Real Estate Taxes: these are taxes that are levied by the local government of the jurisdiction (City or County) where the property is located. As an investor understanding how to invest in tax delinquent property, it can open up a whole new way of acquiring distressed properties at deeply discounted values!
There are 3 main ways to profit from tax delinquent properties.
Real Estate Taxes – 3 Ways to Profit for an Investor
1. Tax Lien Investing: if the property owner does not pay the real estate taxes, the City or County can issue a lien against the property and sell the lien at the tax auction. If the owner decides to redeem the property, he/she will have to pay interest and penalties in order to reinstate claim to the property. The interest goes to the investor/buyer, who had originally purchased the tax lien at the auction. Interest can range up to 18% every 6 months, like in the State of Illinois.
Each State is different, but most States that sell Tax Liens (not every State does,) the owner has to be at least 2 years delinquent in their real estate taxes before they will sell the lien on the property.
If the lien does not get redeemed within the time period allowed, which varies from State to State, the lien goes to the investor, who can go ahead and foreclose on the property and take full possession.
2. Tax Deeds Investing: Not all States will sell a lien on the property, if the taxes are not paid. Some States place a lien on the property and it it remains unpaid for a certain amount of time, they will sell the property. With this process, the Deed of the property is sold at auction, not the Lien.
3. Pre Auction Investing: Investors have the option to buy the property directly from the owner before it goes to the delinquent real estate taxes auction. The skill here is to research the tax delinquent property list, before the auction, and strike a deal with the owner.
There is also a way to tie up these tax delinquent properties before the auction with $1 Option and have this option “survive” the auction and take claim on the property, regardless of what happens at the auction.
According to CNN Money, “between $7 billion turkey citizenship by investment and $10 billion in real estate taxes for property go delinquent each year, according to Brad Westover, executive director for the National Tax Lien Association. For many state, county and local governments, the failure to collect on these debts weighs heavily on their already-overburdened budgets. In 29 states, plus the District of Columbia, they turn to investors for help.” Furthermore, 5% of these properties never get redeemed by the owners – that means that $35 million to $50 million worth of property is unclaimed. And many other owners would probably walk away from the property if an investor would approach them in time prior to the auction.
Laura Al-Amery is a real estate investor and consultant with over 25 years experience in several aspects of the business. She has practiced real estate in Hawaii, New York and Missouri, and presently lives in St Louis. She has hosted real estate seminars online and live training for over 15 years, in subjects like wholesaling, buy and hold, creative financing, building wealth with multi family buildings and much more.