Advice from an Expert: Tax Lien Investing
December 28, 2018
Hogan School of Real Estate
If you’ve got some investment dollars sitting in a bank account at low interest rates, maybe it’s time to re-think your investing strategy. Tax liens offer a high return on investment, without management hassles. If you haven’t taken the time to investigate property tax liens as an investment, you need to, NOW!
One of the biggest advantages to investing in tax liens is the amount of capital required up front to invest – oftentimes it’s less than a few hundred dollars, which is significantly less than other forms of real estate investing. An advantage for those new to the real estate world is that it’s not required to be an LLC or have a real estate license to purchase a tax lien certificate.
Investing in property tax liens also means you decide, up front, what the return on the investment will be. Although this isn’t true for all instances of the investment, an investor is more likely to have a solid understanding of the ROI for property tax liens more so than property-flip investment opportunities, for example.
There’s also no limit to the number of tax lien certificates or dollar value that one person can hold.. Since tax liens have number one priority over all other liens they are an extremely safe investment.
If an investor stays informed on the subject and makes smart decisions, in some cases the investor can even wind up owning valuable properties for pennies on the dollar. But remember that purchasing a tax lien certificate does not mean ownership of the property – it means paying back the government the taxes owed on the property in exchange for an interest rate locked in with the security of real estate. The property owner has three years to pay the taxes owed plus interest to the investor before an investor can begin the process of foreclosing on the property to gain ownership. The tax lien certificate holder has up to ten years within which to begin a foreclosure to obtain ownership of the property If the certificate has not been redeemed and foreclosure isn’t started within that 10-year period, the investment is forfeited and no refund will be issued.
It’s important to keep the investment and the possibilities in perspective from the get-go. Although purchasing a property tax lien certificate can lead to eventual ownership, this occurrence is less common. Essentially there are two possible outcomes as an investor of a tax lien certificate:
- The tax lien certificate is redeemed by the property owner and the investor earns a secured high-interest rate.
- The tax lien certificate is redeemed by the property owner and the investor earns a secured high-interest rate.2. The tax lien certificate is not redeemed by the property owner and the investor can acquire the property through foreclosure, sometimes for pennies on the dollar.
Consider that both outcomes are possible and what they would mean as an investor before making the investment. And uninformed and ill-prepared investor could end up with a low-value, unsellable property and lose money on the initial investment.
As with any investment, knowledge is the key to success. Be sure to check the county treasurer’s website for the requirements of purchasing a tax lien within a particular county. When the auction list is posted in January, don’t get overwhelmed trying to research every property. Identify budget limitations and some high-level goals for investing in tax liens. From there, in addition to visiting the property in person, do as much research as possible on the list of properties that are of interest. Utilize resources like the county assessor’s and treasurer’s website, Trulia, Zillow, Redfin and even Google Images to learn about the property’s history, neighborhood and surrounding communities.
Arizona tax lien auctions are held every year in February. The Maricopa County Tax Lien Auction will be held online on Tuesday, February 05, 2019. The Pima County Tax Lien Auction in Arizona is scheduled for Thursday, February 14, 2019 at 8:00 a.m. in the Board of Supervisors’ Conference Room (130 W. Congress Tucson, Arizona 85701). To learn the date of other county tax lien auctions, visit the county’s treasurer’s office or website.