Crash Course in Tax Investing
Tax Liens, Tax Deeds, and More
Have you ever considered investing in tax liens or tax deeds, instead of going for the traditional stock market or cryptocurrency market? Well, here an introduction to help you think about it. This could be the future of investing, to be honest.
What are Tax Liens?
In the United States, a tax lien is a legal claim by the government on your property to secure payment of your taxes. The lien gives the government the right to take ownership of your property if you don’t pay your taxes.
Tax liens are usually filed by the IRS (Internal Revenue Service), but state and local governments may also file tax liens.
A federal tax lien exists after the IRS assesses your liability, sends you a bill (Notice and Demand for Payment), and you neglect or refuse to pay the debt in full within 10 days.
A state tax lien may exist even if you have never received a bill or demand for payment. In some states, a lien exists as soon as you neglect or refuse to pay your taxes. In other states, a lien may not exist until the state files a notice with the appropriate county recorder or clerk.
What are Tax Deeds?
A tax deed is an instrument that conveys title to real property. It is issued by a government entity after the owner of the property fails to pay taxes.
The deed is usually issued at an auction, where the highest bidder receives the title to the property. The deed may also be issued to the government entity itself if there are no bids for the property.
Tax deeds are often confused with tax liens, but they are two different things. A tax lien is a claim against your property, while a tax deed is a transfer of ownership.
What are the Benefits of Investing in Tax Liens and Tax Deeds?
There are several benefits to investing in tax liens and tax deeds. Here are 5:
1. High Interest Rates: The interest rates on tax liens and tax deeds are usually much higher than the rates on other investments, such as bonds or CD’s.
2. Safety: Although there is always some risk involved in any investment, investing in tax liens and tax deeds is generally considered to be a safe investment.
3. Potential for Quick Profits: If you invest in a property at a tax sale and the owner redeems the property, you will receive all of your investment back, plus interest.
4. Potential for Long-Term Profits: If you purchase a property at a tax sale and the owner does not redeem the property, you will receive title to the property. You can then sell the property and keep the profits.
5. Tax Breaks: In some cases, you may be able to take advantage of certain tax breaks when you invest in tax liens and tax deeds.
What are the Risks of Investing in Tax Liens and Tax Deeds?
There are also some risks to investing in tax liens and tax deeds that you should be aware of.
1. The Property may have Liens or Encumbrances:
2. The Property may be Worth Less than the Lien:
3. You may not be Able to Collect the Debt:
4. The Process can be Complicated and Time-Consuming:
5. You may Need to Hire an Attorney:
Can You Invest in Tax Lien Certificates Online?
Yes, you can invest in tax lien certificates online. There are a few different companies that offer this service, such as LienAuction.com and TaxLienInvesting.com.
What is the Process for Investing in Tax Liens Online?
The process for investing in tax liens online is generally pretty simple. You create an account with one of the online companies that offer this service, such as LienAuction.com or TaxLienInvesting.com.
Once you have created an account, you will need to deposit money into your account. The amount of money you will need to deposit will depend on the company you are using and the state where the property is located.
Once you have made your deposit, you can then start bidding on properties. The properties will be listed with information such as the amount of the lien, the interest rate, and the redemption period.
If you are the highest bidder on a property, you will then need to pay the amount of your bid plus any applicable fees. Once you have paid for the property, the tax lien certificate will be mailed to you.
You will then need to wait for the redemption period to expire. If the property owner pays their taxes during this time, you will receive your money back plus interest. If the property owner does not pay their taxes, you may be able to foreclose on the property.
What Is the Average Interest Amount Earned on Investments?
The average interest amount earned on investments can vary widely. It will depend on the type of investment, the risks involved, and the current market conditions.
However, you can typically expect to earn somewhere between 5% and 20% on your investment in tax liens and tax deeds.
What Are Some Tips for Investing in Tax Liens and Tax Deeds?
Here are some tips to help you be successful when investing in tax liens and tax deeds:
1. Do Your Research: Make sure you understand how tax liens and tax deeds work before you invest any money.
2. Start Small: Don’t invest more money than you can afford to lose. You can always invest more money as you become more comfortable with the process.
3. Bid Low: There is no need to bid more than you have to. The goal is to purchase the property for the lowest possible price.
4. Be Patient: Don’t expect to make a lot of money overnight. Investing in tax liens and tax deeds is a long-term investment.
5. Hire an Attorney: If you are new to investing in tax liens and tax deeds, you may want to hire an attorney to help you navigate the process.
Investing in tax liens and tax deeds can be a great way to earn high returns on your investment, but you need to be aware of the risks involved. Do your homework and consult with a professional before investing.