Getting started with tax liens?

Question

I've been trying to buy an investment property to use as a rental property for cashflow income, but unfortunately it doesn't look like I can work any deals out right now. I've got around $20,000 in cash which isn't enough to buy anything here, and I won't qualify for any sort of investment mortgage.

That said, I'm looking into tax liens as a new direction. I've been trying to learn more, but most websites professing to teach it are scam websites trying to sell a program. Can anyone suggest a good resource (or book) for learning the basics?

Would you suggest this as an option for someone in my situation? I am in Florida.

Thanks for the help.

Ned Carey · Answer

M Ness as Jerry K. said there are other ways you can invest $20K. That is plenty to do a wholesale deal or an option. By doing several wholesale flips you can build that nest egg.

There are a number of threads here on Bigger pockets about tax liens and deeds. I also write about tax sales a lot on my website below. Some of the best stuff on my site is in the comments to the posts where I answer specific questions.

You are right, there are a ton of people selling information on tax sales, most of it is crap. It is a popular target for the Gurus though because the appeal of buying properties for "Pennies on the Dollar" sounds great.

John Thedford · Answer

Lynn: the large ROI came about due to points being factored in and then the loans being paid off early. If you do a loan at 15% plus charge 4 points for two years, and the loan is paid off in six months, that raises your ROI % dramatically. If I could be guaranteed 20%+ per anum I wouldn't need to work! Haven't had that kind of luck lately:) BTW---see my other post about the mortgage I did and the borrower died! Not sure where that one will lead. Sure, I will get paid. But, the rate of return may end up being rather low, and I just gave $2500 to an attorney! So much for the great investment LOL!

John

John Thedford · Answer

Anyone in Florida can contact me. I am in SW Florida. I will be attending a tax deed sale next week. As far as returns, if you only have 20K to invest have you considered lending it out. I was doing hard money loans. I was getting over 15%. Last year I had 4 of them pay me off. On an annual NOI I received 21%, 24%, 28%, and over 30% interest on them. Not shabby. At this time I have a few more loans out. I never do any loans under 15% and that is pretty good, safe secure income. I was only doing 1st position with about 25% LTV. With 20K, you can make a good profit over a year or two if you get 15% or more.
Good luck!
MGJohn

Jerry K. · Answer

M Ness, Tax liens in Florida have the potential to pay good rates, but the good properties get bid down pretty low for interest rates.

Plus in Florida, even if you own the tax lien and if the owner does not pay the taxes before the redemption period ends, then you can  ask the county to foreclose - BUT you don't automatically get the property.  The county then auctions the property and you get paid your lien amount with interest when the property is sold.  If you want the property, then you have to bid at the auction.

Obtaining properties through tax liens is very hard to do.  Almost all are paid off before you can get the property.  Tax Deed auctions do allow you to get the property, but as you know in Florida, you need a decent bankroll to buy one at auction.

With $20,000 I'm sure there are other strategies you can employ to buy a property.  Try asking again in the "Starting Out" forum with the subject: "Need strategies for using $20k to buy first investment property".  You'll get several people giving advice.

Justin McClelland · Answer

Tax Liens aren't a bad option if you want to earn a solid return on your money. I personally have been active in the state of Illinois for the past few years investing in them.

Larry Loftis has the best Tax Lien book, in my opinion. Have read it numerous times.

And years back I wrote a guest post on BP about tax liens. You can check it out here:
http://www.biggerpockets.com/renewsblog/2009/10/29/tax-lien-certificate-money-tree/

Lynn Henley · Answer

John,

If you're getting NOI of 21-30%, why deal with tax liens with the max rate of 18%?

Just asking.

Lynn Henley · Answer

I'm also in FL, and invest in tax liens.  Feel free to contact me and I'll try to answer any questions I can.

Getting started with tax liens?

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