Beginner's Guide To Tax Lien Investing

The other day when I was in Texas, I bumped into an old friend who was worried about what would happen in case he purchased the tax lien certificate for a property which was already under a mortgage. It seems that lack of proper information about tax lien investing and Texas property tax is what causes most of the people to make mistakes. Either they walk out of tax auctions with totally wrong deals or they abandon great deal in their ignorance.

First of all you must know the difference between a tax lien investing and tax deed investing. They are something like basket ball and football. The only thing common in both cases is the ball. Here it is the tax. All of us know that the the government need tax money to function properly. In case the people who own property in the state or county fail to pay taxes, the departments start to lose funds.

The common option is that the government puts up the property under state tax liens. This restricts the financial mobility of the property. The government can now sell the property to any person in an open auction. The tax lien certificates sold at the auction allow the person who purchases it to claim the tax amount which is repaid by the owner of property. In case the repayment does not occur in a set period of time, the certificate holder can claim title to the property.

The auction is generally made at the amount of taxes and applicable penalties that are due. In some cases, the auction may be according to a percentage of the market value of property. Whichever be the choice, tax lien investment is a great avenue for purchase of real estate. The investor only has to pay an amount that is way lesser than what he would have had to pay if he purchased the property in the traditional manner.

Also be sure to check if the certificates that you purchase have a date of redemption or not. In most of the states in US, there is a set time slot, known as the period of redemption. During this period, the owner of the property can come and claim his property. He has to pay the money that was paid by investor and some more money. This extra money above the investment amount may either a penalty or and interest.

Because of the fact that in a number of cases, the owner has been able to repay his dues people came to think that it is the county government who pays the interest. In reality it is owner of the property who may or may not want the property back.

Now that you have a fair idea about tax lien investing, here is a pleasant surprise. This investment is also counted a tax shelter in some states. I hope that you shall be able to make wiser decisions in this regard.

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