Although tax lien investing rarely results in huge returns, like a house, it can be a lucrative way to invest. Tax liens are placed on property when a property owner fails to pay outstanding taxes. The government can then sell those liens to investors, who buy the liens for interest and the chance to get the property if the owner doesn’t pay the debt. A tax lien auction is one place to purchase the tax lien certificates.
Make A Few Decisions
First, decide a bunch of things, such as whether tax lien investing is even the right move for you.
- Are the risks worth it? How much do you stand to gain?
- Do you have enough capital to make it worth your while? Tax liens are not liquid investments, so whatever you invest is tied up for quite a chunk of time.
- Is it worth it for you to go to an auction? Or should you look into buying certificates individually from a local county office?
Pick an Auction
Find out where and when the next tax lien auction near you is. If you know anyone with experience in tax lien investing, ask them if there is a certain one they recommend. You can also look up the allowed interest rates for each county or state to decide which auction may be most lucrative for you. If you live in a state with online auctions, those are an option as well.
Do Some More Research
Different auctions handle bidding in different ways. Some auctions accept bids on the lien’s premium while others take bids on the interest rate on the lien. It’s important to know which kind of auction you’re planning to attend! If you go in and bid high, expecting it to be for the premium when it’s actually for interest, you’re setting yourself up to lose the auction. In general, bidding for the lowest interest rate is the most common type of tax lien auction.
While you’re researching, try to find out about some of the properties with liens that may be up for auction. The rule of thumb is to look for a lien on a property that is worth much more than the lien. This helps you in two ways. First, it increases the likelihood that the property owner will pay, making it a safer investment. Second, it guarantees a solid return on investment if the property owner doesn’t pay and you get the property.
Go For It
The first time you go to an auction, bid cautiously. The first time is mostly for getting a feel for the atmosphere, procedures, and overall way things work. The second time you go to an auction, you should feel much more confident!