New Investor

[Matthew Smith]

Hey Ya'll, New investor here. Saving capital for my first rental. I wanted to ratchet things up a bit and earn some money using tax liens. I have the benefit of living on the border of NE/IA, hooray two sales! What are the major things to watch out for? The way I see it you can go wrong two ways. 1. Acquire a lien on a dud. That could be an undevelopable property/condemned/0 value. 2. Risk too much money on one property. If the lien > 10% property value, stay away. NE/IA both use the random draw process with no bidding down interest rate. NE is 14% per year, while IA is 24%. Nebraska needs 3 years of non-payment for foreclosure, IA 2. Worst case scenario, don't get paid for 3 years and have to spend some money to foreclose. How can I lose? Matt

[Ned Carey]

@Matthew Smith it is easy to look at tax sale and say "How can I lose" Trust me it is a risky business and you certainly can lose money.

You pretty much nailed the number one risk; bidding to much on a property. Regarding number 1 you need to know what you are bidding on. 

Regarding number 2, you need to know the true value of what you are bidding on, not just the assessed value. I have often bought liens well above 10% of the assessed value and in fact i have actually bid MORE than the assessed value in some cases. Those are cases where the assessed value is well below the true value.

Other risks are fire, building collapse or demolition (that is a real risk in Baltimore) bankruptcy, IRS liens, condition of the property, the hidden costs and not knowing the rules.