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tax lien investing, investing in tax lien property

Tax Lien Investing No Longer a Secret of the Rich

Written by: Ralph Moore

Tax Lien Investing - A High Yielding Investment Vehicle
Tax lien investing used to be something that only the wealthy knew about and took advantage of. For decades it was a little known, high yielding investment vehicle. Tax lien certificates are an attractive investment for the small investor because you don't need thousands of dollars to start and you don't have to pay any brokerage fees. This is an investment that you have to be able to devote some time to. Tax lien certificates are sold at tax sales conducted by a county or municipal official.

Understanding Tax Lien Laws
Foreclosing on your tax lien does not always mean you will get the property, especially if the property goes up for a foreclosure sale to the highest bidder. You need to remember when buying tax lien certificates at a tax auction; it is very important to understanding how the purchase works before you arrive to make the bid. Depending upon the state, the tax lien laws could be very disadvantageous to investing in these types of sales.

Tax Sales - An Investment Vehicle for the Informed
If you have the time to spend investigating properties and you enjoy the challenge of learning something new, then perhaps investing in tax lien certificates could be a good way for you to increase your bottom line. If, however, you don't have the time to spend researching properties and finding out about tax sales, then this is probably not the right investment vehicle for you.

Profits from Tax Liens and Tax Deeds Taxed Differently
Keep in mind that income from tax liens and tax deeds may be treated differently. Interest income from tax lien certificates is reported as interest income on a 1099 form. Income that you receive from the sale of tax deed properties would be treated as capital gains if you hold the property for at least a year before you sell it.

Investing in Tax Liens - A Safe Investment
In terms of safety against your investment, tax liens provide assured gains. State governments organize the entire tax lien procedure, making it completely open and safe. This is in the best interest of the state, as tax lien investors are actually paying them the required taxes, and if they are unhappy and refuse to invest then the state stands to lose the funds required to maintain the county government in service.

Some States are Tax Deed States
Some states sell redeemable tax deeds, in which the county does sell the deed to the property at the tax sale. But there is a redemption period in which the delinquent taxpayer can come back and redeem the property. In order to redeem the property the delinquent taxpayer must pay the investor either a penalty or interest on their investment. Some redeemable deed states have a penalty and some have an interest rate. In some states the penalty or interest can be quite high, making it very attractive to the investor.

 

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