Figure out if Buying Tax Liens Are For You
Even before you choose to become a tax lien investor, you should learn about the pros and cons
You must understand a few common things about tax lien investing, like the difference between a tax deed and tax lien county or state and what bidding on the premium is. 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 buying tax liens are in your future, proceed to the next chapter!
Select an online resource for Buying Tax liens
This part is actually fairly simple to do. Tax lien sales are processed at the courthouse so you should probably start by finding the website of tax collector for county you want to invest in.
Go to the google search engine and type in the state that you want to invest in, followed by "tax collector". If I wanted to buy tax liens in California, I would type in "California Tax Collector" in the Google search engine.
This step will give you a lot of results to filter through.
Register With Online Tax Lien Directories
Not all counties give you the ability to purchase tax liens online, so you will only be able to register in certain counties.
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 may also need to fund or provide funding for your account which will be used to purchase the Liens if you win a successful bid.
Understand how the Tax Lien Bidding process works
There are several different types of bidding methods involved in a tax lien auction. In the event that there is more than one tax lien investor one of several bidding methods are used.
In the event that more than one investor seeks the same lien, depending on state law the winner will be determined by one of five methods: Bid Down the Interest.this is where several investors negotiate to see who will accept the lowest interest rate among all the bidders. In some cases the interest rate can go as low as 0%, but this is rare.
Premium.Here investors (bidders) bid on the face value of the lien or premium. The additional premium may or may not earn interest, and (in some states) the investor might not get the additional premium back if the lien is redeemed. Colorado is a state that uses the premium bid method.
Random Selection.bidders are selected randomly when this method is used. 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. With this technique, the bidder with bid card 1 gets the first lien, bid card 2 gets the second lien and so on. If the first bidder passes on the lien, the next bid ticket holder gets priority of the lien. However, bidder number one will not be offered another lien until their ticket number comes up again in the rotation. The bidding process continues in this sequential way until all the liens have been presented.
Bid Down the Ownership. A few states use this method of bidding on the ownership. The winner is the investor willing to accept the least % ownership on the lien. For example, an investor may decide to take a lien on only 85% of the property. 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. In actuality, very few investors will bid on liens for less than full ownership to the property.
So in case where multiple investors are bidding on the same property, the random selection process will be used instead. Liens not sold at auction are considered "struck" (or sold) to the entity (usually the county) conducting the auction. Liens not sold at auction will then be available for "over the counter" purchasing.
Even before you choose to become a tax lien investor, you should learn about the pros and cons
You must understand a few common things about tax lien investing, like the difference between a tax deed and tax lien county or state and what bidding on the premium is. 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 buying tax liens are in your future, proceed to the next chapter!
Select an online resource for Buying Tax liens
This part is actually fairly simple to do. Tax lien sales are processed at the courthouse so you should probably start by finding the website of tax collector for county you want to invest in.
Go to the google search engine and type in the state that you want to invest in, followed by "tax collector". If I wanted to buy tax liens in California, I would type in "California Tax Collector" in the Google search engine.
This step will give you a lot of results to filter through.
Register With Online Tax Lien Directories
Not all counties give you the ability to purchase tax liens online, so you will only be able to register in certain counties.
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 may also need to fund or provide funding for your account which will be used to purchase the Liens if you win a successful bid.
Understand how the Tax Lien Bidding process works
There are several different types of bidding methods involved in a tax lien auction. In the event that there is more than one tax lien investor one of several bidding methods are used.
In the event that more than one investor seeks the same lien, depending on state law the winner will be determined by one of five methods: Bid Down the Interest.this is where several investors negotiate to see who will accept the lowest interest rate among all the bidders. In some cases the interest rate can go as low as 0%, but this is rare.
Premium.Here investors (bidders) bid on the face value of the lien or premium. The additional premium may or may not earn interest, and (in some states) the investor might not get the additional premium back if the lien is redeemed. Colorado is a state that uses the premium bid method.
Random Selection.bidders are selected randomly when this method is used. 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. With this technique, the bidder with bid card 1 gets the first lien, bid card 2 gets the second lien and so on. If the first bidder passes on the lien, the next bid ticket holder gets priority of the lien. However, bidder number one will not be offered another lien until their ticket number comes up again in the rotation. The bidding process continues in this sequential way until all the liens have been presented.
Bid Down the Ownership. A few states use this method of bidding on the ownership. The winner is the investor willing to accept the least % ownership on the lien. For example, an investor may decide to take a lien on only 85% of the property. 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. In actuality, very few investors will bid on liens for less than full ownership to the property.
So in case where multiple investors are bidding on the same property, the random selection process will be used instead. Liens not sold at auction are considered "struck" (or sold) to the entity (usually the county) conducting the auction. Liens not sold at auction will then be available for "over the counter" purchasing.
About the Author:
To learn more about tax lien basics, then visit Dale Poyser's website to learnhow to buy tax liens online.
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