If you’re looking for a different way to invest in property, you might have come across tax liens and tax deeds. Although these two forms of investment are similar, they do have their differences. Tax liens are available in about half the US states, and tax deeds are sold in the other half. They work in similar ways, but it’s important to understand how they differ before you decide to invest in either one or the other. Both are a result of non-payment of taxes, but investing in each of them has its pros and cons. Keep reading to find out the differences between them and decide which one you should invest in.
A tax lien is placed on a property when the homeowner hasn’t paid their taxes. It says that the owner must pay the money they owe, plus interest, or face losing their home. After an authority has placed the lien on the property, they sell it to an investor so that they can get the money back straight away and put it into their budget. The investor then owns the tax lien certificate; they let the homeowner know that the money owed must be paid to them. So the investor should get back the money he or she put into the investment, plus the interest owed. If the money isn’t paid in time, the investor can take possession of the property.
Tax deeds are similar to tax liens, but they are not the same. The tax deed transfers the property into the ownership of the local government or municipality, which they then sell on to an investor. So when an investor buys a tax deed, they own the deed to the property and not just a lien on it. Some of the best tax deed investing information says that investing in tax deeds is better than liens because the investor usually gets full ownership of the property. They will pay the amount of the unpaid taxes and fees, plus any extra that they bid at auction. So they could get a property for much lower than the market price.
What Risks Are Involved?
Investing in tax liens and deeds has different risks. Many people see investment in liens as a much riskier venture. One risk that the investor faces is the homeowner going bankrupt, which could mean that other creditors have a claim to the property. Another complication could be that there are other liens on the property that could prevent the investor taking ownership in the event of non-payment. There is also the risk of investing in a property worth less than the investment.
Tax deeds can also have complications. An investor might pay too much at auction and be unable to make a profit by selling or renting the property. They may also have to evict the current tenants, and the title may need to be cleared before title insurance can be issued. Tax deed investors, like lien investors, also risk paying too much for a property on which they won’t see a profit.
If you’re interested in investing in tax liens of deeds, make sure you research each type before deciding which one to go with. You need to put a lot of work in to make the right decisions.