According to the Dallas Morning News, “Many of the residents of the subdivision thought they owned the lake behind their $300,000 homes in this Tampa Bay community and were shocked to hear that the original developer actually owned it and had let the taxes lapse.”

The delinquent land was then seized and put up for sale. Then a tax lien investor (I’ll explain exactly what that is and how you can be one in just a minute) bought the lake and the land around the lake for just $1,000.

Now, the investor is selling the same land back to the residents of the community for $30,000 a head!

You see, local governments rely heavily on property taxes to fund their activities. And when communities such as this Tampa Bay development fail to pay taxes, the government either sells the property or sells a tax lien. And you can make money from tax lien certificates.

Here is how it works: Governments want the property tax due to them. But they are not in the business of seizing and selling homes. So all counties in the United States issue tax lien certificates.

When you buy a tax lien certificate, you are buying the tax liability on a property. The government gets its dues through the sale. The delinquent taxpayer must pay you a state mandated “interest” in order to release the lien.

So your gain is the state-mandated interest payment for your investment in the tax lien. And if the taxpayer doesn’t pay up, you get title to the property…at a significant discount to market value, too. Not a bad deal.

According to expert tax lien investor Bryan Rundell, (from his Web site RogueInvestor.com), “The collection of property taxes is a huge priority in every county in the United States. Literally, if the county cannot collect property taxes, they go broke.

“To make sure this does not happen, the county places a lien on any property with delinquent property taxes and sells the tax debt to investors. This creates a win-win situation for everyone: The county gets their money, delinquent property tax owners get a little extra time to pay their overdue property taxes, and investors get a low risk, high return investment.”

Just how high is that return? Each year, tax lien certificates in Illinois pay 36%, Indiana pays 15% and Iowa 24%.

Attorney and professor Lillian Villanova says it’s important to keep one thing in mind. “Your goal is to find properties that are worth far more than the back taxes owed. This would virtually guarantee one of two things: Either the owner will find a way to pay the taxes to avoid losing the property, or you will obtain a property that can be sold at a profit. If you keep to that conservative mindset, you are assured success.”

Now is the best time to invest in tax lien certificates. The real estate boom has peaked out and foreclosure rates are sky high. Foreclosure rates have risen in 47 states this year. That means the delinquency rate on property taxes is also high. So you have more opportunities than ever to buy tax lien certificates.

Reading Villanova’s article “Tax Lien Investing Basics” is a great way to get started. For nationwide tax lien auction information go to TaxLienAuctions.com. And here are some county specific tax lien auction sites (this is not a complete list):

BidOrangeCounty.com

BidOkaloosa.com

BidVolusia.com

BidMiamiDade.com

BidSarasota.com

BidOsceola.com

You can contact any county to get details on tax lien sales, auction dates, unsold liens etc.

Just remember that once you’ve bought a tax lien, the money in it is illiquid and locked in till redemption. Also, never buy a tax lien without inspecting the property — in case the taxpayer doesn’t pay up, you don’t want to land up with a property you can’t sell.

Regards,

Sala
Septemeber 22, 2006

Invest in the Government’s Best-Kept Real Estate Secret was originally featured in the Penny Sleuth.