Tax Sales and Tax Liens – Pros and Cons of Investing in a Tax Sale/Lien –

September 8, 2011 225 No Comments

Are Tax Sales a Good Investment For Real Estate Investors? Here Is A Quick Video On The Pros And Cons Of Investing in a Tax Sale




Hi, this is Frank Chen with, the only site you need as a real estate investor. Today I’ve got quick video on the Pros and Cons of Investing in Tax Sale Properties.

Tax Sale vs. Tax Lien

– Tax Lien:
A lien in general is a claim or security of interest placed on personal property to secure the repayment of debt. Therefore, a tax lien is a lien imposed by Federal or state law to secure payment of back taxes.

As the investor: You buy the rights to the money owed in taxes and the interest and penalties that have accrued.

– Tax Sale: (also known as a a ‘Tax Deed Sale’)
Refers to property, in this case real estate, being sold by a taxing authority or the court to recover delinquent taxes. This is commonly done by Auction.

As the investor: You are buying the rights to the property itself.

– Return on Investment

Tax Lien: Allow you to earn high interest rates on your investment
– When delinquent property owner “redeems” the lien you get your initial investment PLUS a guaranteed percentage interest. The interests vary by state.
– Average 12-24% interest per annum – as high as 50%

Tax Sale: Deed sales transfer full property rights to your name.
– Average Purchase Price 30-60 cents on the dollar
– Tax Value = Purchase Price

– Right of Redemption: Gives the right to the original homeowner to reclaim their property during a specified time. If they are unable to pay it, the current lien holder can start foreclosure proceedings

Tax Lien: 1 year to 3 years – redemption period
– Delinquent pays the lien plus interest and any other fees (accrues monthly)

Tax Sale:
– Delinquent pays back interest plus the costs incurred to foreclose

Tax Liens / Tax Sales Pros

– Pennies on the Dollar – Buy properties for a fraction of the cost
– State Authorized Returns – awarded to the investor at 16% – 25%
– Volume – auctions are typically held at the first of EVERY month – VARIES BY REGION
– First In Line – Tax liens have precedence over other liens or encumbrances, such as mortgages, judgments, trust deeds and different liens
– County collects the fees owed – not you
– No Maintenance Responsibility
– No Landowner Liability
– Free and Clear – possibility
– Guaranteed Return on Investment

Tax Sale /Lien Certificate Cons

– Specific Regulations – Failure to comply precisely with these rules could make the lien completely worthless.
– Homeowner Bankruptcy – IRS or other creditors may have other claims on the property, rendering your tax lien worthless.
– Worthless Property – you invest in a tax sale with no potential – uninhabitable, structurally unsound, previous owner tried to sell it and stayed on the market for a long time, etc…
– Additional Liens – must pay off all previous liens before you can clear the title
– Competition – public auction – lots of other interested investors
– Lien Laws – vary from state-to-state – strategies may not work in some states

Tax lien investing is a significant opportunity which also requires some specialized knowledge. Always remember, when investing in tax sales or tax lien certificates, almost all risks can be averted by doing minimal analysis before purchasing. Due diligence is the key to success in this niche of real estate investing.

Again, this is Frank Chen with Please take the time to leave your comments for this video below and please subscribe to our YouTube channel so you’ll be automatically notified when we upload more quick video tips for you. Take care and good investing.

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