A tax lien functions as a lien imposed by law upon a property to secure the payment of taxes. The lien can also arise from delinquent taxes owned on real property or personal property, or as a result of failure to pay income taxes or other taxes. Examples of this include the taxpayer’s home and accounts receivable.

How to invest in tax liens?

An investor has the ability to purchase property tax liens the same way actual properties can be bought and sold at auctions. These auctions are held online and in person. The auctions are held in a physical setting or online, and investors can either bid down on the interest rate on the lien or bid up a premium they will pay for it.

Buyers of the properties with tax liens should be aware of the cost of repairs, and hidden cost. The persons who own the properties may have to evict occupants, this requires assistance from both an attorney and property manager.

Residential, commercial, undeveloped land, property with improvements are different forms of tax lien investing. Investors can always contact their city and county treasurer’s office to find out when, how, and where the next auction will be held. The treasurer will provide a list of property liens that are scheduled to be auctioned and the rules for how the sale will be conducted. These rules include an outline any preregistration requirements, accepted methods of payment, and other important details.

How Does It Work and How Are Profits Made?

Generally the investors who purchase the property tax liens are expected to immediately pay back the full amount of the lien to the municipality. The tax lien issuer collects the principal, interest, and any penalties; pays the lien certificate holder, and then collects the lien certificate if it’s not on file. For there the property owner must repay the investor the entire amount of the lien plus interest, which varies from one state to another but it is usually between 10% and 12%. So when the investor paid a premium for the lien, this may be added to the amount that is repaid. From there the repayment schedule will last anywhere from six months to three years.

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