Are tax liens as easy and simple as they sound?

[Mason Warnimont]

Hey all, I am looking for a little advice on purchasing a tax lien. I have a little bit of money to invest but not enough for a fix and flip or rental so I’m looking into tax liens. Where do I go to purchase tax liens and are they good to invest in?

[Ned Carey]

NO

(in response to the subject line)

Tax liens sound like a win win, if they pay off you win with high interest and if they don't you get a house for pennies on the dollar. This leaves out the fact that they are sold at auctions and they can be very competitive. In my area interest rates get bid down to 4% on good properties and lesser properties are often a loser if you foreclose on them. 

Tax lien laws can be quite complex and the risk can actually be quite high if you don't know what you are doing. I see lots of big money jump in and get their clock cleaned.

That said I do it full time and I do OK. You can make good money but it is not easy. 

1. You need to know the rules and how they affect your risk and return
2. You need to know the value of what you are bidding on
3. You need to know exactly what you are bidding on. It is easy to think you are bidding on something good, when you are getting a worthless strip of land. 

As an example of #3, I bought a lien on a parking lot for a townhouse development. Many of the townhouses had rear garages and needed that land for access to their garage. Can't lose right? They need that land one way or another. Well actually I can loose. The parking is owned by a separate company from the townhouse HOA. The HOA has an easement allowing them access and parking on the land. If I foreclose on the parking lot they still get to use it.

You buy liens from the county (or sometimes city). Often the county website will have good info but it can be hard to find. It won't be on the first page!  Or call the property tax dept and ask them. There is are tow forums here that discuss tax liens. We have many experts here that can help with more specific questions.