Tax Lien Investing

[Omar Naguib]

Hey guys!  It's been a long time for me since posting on BP.  I'm 19 and like most of my generation, I have a short attention span.  But it's good to be back.  On to the question:

I'm looking into tax lien investing, and I live in Texas.  I'm looking for some downsides to this niche so I fully understand it.  It seems like every source I go to says "you can't lose with tax liens!".  I know the gist of it:  there's a redemption period, in which if the owner repays his taxes, I would get my money + 25%.  However, what happens if the owner declares bankruptcy and the IRS decides to take the house?  Do I still get my money back?  Also, how can I inspect the property before buying a lien?  Is there a list of properties I can get?  

Also before anyone sends me the link to the BP article on "Investing in Tax Liens in Texas," just know I've read it and that is where my questions come from.

Thank you very much for taking the time of your day to respond to this.  I really appreciate it.

[Ned Carey]

First of all I believe taxes is a tax deed state not a tax lien state. You are actually buying a property instead of just a lien against the property. 

You can absolutely lose money in tax liens. I have had many that I lost money on. If the total cost to acquire a property including legal fees, and subsequent taxes is more than the property is worth then you lose money if they don't redeem. 

I don't think IRS is a serious risk but in over 500 liens I have never run into an IRS lien so I don't know how it would affect you.  Bankruptcy is a risk. Mainly you money is tied up. You cost to acquire goes up over time. A judge could reduce or eliminate your interest. Fire is a risk. You could wind up owning an expensive pile of burnt sticks.

You do not get to inspect the interior of a property when buying a tax lien or deed. It is like a mortgage foreclosure auction. You don't see the inside so you assume the worst. I do inspect the exterior of virtually everything I bid on.  Most of my losses were properties i did not inspect.

Usually the best place to get tax lien or deed info is the county website.