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How to Make Money with Tax Liens

By Charles Hopkins Published 09/19/2006 | Entrepreneur

Perhaps one of the most obscure forms of fiscal investment, tax liens have gone unnoticed through the years. Banks and credit organizations have no incentive to tell you about them and people who invest in tax liens don't want more investors to compete with. Investing in tax liens can be lucrative; counties often impose taxes on real estate and other property, such as cars, where the owner must pay an amount based on the property's value.
 
While the process differs from county to county, what generally happens, when the lien matures is that the government seizes the property and then tries to make the tax money back by selling it to the general public. People are allowed to invest on this liened property before it has been seized; so it is possible for an investment to dissolve, but this happens less than 5% of the time.
 
Once the government has placed a tax lien and opened the bidding, you're free to pick and choose your investments. It is your goal to find liened property that is worth more than the taxes owed on it. If you can acquire a house by paying say 30,000 in back taxes and the house is actually worth 100,000 then you've just made 70,000 with that 30,000.
 
Generally speaking, hundreds, even thousands of liened properties will exist in every state. You can learn about local back tax sales by contacting the Treasurer's Office in the county you'd like property in. From here, it is a matter of acquiring a list of items and determining which ones you're interested in. While these investments are safe to make, in the sense that the government isn't going to back out of the deal abruptly, you do have to understand the process in order to thrive. The best way to do this is to attend a back taxes sale. For instance, if you're bidding on some sort of back tax certificate, you're bidding on the delinquent taxes, not the property itself. This distinction seems small, until someone starts bidding against you or until the original owner pays off his debt and reclaims the property altogether. In essence, all you are doing is telling the government you will pay the back taxes on the property and in exchange, they yield it over to you. 
 
Once you know the rules, tax lien sales are one of the best ways to produce capital and you don't even need a lot of money to get started. Many liened properties start bids at a couple of hundred dollars and often, they're worth several thousand. People are often discouraged by their friends to search for a house to live in off of back taxes lists, but for someone trying to break into selling real estate, this is a great way to acquire property, often for a fraction of the property's value.
 
And isn't that what you want? High returns from safe investments? And who safer to invest through than the government?