Tax foreclosures are also called tax deed sales. The process begins when a property owner fails to pay the property taxes to the local tax authority. After several attempts by the taxing agency to redeem the delinquent tax money that is owed the taxing agency will than foreclose on the property and than offer the property for the amount of the back taxes and any interest or fees at a tax deed sale or auction. At these tax foreclosure auctions, the tax deed is than transferred to the highest bidder. Buying tax foreclosure properties at tax deed sales an excellent way to buy homes for a fraction of what their actual value is. In fact many real estate investors choose this path of tax deed sales in order to rent the homes they purchase or flip them for an extremely high return on their investment (ROI).
Buyer Beware!
As with purchasing any real estate property or investment it is always best to research the tax foreclosure properties that want to buy. Many times the property is just land for sale and doesn’t have a property even on it. That doesn’t mean that you cant make money on land. It only means that not everything that glitters is gold so you must do your research first. Also properties that are under foreclosure usually run the risk of not being up kept. Their can be serious mainetnace issues with the properties, so even if you buy them for pennies on the dollar in many cases you will have to invest money to bring the property up to code or livable conditions. There are still many deals out there on tax foreclosure properties that can be bought at tax deed auctions where you don’t have to put any money into them, but in order to be sure about what you are getting involved in you must research the property first. Sometimes their will be an inspection period either before or during the tax deed sale. This is a great time to either have someone who knows about property maintenance and construction come with you to the inspection or if you know these thing yourself than this is the best time to see what is involved with the property that your are interested in buying.
Another way that people invest in tax foreclosure properties is through tax lien certificates. A tax lien sale is a sold by the taxing agency to the highest bidder similar to a tax deed. The major difference is instead of buying rights to the deed and property, you are buying the debt from the tax authority. This is usually a less risky investment but is a little bit more complicate in nature. If you buy the tax lien certificate than the property owner who is delinquent in taxes now owes you the tax money plus interest. Therefore tax lien investing can be profitable even without owning the property since the back taxes get paid with interest usually between 12-25% depending on which state. So if the tax that is owed is $1000, and you buy the tax lien certificate than you can make $250 in profit, as an example. The security behind these investments are if the delinquent tax payer does not pay you the back taxes, than you can move to foreclose on the property and keep it for yourself or sell it to the highest bidder at tax deed sale or auction. (more)