Tax Lien Investing: What Happens After the Tax Sale?
OK, so you’ve been to your first tax sale and purchased a few tax lien certificates, now what do you do? That depends on where you purchased your tax liens. Every state has different laws concerning tax sales and what you need to do once you purchase a tax lien certificate in order to protect your investment. Depending on the state and the county that you invest in, there are three things that need to happen after you purchase a tax lien certificate:
1. You receive the tax lien certificate(s) from the county. This may take a few days or a couple of weeks after the tax sale. Some counties do not issue you a tax lien certificate, but instead will give you a receipt listing all of the tax liens that you purchased.
2. The tax lien certificate must be recorded with the county clerk. For the counties that hold on to the certificates and issue you a receipt, this will be done for you and you will pay a fee per certificate for this service. In other counties you must record the tax lien certificate yourself. You will need to send in the original certificate to the county clerk with the appropriate recording fee. Make sure to make copies of your certificates and send them to county clerk via certified mail with a return receipt for proof of mailing. That way if anything happens to your certificate, it will be easier to replace.
3. You must pay the subsequent taxes on the property if the owner does not pay them and you want to keep control of the property. Each tax lien state handles subsequent taxes differently. In Florida, you do not get pay the subsequent taxes and the property will be sold in the tax sale each year. You can try to purchase the tax lien on that property in next year’s tax sale, but there is no way that you have of controlling the lien. It really doesn’t matter in Florida anyway, since you do not get to foreclose on the property if the tax lien doesn’t redeem during the redemption period. Instead, you petition the court for the lien to go to a deed sale so that you will be paid.
Most states do allow you to pay the subsequent taxes, and it is in your best interest to do so because it gets added to your lien and you receive interest on your subs. Some states will give you the maximum interest rate on the subsequent taxes paid. Others will only give you the interest that was bid at the sale, but still it’s a way to add to your lien, and control the property so that it does not go into next year’s tax sale.
Some counties in Arizona actually force you to pay the subsequent taxes if you want to keep your lien. They require the successful bidder to purchase any prior tax liens on the property in addition to the lien they win. This way they keep only one tax lien certificate on a property at any time. If you don’t pay the subsequent taxes on the property, it will be sold in next year’s tax sale and your lien will be redeemed. So if you want to keep your lien in these counties, you must pay the subsequent taxes.
Joanne Musa is known as the Tax Lien Lady online and has an 8-week home study course that takes you step by step through the process of investing in tax liens or tax deeds. Find out more about the 8 week Build Your Profitable Portfolio home study course at www.TaxLienLady.com/ProfitablePortfolio.html.
Tax Lien Investing: Interest Rate or Penalty, What’s The Difference?
If you’ve been looking into investing in tax liens or redeemable tax deeds, you may have noticed that each state has a different interest rate that the investor is entitled to, and in some states the maximum interest is bid down at the tax sale. But what you may not know is that sometimes what you are getting is an interest rate and sometimes it’s a penalty, and weather you get interest or a penalty (or both) can make a big difference on your rate of return.
Some states give either a penalty or an interest rate, but some states will give you a penalty on top of the interest rate that you bid. In New Jersey for example you get the interest rate that you bid on the certificate amount plus the penalty and you get the maximum interest (but no penalty) on any subsequent taxes that you pay. In other states, like Florida, for example, you get the interest rate or the penalty but not both. In Florida the interest rate is typically bid as low at .25%. Some people wonder why investors would be so low, but they do that because they know that they’ll get the mandatory 5% penalty instead of the .25% interest that they bid. That is because most counties in Florida will apply the penalty for anything that does not profit at least 5%.
The real difference between a penalty and an interest rate is that a penalty is paid over time, usually it’s annualized or for some states (like Illinois and NY) it’s calculated over a 6 month period. In New Jersey and Florida for example, the maximum interest rate is 18% but that’s 18% per year, not a straight 18% on your investment. In Illinois the interest rate is also 18%, but that is for 6 months, so if the lien is held for a year, you actually get 32% interest. But if it redeems in only one month’s time you only receive 3% (3% per month over 6 months=18%) on your investment.
Contrast that with purchasing a redeemable deed in Texas. In Texas you receive a penalty, not interest on your money if the deed redeems. The penalty is 25% and the redemption period is 6 months for non-homesteaded and non-agricultural properties. So if you purchase a redeemable tax deed and it redeems after 6 months you make 25% on your money. But you also make 25% on your money if it redeems in only 1 month. That’s the benefit of getting a penalty instead of an interest rate.
The bottom line is know the state laws in the state that you’re investing in before you bid so you know if you are getting an interest rate, a penalty, or both. This will also help you determine which are the best states to invest in. But before you decide where you are going to invest find out what the liens are typically sold for not just what the law allows. You want to know how much interest is typically bid if the interest rate is bid down, or how much premium is paid if the amount of the lien is bid up. For states where you do bid premium, it’s important to know if interest is paid on the premium bid (in many states it’s not) and if you get your premium back if the lien redeems or not.
Joanne Musa, the “Tax Lien Lady,” has helped new investors all over the world explode their profits using safe, high yielding, real estate secured tax lien certificates. To receive your FREE Tax Lien Investing Kit, that has helped thousands of investors, just like you learn how to build their own profitable portfolio of tax lien certificates or tax deeds go to www.TaxLienInvesting Kit.com.
Profit Without Risk: Why Now is The Right Time to Invest In Tax Lien Certificates
Unfortunately you cannot trust the media. Just when they say it’s time to get into an investment opportunity, that’s when it’s usually oversold and it’s time for the wise investors to get out. Regardless of what the media is saying about the real estate market, the market is down and we’ve not seen the bottom yet. There are so many people that are defaulting on their homes and because of the backlog that the banks have, we won’t see those homes on the market for another two years. So as bad as the market is today, two years from now it will probably be worse.
The stock market is also going through a natural correction, much like it did in 1939. It’s all very predictable and connected to cycles in the economy. If you really want to understand these cycles, read The Great Depression Ahead by Harry Dent. Mr. Dent is the renowned economic forecaster who accurately predicted the boom of the early 2000s and the most recent stock market crash, which he claims is not done yet. And to make things even worse the baby boomers are headed for retirement. This is the time when they want to cash in on their investments and take profits. Only problem is there might not be any profits for you if you were heavily invested in the stock market (especially in “safe” mutual funds) or real estate.
However, if you had a large percentage of your investment portfolio in tax lien certificates you’d be sitting pretty right now. That’s because tax lien certificates – even though they are tied to real estate, are not affected by the markets. In order to understand this you need to know what a tax lien certificate is.
Municipalities and counties cannot provide the serviced that they do, such as building roads, schools, paying police officers, fireman, teachers, and elected officials, without collecting property taxes. If property owners do not pay their taxes they are given hefty penalties and charged high interest rates, but that does not guarantee the townships and counties their money. So some states will allow the local governments – sometimes it’s the county and sometimes it’s the municipality – to sell the taxes to investors. Investors bid for the right to pay the taxes and receive the interest rates that the county would charge – normally between 8% and 36% depending on the state and the amount of the lien.
A tax lien certificate is a great investment for today’s times for quite a few reasons, and I’ll outline a few of them for you here:
1. Where else can you get 8, 12, 18, 25, or 36% on your money without the risk of the stock market?
2. Your investment is secured by real estate, which has a value a few times your investment (if you did your research). So even if the real estate market takes a tumble, it’s still worth more than your investment.
3. Since you do not have to go through someone else to purchase a tax lien, there are no brokerage fees.
4. Unlike other real estate investments, you don’t need a lot of money to start. You can invest as little as $200, or even less in a tax lien.
5. You don’t need good credit, you don’t have to open a special account, and you don’t even need to be a U.S. citizen or live in the U.S.
6. You can invest using your computer from the comfort of your home.
7. You can invest with funds from your Self-directed IRA.
8. Because of the economy there are more tax liens available now than in the past couple of years.
Joanne Musa, the “Tax Lien Lady,” has helped new investors all over the world explode their profits using safe, high yielding, real estate secured tax lien certificates. To receive your FREE Tax Lien Investing Kit, that has helped thousands of investors, just like you learn how to build their own profitable portfolio of tax lien certificates or tax deeds go to www.TaxLienInvesting Kit.com.
Online Tax Lien Investing Cycles
Tax lien and tax deed investing, just like many other types of investing, follows cycles. These cycles are a result of the fact that most counties only conduct tax sales once per year. What really drives the cycles or “seasons” of tax lien investing are the online tax sales. Some would be investors are under the assumption (thanks to unscrupulous wealth building “gurus” who suggest that you can invest online anywhere in the country) that you can purchase tax liens online in most states. The fact is that there are only a handful of states that have online tax sales and out of these only three have more than 2 counties that conduct regular online tax sales at this time.
These three states conduct their sales at different times during the year. The Arizona online tax lien sales take place from February through March, The Florida online tax lien sales are held in May through June and the Colorado online tax lien sales are spread out from September through November. Hence the seasons for the online tax sales are winter, spring and fall, with a month or two in-between.
To pick up the slack in-between the online tax lien sales, you can always participate in the online tax deed sales. Except for the Florida tax sales, which are held through out the year; some Florida counties have a tax deed sale as often as once a week. Most states have a specified time of year in which the tax sales have to take place. The Michigan counties all have their tax sales in late fall. California counties spread out their tax sales out through out the year. Each county has a sale once a year, but unlike most other states in which the counties all have to have their tax sales at a specific time of year; the California counties stagger their tax sales throughout the year. You can find a tax sale somewhere in California every month of the year except for July and December.
So here’s how you can invest in tax liens and tax deeds online throughout the year. Because I’m writing this article in March, you can start with the California online tax deed sales that take place in March and April. There are about 8 California counties that have tax sales during these months. In May and June you can move to the Florida online tax lien sales. July is a good time to take a break and get all your paperwork and tracking in order, and start getting ready for the Michigan online tax deed sales. You can participate in the Michigan online tax deed sales from July through November, but you may want to switch over to the Colorado online tax lien sales in October until the end of the year. Only about 6 or 7 Colorado counties have online tax sales, but they are spread out from October through December. Come January you can participate in either the California tax sales or the Florida online tax deed sales. And in February you can jump into the Arizona online tax lien sales.
So no matter where you live you can invest in tax liens and tax deeds online year round. You just need to know the seasons of online tax lien and deed investing.
Joanne Musa, the “Tax Lien Lady,” has helped new investors all over the world explode their profits using safe, high yielding, real estate secured tax lien certificates. To receive your FREE Tax Lien Investing Kit, that has helped thousands of investors, just like you learn how to build their own profitable portfolio of tax lien certificates or tax deeds go to www.TaxLienInvesting Kit.com.
Tax Lien Investing: Can You Get Double Digit Returns Without Doing Any Work?
Tax lien investing is a great way to save for the future; it’s a very good alternative to investing in mutual funds. With tax liens, you don’t have to worry about the volatility in the market. The stock market or real estate market can go up or down, but your rate of return stays the same.
Another advantage to tax lien investing is that you can do it yourself without paying any brokerage fees. But what if you don’t have the time or the inclination to learn how to invest in tax liens profitably? Are there ways that you can invest in tax liens without doing all of the work yourself, and without having to attend the tax sale?
Although buying tax liens online is a way that you can participate in tax sales without going to the sale, you still have to spend the time to do your due diligence. But what if you could give your money to someone else who could do all the work, bid at the tax sale for you, and manage your portfolio? What if you didn’t have to do anything but collect your profit (and pay management fees)?
There are actually 2 little known ways that you can do this; one is to invest in a tax lien investing fund and the other is to use a tax lien agent. So how do these two methods of investing work and which is best for you?
First of all when someone else is doing all the work they have to get paid, so there is a trade-off, it will cost you a little bit of your profit to have someone else do the work for you. How much you pay for this service depends on how much money you invest and whether you invest with a fund or through an agent.
A tax lien investing agent will set up an individual account for you and buy tax liens in your name and manage your account for you. The minimum investment for most agents is $20,000 or $30,000 and they take an upfront fee that can be 6-10% of your initial investment plus they charge a regular maintenance fee. One of the agents that I know of charges 5% per year on your actively placed funds, but their average return to investors is over 30% (before fees). If a tax lien or redeemable deed doesn’t redeem and you get to foreclose on the property, you actually get the property, but the agent will take 25% of your profit on the property.
When you invest in a fund on the other hand you are buying shares in the fund not individual liens or deeds. All of the assets are held in the name of the fund and not in your name. There is no upfront set up fee as there is when you invest through an agent. When a lien or deed is acquired by the fund the proceeds are split evenly among shareholders. Because the expenses are shared by all of the shareholders in the fund, fees tend to lower when investing with a fund then they are with an agent. Fees for a fund that I personally invest in are 3.5% per year, and as with the agents, the fund manager will also take a bonus of 25% of any profit from properties that are foreclosed on by the fund. These fees are recognized by the entire fund.
So which is the best way for you to invest your money in tax liens if you want someone else to do all of the work for you? I choose to invest in tax lien investing funds to diversify my tax lien portfolio. I like to go to a few tax sales myself, but I don’t want to only invest in one state, nor do I want to use some of my profit to travel to other states just to invest in tax liens or spend a lot of time doing due diligence on properties in areas that I know nothing about. So I invest some money with a tax lien investing fund that invests in states other than the state I do my investing in. I like a fund because they have a lower minimum investment and don’t have to pay a set up fee.
The downside to investing in a fund instead of with a tax lien agent is that the liens or deeds are not owned by me but by the fund, what I own are shares in the fund (which is an LLC), so technically I only own a piece of what is in the fund. I really don’t mind that the liens and deeds aren’t owned by me, since I am using money from my self-directed IRA to invest anyway. Even if I invested through an agent the liens would be in the name of my IRA, and not owned by me personally. The upside is that I pay less money to the fund manager than I would have to pay an agent, and that I don’t need quite as much money to invest.
Joanne Musa is President and CEO of Tax Lien Consulting, LLC. She helps investors make more money faster from tax lien investing. You’ll find more information on tax lien investing funds and other aspects of tax lien investing inside the Members Area of TaxLienLady.com. Learn more about what is available in the Members Area at wwwTaxLienLady.com/Membersip.htm