Decide if Tax Liens Are For You
Before you even choose to become a tax lien investor, you should understand the rewards involved as well as the risks.
You must realise some typical terms and methods like bidding down the interest, bidding on the premium, bidding on the ownership and redemption periods. Once you have a basic grasp of the basics of investing in tax liens, you should decide if this is something that you could be passionate about.
If you feel that being a tax lien investor is in your future, keep reading!
Search The Web For Good Tax Lien Websites
This part is actually fairly simple to do. Tax liens are sold by county so you should pick a county you want to invest in, then locate the website for that county.
Another option, use the famous google search engine and enter the county that you are interested in, followed by "tax collector". For example, if I wanted to invest in a county in Florida I would type in "Florida Tax Collector" in the Google search engine.
This step will give you a lot of results to filter through.
Sign up With some Tax Lien Websites
Note: You will only be able to register in certain counties as not all counties have online tax lien sales.
You will be required to provide information such as your social security number or EIN (Employer Identification Number) if you will be purchasing the liens through a corporation. You might need to set up an account and or provide a deposit which will be required if you want to be a bidder. There could be a minimum requirement to register as a bidder. Don't worry it is refundable.
Understand how the Tax Lien Bidding process works
There are different ways to bid on tax liens during an auction. One of several bidding methods will be used if more than one investor bids on the same property.
Depending on the laws of the county, the bid winner will be determined by one of the five methods below. Bid Down the Interest.with this method, investors will bid against each other to see who will accept the lower interest rate. In some cases the interest rate can go as low as 0%, but this is rare.
Premium.With this method investors are fighting to see who will pay the most for the lien. In some counties the additional premium does not earn any interest and may not be refundable. Colorado is one state that does this.
Random Selection.the order of bidders is selected at random with the random selection method. Typically a computer is used to select bidders at random, but this can vary from county to county. Nevada is a state that uses Random selection.
Rotational Selection. Using this method the liens are offered to the bidders in sequential order. In the event that bidder number 1 refuses the lien that is offered, the bidder with the next number will have priority over all the other bidders. Bidder 1 will have to wait until all the other bidders have had a chance to bid before his or her turn comes up again. Once bidder 1 bids, bidder 2 gets to bid, then bidder 3, then 4 and so on...then back at 1 and repeat.
Bid Down the Ownership. The winning bid goes to the tax lien investor willing to accept the least percentage of ownership on the lien. An example of this would be a case where the winning bidder only owns 60% of a tax lien. If the lien is not redeemed, the bid winner only receives 85% ownership of the property with the remaining 15% owned by the original owner. Not many investors will buy liens in states that use the ownership method.
So in case where multiple investors are bidding on the same property, the random selection process will be used instead. If a tax lien is not purchased at an auction, the county will take possession of it. Liens not sold at auction will then be available for "over the counter" purchasing.
Before you even choose to become a tax lien investor, you should understand the rewards involved as well as the risks.
You must realise some typical terms and methods like bidding down the interest, bidding on the premium, bidding on the ownership and redemption periods. Once you have a basic grasp of the basics of investing in tax liens, you should decide if this is something that you could be passionate about.
If you feel that being a tax lien investor is in your future, keep reading!
Search The Web For Good Tax Lien Websites
This part is actually fairly simple to do. Tax liens are sold by county so you should pick a county you want to invest in, then locate the website for that county.
Another option, use the famous google search engine and enter the county that you are interested in, followed by "tax collector". For example, if I wanted to invest in a county in Florida I would type in "Florida Tax Collector" in the Google search engine.
This step will give you a lot of results to filter through.
Sign up With some Tax Lien Websites
Note: You will only be able to register in certain counties as not all counties have online tax lien sales.
You will be required to provide information such as your social security number or EIN (Employer Identification Number) if you will be purchasing the liens through a corporation. You might need to set up an account and or provide a deposit which will be required if you want to be a bidder. There could be a minimum requirement to register as a bidder. Don't worry it is refundable.
Understand how the Tax Lien Bidding process works
There are different ways to bid on tax liens during an auction. One of several bidding methods will be used if more than one investor bids on the same property.
Depending on the laws of the county, the bid winner will be determined by one of the five methods below. Bid Down the Interest.with this method, investors will bid against each other to see who will accept the lower interest rate. In some cases the interest rate can go as low as 0%, but this is rare.
Premium.With this method investors are fighting to see who will pay the most for the lien. In some counties the additional premium does not earn any interest and may not be refundable. Colorado is one state that does this.
Random Selection.the order of bidders is selected at random with the random selection method. Typically a computer is used to select bidders at random, but this can vary from county to county. Nevada is a state that uses Random selection.
Rotational Selection. Using this method the liens are offered to the bidders in sequential order. In the event that bidder number 1 refuses the lien that is offered, the bidder with the next number will have priority over all the other bidders. Bidder 1 will have to wait until all the other bidders have had a chance to bid before his or her turn comes up again. Once bidder 1 bids, bidder 2 gets to bid, then bidder 3, then 4 and so on...then back at 1 and repeat.
Bid Down the Ownership. The winning bid goes to the tax lien investor willing to accept the least percentage of ownership on the lien. An example of this would be a case where the winning bidder only owns 60% of a tax lien. If the lien is not redeemed, the bid winner only receives 85% ownership of the property with the remaining 15% owned by the original owner. Not many investors will buy liens in states that use the ownership method.
So in case where multiple investors are bidding on the same property, the random selection process will be used instead. If a tax lien is not purchased at an auction, the county will take possession of it. Liens not sold at auction will then be available for "over the counter" purchasing.
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