Should I invest in tax liens? Is it really Real Estate best kept secret?

Question

I'm always trying to educate myself in different ways of learning about the real estate game. I stumbled on real estate tax liens and tax deeds. They claim is the best kept secret in the real estate game with high returns minimal risk. BP community what's your take on this?

Jerry K. · Answer

@Edwin  Solivan  Tax liens aren't much of a secret.  Many people don't invest in them because  it's playing the lottery in terms of snagging a property for pennies.  Tax Deeds are better for getting a property but you're going to need a larger cash pool to invest than if you went after Tax liens.

I use Liens mainly as a supercharged CD.  That's right - a boring Certificate of Deposit.  I barely call myself a Real Estate investor when it comes to liens.

A truth about Tax Lien & Deed investing is that you basically need to become a para-legal in your state/county/city Lien and Deed statutes. Those are the rules of the game and you need to learn them. @Ned Carey and @Tom Yung can attest to that.

Florida is a hybrid state for Liens and Deeds.  In most states if you own the lien and the owner never pays the lien back in the period the statutes specify, then the lien holder may be able to foreclose and get the property.  In Florida, as @Rick Stein mentioned, the lien holder can cause a tax foreclosure, but that just puts the Deed (property) up for auction.  The lien holder does not automatically get the property.  There are many rules you need to learn.

I suggest you read through the Florida statues first - for both liens and deed auctions. This will help you determine if you have the fortitude to learn the rules and follow through to understand what is going on.  Florida Tax Lien Statutes is the link.  You'll have to follow those to other pages where they are spelled out.  Good luck.

Tom Yung · Answer

@Edwin  Solivan

I do not invest in FL much. But most FL lien get bid down to 0.25%. But FL has a minimum guarantee of 5% for your investment if the owner redeems. If not: @Rick Stein had suggested, there are a lot to consider.

if you, the lien holder  take it to tax deed auction( you get to have Exit strategy). If nobody wins in the auction. You got the property. If other party wins. You get your 5%.

@Ned Carey  & @Jerry K. said. Most of lien investors treat it as a financial instrument that will perform better than CD. But it needs a lot of due diligence for this instrument to perform & provide a dividend.

As a tax deed investor, it is a JOB. Tax deed investing is probably one of the most risky & unknown investment strategy. You have to factor in vandalism, squatter, eviction, market trend, foreclosure, local authority citation, legal & HOA expenses to make it work.

For too often, I see people bid up the property due to emotion instead of reality.

Rick Stein · Answer

Hi, Ed,

The statutory redemption period in Florida is. 2 years, which means that once you purchase the  lien, the property owner has 2 years to come up with the money. Also, tax sales are competitive, the max interest rate is 18% but it can be bid down at the auction. Here is the question, if the lien is not redeemed, do you want to own the property?That meat seem like a simple question, but if the property is trashed or in a terrible area, you may jot want it.  If you do want it, you better keep paying the taxes or someone else can buy  a subsequent lien and after 2 years foreclose on the property and you get nothing. If you do not pay subsequent taxes and then wish to forecloses,  you will need to lay those lien holders. Naturally, you will also have to pay an attorneys to complete the foreclosure for you. I am not trying to dissuade you from doing it, but it is not a " can't miss" proposition.

Good luck

Ned Carey · Answer

There are several members here who invest in tax liens. Check out the blog posts in the member blogs by @Jerry K.  or posts by @Tom Yung

Tax liens are very much a niche investment but that doesn't mean it is not competitive. It is easy to make it sound good and low risk. By and large that is true but the competition drives down the interest rates and there is risk.

I have made a lot of money in tax lien investing but I have also lost a lot of  money on some liens. I have had several $5,000 up to one $11,000 liens that I walked away from because they were properties that weren't worth the bid prices and cost to foreclose.

Jamie Bush · Answer

So far, I've made 7-24% returns on the liens that I own and have never had to take possession of a property. It's pretty safe if you know what you're doing. Always plan on taking possession of the property. If you don't want to do that, then don't by the lien.

Tom Yung · Answer

@Edwin  Solivan

I have attached a post that my JV partner in Ga post earlier on one of my foreclosed property.

The original lien at 2012 was $4,700. At the auction in 2013. I won the auction for $61K. After the right of redemption is over. I can either wholesale for $20K profit ( actually someone offer one $30K when I was connecting with my JV partner @David Begley, I choose to partner with David and decide  to rehab for flip).

this one will not work under the strategy - rehab to rent. So you really has to know your exit strategy before you Bid. This one had an mortgage balance of $152K & the property was sold in 2011. You can read the post from my JV partner.

http://www.biggerpockets.com/forums/223/topics/172...

Rick Stein · Answer

Jerry is correct, I live and work in NJ. You absolutely need to know your state laws so you don't get burned.

Rick Stein · Answer

If you want to own it, how much will you have to put into it before you own it? That is difficult to say as you do not know the condition it will be in when  you finally finish the foreclosure process. Is the property currently occupied? Is someone maintaining the property. What is the likelyhood that the lien will be or not be redeemed? If it is redeemed you can make a good return depending upon the interest rate. I am not suggesting that you do or do not invest in the tax lien. I am just suggesting you consider these questions prior to doing so.

Patrick M. Coyne · Answer

I can find little information regarding the percentage of lien certificates that complete foreclosure and the investor acquires the property.From what I've learned, no more than 6% of certificates go to foreclosure but most homeowners cure the foreclosure and pay off the investor. There seems to be consensus the number of liens that result in acquisition is less than 1% but, I find no information about how much less. The range seems to be between .5% and .03%. I could make money at .5% but making money by acquiring property via tax certificates seems impossible at .03%.What has been your experience or can you point to any reliable sources on the subject?

John Thedford · Answer

Few if any deals. Stupid money being paid. I bid occasionally but they usually go too high.

Should I invest in tax liens? Is it really Real Estate best kept secret?

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