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Feb 08

Forms of Tax Lien Investing That You Should Be Aware Of

Tax lien investing, without a shadow of a doubt, can be a very lucrative and profitable investment opportunity. While not a very popular method, hundreds of real estate investors have been making a kill and creating wealth out of tax liens for so many years. Unlike most other investment opportunities, such as trading on the stock market, tax lien investing is a potentially lucrative opportunity for all who are interested in it.

 

Unfortunately, most people do not realize how such an investment opportunity works and how they can make money from it. Simply put, getting into this form of investment can allow you to stop relying on a single source of income. For investors who have been successful with tax liens investment, most of them end up focused entirely on it and rely on it as the main source of income since it provides an opportunity for making good money.

 

Forms of tax lien investing

Tax lien investing can be categorized into three; Tax deeds, tax liens, and redeemable deeds. While they all fall under the same umbrella, there are some core differences among these three that change how people do their investment. Also, as expected, each form of investment has its share of pros and cons when it comes to risk, profitability, costs and other factors. As an investor, therefore, you should do your due diligence and evaluate each and every category of investment before committing your all to it.

 

The core concept of tax lien

Tax lien

The good news is that all these forms of tax lien investing are readily available and accessible to you simply because the owner of the property defaulted in paying property taxes. This led to a revenue deficit with the local government, hence the need to sell the property and recover the shortfall. You should know by now that the county or city has budgetary obligations that need to be met whether or not property taxes are paid in due time. As such, to ensure they generate income, they hold auctions that allow investors to purchase the defaulters tax debt, and which the owner will be forced to pay back to the investor, plus of course some interest.

 

Tax deeds

In extreme cases where the defaulter has high property tax dues, the city or county may hold auctions for the title deed of the property in question. Basically, when you win the bid for the property in question, you will be the rightful owner of the property where you can move in, rent it, or rehab and sell it at a profit.

 

Redeemable deeds

The major difference between tax deeds and their redeemable counterparts is the fact that there is often an open redemption window period where the defaulter can purchase the property back at the total cost of purchase that you incurred, plus a predetermined penalty percentage.

By and large, a tax lien is more of less a long-term form of investment where you can be guaranteed of your return on investment after a significant period of time. Redeemable deeds and tax deeds, however, tend to be much faster. Even so, tax liens are the safest investment option of the three. In the worst case scenario, with redeemable deeds and tax deeds, you may be stuck with a valueless property that no one, including the original owner, would wish to buy to from. Reason enough to do a thorough homework on each property you wish to bid on.

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