Investing in tax liens can be a way to get a great return on your money, but you can’t always get good liens at good interest rates that will pay off. When you understand the basics of tax liens, though, you have a better chance of being a successful tax lien investor.
Here are the top seven things to remember when buying tax liens. There are no guarantees when it comes to investing, though, and not all tax liens will redeem even if you do everything right. But then you do get the property!
1) Bidding Will Likely Make Your Returns Lower
There are plenty of people who bid on tax liens, and because of the high level of competition, you’re going to see lower returns on your investment. Don’t assume you’ll get a great, high rate every time. When you lower your expectations a little bit, you’ll have a more realistic concept of how bidding will help you and how successful you can be when buying tax liens.
2. Consider More Than Just the Interest
There’s more to buying tax liens than the interest on them. As long as you remember that and pay attention to the other financial issues or risks that come along with the purchase, you won’t make an expensive mistake that could be hard to recover from.
3. You Aren’t Buying Real Estate, But You Might End Up With Some
The goal of buying a tax lien is to get the interest from it, not to end up with the property. In some cases, though, you’ll find that a foreclosure will happen and you’ll suddenly have property. You may need an attorney to remove people from the premises, and that can eat into your profits. It’s a risk you take, and one you should be aware of before you buy. Consider your options for selling and any improvements you may need to make in the case that you have a home end up in your possession.
4. The Closer You Are to Home, the Better Off You Are
Being able to drive by and see the property matters. Even if it looks great on Google’s Street View, you don’t know how old the image really is or what shape the property is currently in. Sometimes looks can be deceiving, especially when the only look you get is through the internet. Driving by and checking things out for yourself makes a big difference in some cases, and can make your purchase a safer endeavor.
5. Time is Money… and It Takes Time
Successfully investing in tax liens will take time. It’s not something you can just do easily every day or something where you’ll find easy success each and every time you try to buy one. Instead, consider the idea that you’ll need to invest time into the process if you want to be successful, so you can buy tax liens the right way and get what you need from the experience.
6. Cash is Needed When Buying a Lien
Don’t go into a tax lien sale with a credit card or a personal check. You need to be able to pay cash, or use a bank check, to secure your interest in the lien. Focus on getting the liens you want without being turned away due to the wrong type of funds.
7. You Can Choose a Private Fund to Reduce Your Workload
There are private funds that buy tax liens, and you can invest in those funds. When you do this you don’t get as large of returns, but you also don’t have to worry about all the legwork. It can be a nice choice for people who aren’t seeking big returns, or who aren’t interested in doing all the work that is sometimes needed to gain tax liens.
Overall, investing in tax liens can be a great way to make extra money. It is important, however, to understand the potential challenges and pitfalls before jumping in!