Buying tax liens is an opportunity to own a property for pennies on the dollar. While this is entirely true when buying tax liens, develop proper due diligence procedures so you aren’t buying a piece of swampland and trying to evict alligators.
Here Are Five Quick Tips You Should Know Before Investing in a Tax Lien in
Start Close to Home
You can buy tax liens anywhere. Initially, stick to and the surrounding areas, where things are more familiar and accessible. You’ll be able to easily drive to visually inspect potential properties and neighborhoods. Of course, if your neighborhood is too expensive or competitive for lien investments, then venturing out a bit further is necessary.
But learning the process closer to home helps you avoid mistakes of investing in properties sight unseen. Once you have a few deals under your belt, you’ll be able to develop a plan and process to determine if further locations are a good investment.
Be Patient and Happy with Favorable Interest Rates
Because everyone hears that you can own property for pennies on the dollar with tax liens, it’s assumed every lien purchased results in a successful foreclosure. This isn’t the case. Don’t get frustrated. Continue to collect premium interest rates on the tax lien. Think about it: if you invest in a tax lien in and it offers 8% interest on your investment when the bank is only paying 2%, you’re doing better than average.
Learn to appreciate this. Eventually, a foreclosure will fall your way. As you get better, you’ll also learn how to find properties closer to forecloser.
Do Your Homework
Investing in tax liens in isn’t without risk. Property owners may not pay the property tax because the real estate has no value – maybe it was built on a nuclear waste dump. You need to do more than putting your eyes on the property and neighborhood.
Learn how to go through public records to find title encumbrances including other taxes, potential bankruptcy delays, mortgage information and other history related to the parcel. Make sure it’s a property you can rehab and flip or rent out as is. Either way, doing homework gets you the best potential return on your investment.
Get Organized from the Start
While the first tax lien or two that you buy won’t overwhelm you, as time goes on and your inventory grows, you’ll need an organized system in place for keeping track of investments locations, payment schedules and foreclosure probation periods.
A big problem for tax lien investors is not following through on the investment when they see the opportunity to foreclose. Even worse is not realizing another investor is coming in and scooping up the following year’s lien and taking a foreclosure position away from you.
Investing in tax liens in is a real business. It is not a hobby. Be organized so you can make money and have really fun hobbies, like traveling to Greece and learning to scuba dive.
Have an Accountability Partner
If you can, have someone you can bounce around research ideas with. If you can get a mentor, that is even better, but at least find someone who is willing to help you stay on track with budgets and research. This is especially true if you plan on attending a live auction where the energy is mesmerizing.
Undisciplined tax lien investors will continue to chase bids, going above budget and cutting into potential profits. An accountability partner should understand the bottom line dollars you plan on spending on each potential tax lien investment and help hold your hand down if you suffer from the “shiny object” syndrome.
These are the five quick tips you should know before investing in a tax lien in . If you need any help, feel free to give us a call at (248) 470-8170 or fill out the form on our website today. We’ll help you get started and avoid common mistakes along the way.