Tax Liens Investing: 4 Avoidable Mistakes That Could Cost You Dearly
Tax certificate, tax liens and tax deed sales can be a great way to make money if you understand all the risks and rewards. The real key to investing in tax bonds is research. Not only do you need to learn about the property you are investing in, but also about the entire legal process of tax lien certificate or tax deed sales. You must have full control over the risks and rewards.
Avoidable Mistake #1 Know the property
This isn’t a big terrible mistake, it actually happens all the time, but sometimes you can end up with a tax certificate or lien on worthless property, so you end up walking away.
Avoidable Mistake #2 Know the legalities of the state
Fifty states, means fifty different ways to approach real estate law and practices, including tax lien investing with lien sales and tax deed sales. Each state has its own laws and its own terminology that it uses. Some have a set number of years that the owner has to pay you back, others have rules about which liens are absorbed during a tax deed sale, and other states have two or three different types of sales, each with its own set of consequences. . Some don’t even allow these types of sales.
Avoidable mistake #3 Not doing homework!
With tax lien reversal, if you don’t do legal due diligence searches on the property and make sure to find out if there are any other liens, you could be forced to pay those other liens yourself! It boils down to the difference between a link and a write. With a tax lien or tax certificate, you do not own the property, so there is no liability. When purchasing what is actually the tax deed, you need to do a lien search because you are now the owner of the property, which makes you liable for any other liens that have been placed on the property, that were not removed during the tax sale. You are also responsible for all current property taxes and any other assessments on the property.
Avoidable Mistake #4 Not Using a Business Name
If a tax deed is purchased and the property ends up in you, the investors name, you become personally responsible for everything. Not just the cost of the property, taxes and outstanding liens, but you are personally responsible for anything that happens to the property. If someone was injured, they come after your personal finances. It is important to establish a business entity, so all the responsibility lies only with what the company owns, and your personal property cannot be touched.
There is nothing worse than investing in something advertised as a smart investment plan, only to be blown up in your face by others. Investing in tax liens is a profitable investment option, but only if you go in with your eyes wide open, having done your homework and treating it like a real business.