Understanding Tax Delinquent Properties for Real Estate Investors

Tax delinquent properties provide another avenue for real estate investors to locate potential deals. Finding unique and diverse investment sources helps reduce the competition and strength your real estate investing portfolio.

The key with successful real estate investment is a depth of knowledge in the kinds of properties that offer a profit and how to close the deal. When done right, tax delinquent properties are a smart strategy to add to your business plan.

What is a Tax Delinquent Property?

A tax delinquent property is a property with a tax lien from the local government. A tax lien is placed on a property when the owner fails to pay the owed taxes. Most governments allow a grace period of six months to two years before a lien is placed for unpaid taxes. The lien amount includes the past due taxes, interests, penalties and legal fees.

In other words, a tax delinquent property has unpaid taxes for a significant amount of time and owes the government for all past due charges, including the costs associated with being past due. Once a tax lien is placed on the property, the government has the right to foreclose on the property and sell the home at auction or simply sell the lien.

How Property Taxes are Normally Paid

Property taxes are usually paid in one of two ways, although each local government can establish regulations to determine their own requirements. First, for homes with mortgages, most mortgage companies require that part of the monthly mortgage payment go into an escrow account to pay the property tax. The taxes are paid on behalf of the property owner by the mortgage company.

For homes without a mortgage, the property taxes must be paid directly from the property owner. Unlike with a mortgage, the property owner must ensure they have the money to pay and that the payment is submitted to the local government.

The reason the mortgage company requires an escrow account for property taxes is because they don’t want other liens on the property. They want to ensure that the tax payment is made.

Types of Tax Delinquent Property Sales

The government has two options for selling tax delinquent properties. First, some governments sell the tax lien at a tax lien sale. In these cases, only the lien for the property is sold and not the deed for the property. The investor buys the lien and the right to collect the past due taxes plus interests and fees.

The purchaser pays the back taxes to the government and in return receives a tax lien certificate entitling the buyer of the lien to collect from the property owner. The way the buyer makes money is through the high interest rate collected when the property owner finally pays. However, if the property owner doesn’t pay the past due amount, the purchaser of the lien has the right to foreclose on the property.

The other type of tax delinquent sale is a tax deed sale. With a tax deed sale, the government actually auctions off the deed to the property giving the buyer all rights for the property. In these sales, the buyer becomes the new owner of the property. Homes sold at auction are usually sold for less than the market value making the purchase a good investment for real estate investors.

How to Find a Tax Delinquent Property

Locating tax delinquent properties is time consuming but not difficult. First, you can pay a company for a current list of tax delinquent properties in a specific area. However, you can acquire the information without going through this type of service.

Most county tax collector offices will provide a list of tax delinquent properties upon request. Also, tax delinquent property auction lists are available to the public. With a little effort on your part, you can locate tax delinquent properties to determine if any of the properties are a good fit for investment.

Once you have the list of tax delinquent properties, you can wait for an auction of the tax lien or property deed to purchase the property. Another method is to contact the current property owner and ask them if they want to sell the property to you and you’ll pay off all debt to clear the title. This helps the property owner to avoid the auction process and you can avoid the competition of the auction.

Tax Delinquent Properties – A Solid Real Estate Investing Strategy

Tax delinquent properties make a solid addition to your real estate investing strategy. Many tax delinquent properties don’t have a mortgage. This means that in order to have a clear deed, only the back taxes and fees must be paid, plus any other outstanding liens.

Once acquired, the properties can then be flipped, rented or resold. Tax delinquent properties are simply a good way to locate properties to purchase below market value in order to make a profit for your real estate investing business.

As with all types of real estate investing, knowledge is crucial to avoid mistakes and reduce your risks. Use the tools available to learn more about real estate investing, including investing in tax delinquent properties. Invest in your business with webinars, eBooks, blogs, videos, conferences and more specifically targeted to real estate investors.