Figure out if Buying Tax Liens Are For You
Even before you choose to become a tax lien investor, be aware of the risks as well as the rewards.
You must understand a few common things about tax lien investing, like the difference between a tax deed and tax lien county or state and what bidding on the premium is. Once you have a good understanding of the basics of tax lien investing, you need to decide if this type of investing is for you and suits your personality.
If you determine that Tax Lien Investing is something you would like, read on!
Locate a good Tax Lien Web Site
Finding a tax lien website is actually quite simple. Tax lien sales are done at the county level, not the state level. So you should start with the county website.
You could use the google search engine and enter terms like "buy tax liens in texas" or "counties in texas with tax lien sales." Replace texas with whatever state you are interested in. For example, if I wanted to invest in a county in Florida I would type in "Florida Tax Collector" in the Google search engine.
Using google will turn up a lot of results for tax lien investing and allow you to even sign up for a few auctions from the comfort of your couch.
Register With Online Tax Lien Directories
Note: You will only be able to register in certain counties as not all counties have online tax lien sales.
You will be required to provide information such as your social security number or EIN (Employer Identification Number) if you will be purchasing the liens through a corporation. You might need to set up an account and or provide a deposit which will be required if you want to be a bidder. There could be a minimum requirement to register as a bidder. Don't worry it is refundable.
Learn The Ways to bid on Tax Liens
There are different ways to bid on tax liens during an auction. In the cases where more than one investor wants to bid on the same property, one of the following five methods is used.
Depending on the laws of the county, the bid winner will be determined by one of the five methods below. Bid Down the Interest.with this method, investors will bid against each other to see who will accept the lower interest rate. In some cases the interest rate can go as low as 0%, but this is rare.
Premium.Under this method, the investor bid against each other to see who will pay the higher "premium" (above the face value of the lien). The additional premium may or may not earn interest, and (in some states) the investor might not get the additional premium back if the lien is redeemed. Colorado is a state that uses the premium bid method.
Random Selection.With this method, a bidder will be selected randomly from all the bidders. Typically a computer is used to select bidders at random, but this can vary from county to county. Nevada is a state that uses Random selection.
Rotational Selection. Using this method the liens are offered to the bidders in sequential order. If the first bidder passes on the lien, the next bid ticket holder gets priority of the lien. However, bidder number one will not be offered another lien until their ticket number comes up again in the rotation. Once bidder 1 bids, bidder 2 gets to bid, then bidder 3, then 4 and so on...then back at 1 and repeat.
Bid Down the Ownership. A few states use this method of bidding on the ownership. The winner is the investor willing to accept the least % ownership on the lien. For example, an investor may decide to take a lien on only 85% of the property. If the lien is not redeemed, the bid winner only receives 85% ownership of the property with the remaining 15% owned by the original owner. In actuality, very few investors will bid on liens for less than full ownership to the property.
So in case where multiple investors are bidding on the same property, the random selection process will be used instead. Liens that are not purchased at the auction are turned over to the county. Some states allow "over the counter" purchases of liens not sold at auction.
Even before you choose to become a tax lien investor, be aware of the risks as well as the rewards.
You must understand a few common things about tax lien investing, like the difference between a tax deed and tax lien county or state and what bidding on the premium is. Once you have a good understanding of the basics of tax lien investing, you need to decide if this type of investing is for you and suits your personality.
If you determine that Tax Lien Investing is something you would like, read on!
Locate a good Tax Lien Web Site
Finding a tax lien website is actually quite simple. Tax lien sales are done at the county level, not the state level. So you should start with the county website.
You could use the google search engine and enter terms like "buy tax liens in texas" or "counties in texas with tax lien sales." Replace texas with whatever state you are interested in. For example, if I wanted to invest in a county in Florida I would type in "Florida Tax Collector" in the Google search engine.
Using google will turn up a lot of results for tax lien investing and allow you to even sign up for a few auctions from the comfort of your couch.
Register With Online Tax Lien Directories
Note: You will only be able to register in certain counties as not all counties have online tax lien sales.
You will be required to provide information such as your social security number or EIN (Employer Identification Number) if you will be purchasing the liens through a corporation. You might need to set up an account and or provide a deposit which will be required if you want to be a bidder. There could be a minimum requirement to register as a bidder. Don't worry it is refundable.
Learn The Ways to bid on Tax Liens
There are different ways to bid on tax liens during an auction. In the cases where more than one investor wants to bid on the same property, one of the following five methods is used.
Depending on the laws of the county, the bid winner will be determined by one of the five methods below. Bid Down the Interest.with this method, investors will bid against each other to see who will accept the lower interest rate. In some cases the interest rate can go as low as 0%, but this is rare.
Premium.Under this method, the investor bid against each other to see who will pay the higher "premium" (above the face value of the lien). The additional premium may or may not earn interest, and (in some states) the investor might not get the additional premium back if the lien is redeemed. Colorado is a state that uses the premium bid method.
Random Selection.With this method, a bidder will be selected randomly from all the bidders. Typically a computer is used to select bidders at random, but this can vary from county to county. Nevada is a state that uses Random selection.
Rotational Selection. Using this method the liens are offered to the bidders in sequential order. If the first bidder passes on the lien, the next bid ticket holder gets priority of the lien. However, bidder number one will not be offered another lien until their ticket number comes up again in the rotation. Once bidder 1 bids, bidder 2 gets to bid, then bidder 3, then 4 and so on...then back at 1 and repeat.
Bid Down the Ownership. A few states use this method of bidding on the ownership. The winner is the investor willing to accept the least % ownership on the lien. For example, an investor may decide to take a lien on only 85% of the property. If the lien is not redeemed, the bid winner only receives 85% ownership of the property with the remaining 15% owned by the original owner. In actuality, very few investors will bid on liens for less than full ownership to the property.
So in case where multiple investors are bidding on the same property, the random selection process will be used instead. Liens that are not purchased at the auction are turned over to the county. Some states allow "over the counter" purchases of liens not sold at auction.
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To find out more about how to buy tax liens, visit Dale Poyser's website to learn more abouttax lien states.
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