Tax Liens : Investment

[ferco]

Has anyone utilized tax lien certificates as an investment? What are some of the pro and cons. Any bad experiences? What are the best sources of education on these investments ?

[Red_y]

Tax lien investing is an area ripe for come-ons, rip-offs, and scams. One legitimate source of information is this book:

Amazon.com: Profit by Investing in Real Estate Tax Liens: Earn Safe, Secured, and Fixed Returns Every Time (9780793195176): Larry B. Loftis: Books

I did some dabbling in this via the Internet...Coconino County AZ (where I would actually like to have some real estate for a "snowbird" lifestyle) conducts their annual Tax Lien Sale online. I picked up liens on 4 properties in early 2008...they were all redeemed within a year. I earned 6-8%, but for a couple of the properties, the interest was earned for only a few weeks.

Pros would be the higher rate of return compared with other investments and the possibility (however remote) of gaining title to the property for simply paying the taxes. Cons are the uncertainty of the length of time your money will be earning the certificate's rate, the amount of time needed to investigate each property, and the expense of traveling to county seats to bid in the auctions if they don't hold them online.

For me, it's more of a hobby and way to satisfy an urge to gamble than a true investing strategy.

[calmloki]

Forgot about this - a few years ago we were looking at AZ tax liens, but decided we would want to see the property before bidding on the lien. Too complicated. Later on an airport shuttle bus from an off terminal car rental site in PHX we talked with a couple who were doing the AZ tax liens - their wrinkle was writing off the travel expense as a business expense on their taxes. Hmm. A nice way to have Unca Sam and the IRS give one a ~25% discount on a trip to sunny AZ during the winter?

[Ed_The_Gypsy]

I can imagine that one might have to wait a long time to get paid. The deduction sounds like the best use of these.

[brewer12345]

Quote:

Originally Posted by Ed_The_Gypsy I can imagine that one might have to wait a long time to get paid. The deduction sounds like the best use of these.

Depends on the location, but usually not that long. Here in NJ, it is 2 years max. After that, the property ges auctioned off on the courthouse steps.

[Red_y]

Quote:

Originally Posted by brewer12345 Depends on the location, but usually not that long. Here in NJ, it is 2 years max. After that, the property ges auctioned off on the courthouse steps.

Which points out another "con"...every state has different rules. In AZ, if the taxes remain unpaid after 3 years, the tax lien holder can initiate a judicial foreclosure to gain title to the property. From my research, the cost would be at minimum $1000 to cover filing fees, serving notices, etc. So there are costs in addition to paying all the back taxes to gain ownership of the property.

And the time to get paid is completely unknown and unknowable. You get paid when the property owner pays up on all the back taxes, penalties and interest. That could be a week after you purchase the tax lien certificate, a month, a year, or never.

[heyyou]

Coconino County Arizona is huge, including remote, but subdivided, sage brush flats where the only water is a thousand feet below the surface, or hauled from 40 miles away. It is not in the middle of Nowhere, but you can see it from there. Some friends bought a couple of those acre lots in Valle for the $500 owed in back taxes. How many of those liens would you need to carry to have a reasonably sized investment? Who would want the land if you did get possession?

Look on ebay for Arizona land sorted from the cheapest on up to see what those places look like.

Best deal I've heard of is a mobile on a lot that didn't sell at the foreclosure auction (no bids), so the mortgage holder was ready to bargain when contacted a couple of weeks afterwards.

[M Paquette]

Quote:

Originally Posted by heyyou CLook on ebay for Arizona land sorted from the cheapest on up to see what those places look like.

Yow! Too bad these are 'Pickup only'. If only they would be willing to ship to my location...

Some of the 'bids' are misleading, though. "You are bidding on the down payment..." , or are bids on a monthly payment (shades of used car sales!). The actual price of the lots are fixed in the cases I peeked at. Ah, eBay...