As a property owner, you will be expected to pay property tax bills. If you don’t, then you could find interested added on top of the bill, with some states charging up to 18% interest, with some states charging more and some less.
If the taxes still haven’t been paid off after a year or so, then the local municipality reserves the right to sell the taxes. This allows them to get the money they are owed and spend it accordingly. The person who buys the tax has the right to collect interest on the money, with tax buyers having the right to collect interest at a rate of 18%.
Most homeowners find themselves in a position where they discover they have failed to pay real estate taxes and head to the tax collector’s office as fast as possible to pay them off. They find themselves faced with a bill for the taxes, along with the interest, with some other expenses thrown on top for good measure. If the homeowner pays off all the costs, then some of the money is returned to the municipality, while the tax lien purchaser receives the money they paid for the lien and the interest.
This presents a good investment for tax lien investors. Investing your money with Ted Thomas tax deed sales allows you to collect a great rate of interest until the property owner coughs up the money. After the cash is paid the property tax is settled and the back taxes are considered to be “redeemed”.
There are some cases where homeowners don’t pay their real estate tax bills. These are the cases where the tax lien purchaser becomes the owner of the property. This happens when the original property owner avoids paying the tax lien purchaser. Eventually, the tax buyer is given a tax deed that transfers ownership of the property to them.
This is the outcome that usually happens when a tax deed is issued. You might feel that this is a fair deal, as the lien buyer put up the money that was left unpaid in real estate property taxes, so it’s only right they should get the property.
Of course, things are rarely that easy in real life. There are a number of pitfalls you can get stuck in along the way. You could find yourself paying real estate taxes on a property that has no use or value, which is a huge waste of money. You could also find yourself purchasing a property that was unfairly put up for auction. In these cases, the property is returned to the owner and you do get your money back; but without any interest. It’s not much of an investment.
Another thing to keep in mind is that some states treat tax auctions as “auctions” in the truest sense of the word. The one who bids the most money is the one who ends up with the tax. The more you spend on a property, the less chance you have of a good return on investment. Know when to step out of a bidding war. Let other people make mistakes, and leave yourself the chance to make more money.
Don’t forget that purchasing tax liens is a business. As is the case with any business, you need to have an understanding of the process and the risks involved before getting into business. You’ll quickly discover that tax buying could be a bad choice if you don’t do your due diligence.