Quick look at Tax liens

There are seven steps that you need to follow in order to build a profitable portfolio of tax lien certificates or tax deeds. Regardless of which state you are investing in and whether you are investing in liens or deeds, you need to take these same seven steps. The details of how you accomplish each step may change depending on which state you are investing in and whether you are investing in tax lien certificates, tax deeds, or redeemable tax deeds, but the seven steps remain the same. In this article I will outline these steps and give you a brief description of each one.

Step One: Decide on the purpose of your tax lien or tax deed investment portfolio

Are you investing for the future or for current income? This will determine what type of investment will be best for you; tax lien certificates, tax deeds, or redeemable tax deeds. It will be a big factor in deciding where you will invest and in determining your bidding strategy and how you will profit from your investment later on. In short everything that you do to develop a profitable portfolio will be based on this decision.

Step Two: Determine where you will invest

You need to identify the area or areas that you will be investing in. If you want to invest in multiple areas or more than one state, I suggest that you start in one area and learn how to be successful with that one before moving on to another area. Each state and in some cases, each county may have different laws and procedures regarding tax sales. What worked in one area may not work very well in another and you may have a different learning curve for each area.

Step Three: Get the tax sale information

Now that you know where you are going to invest, you need to find out when and where the tax sale is held and obtain a list of properties that are in the sale. For most areas this step will be easy, you just need to know where to go and who to contact to get this information. Sometimes you will have to pay for it and sometimes you will be able to get it free of charge.

Step Four: Do your due diligence on the tax sale properties

This is the most important step in the process and whether you do this properly or not could mean the difference between being extremely profitable and losing money. Once you have a list of properties that are in the sale, you need to do your due diligence on these properties before you bid. The exact procedures that you follow will vary depending on which state you are investing in and whether you are investing in tax lien certificates or tax deeds. You have to do a little more due diligence for tax deeds than you do for tax liens.

Step Five: Prepare to go to the tax sale

Preparing to go to the sale consists of registering to bid at the sale along with getting your paperwork and payment in order. In most states you need to register before the sale in order to bid. Depending on what state and county you are investing in, you may need to register as far as two weeks before the sale, or you may be able to register as soon as right before. Some municipalities do not require you to register ahead of time, only that you submit the proper paperwork if you are the successful bidder on a property. Some counties will require a deposit in order to register. The deposit amount could be anywhere from $100.00 to a few thousand dollars (as in the case of many online tax sales). Large deposits are usually returned to the investor if nothing is purchased at the sale. Smaller deposits are sometimes returned and sometimes not returned, depending on the county. You also need to make sure that you have the proper funds for payment before you go to the sale. For most tax sales, only certified funds are accepted.

Step Six: Decide on a bidding strategy

Before you bid at a tax sale you need to know what the bidding procedure is and what your strategy will be. You'll have to decide before hand just how much you are willing to pay for each property that you want to bid on, or how low (in interest) you will bid. I suggest that you attend at least one tax sale before you bid so that you are aware of what is actually being bid and what the competition is like.

Step Seven: Protect your investment

Once you purchase a tax lien certificate or tax deed, you need to take steps to protect your investment and maximize your profit. Depending on whether you are investing in liens or deeds and which state you are investing in, these steps may include:
a) Recording your lien or deed with the county clerk
b) Paying subsequent taxes
c) Clearing the title to the property
d) Foreclosing the right to redeem

By Joanne Musa