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!
Find A Good Website For Purchasing Tax Liens
This is actually the easy part. 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.
You could use the google search engine and enter terms like "buy tax liens in texas" or "counties in texas with tax lien sales." Replace texas with whatever state you are interested in. If I wanted to buy tax liens in California, I would type in "California Tax Collector" in the Google search engine.
This will provide you with a list of results that will allow you to either contact the tax collectors office directly OR (if available) sign up for auctions online.
Join A few Tax Lien Websites
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 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.
Learn The Ways to bid on Tax Liens
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.
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.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.Under this method, the investor bid against each other to see who will pay the higher "premium" (above the face value of 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.bidders are selected randomly when this method is used. It is common for a computer to do the random selection, however in smaller counties other methods may be used. Nevada uses the random selection method.
Rotational Selection. Using this method the liens are offered to the bidders in sequential order. If this bidder refuses the lien, bid ticket number two may then bid. However, bidder number one will not be offered another lien until their ticket number comes up again in the rotation. 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!
Find A Good Website For Purchasing Tax Liens
This is actually the easy part. 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.
You could use the google search engine and enter terms like "buy tax liens in texas" or "counties in texas with tax lien sales." Replace texas with whatever state you are interested in. If I wanted to buy tax liens in California, I would type in "California Tax Collector" in the Google search engine.
This will provide you with a list of results that will allow you to either contact the tax collectors office directly OR (if available) sign up for auctions online.
Join A few Tax Lien Websites
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 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.
Learn The Ways to bid on Tax Liens
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.
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.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.Under this method, the investor bid against each other to see who will pay the higher "premium" (above the face value of 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.bidders are selected randomly when this method is used. It is common for a computer to do the random selection, however in smaller counties other methods may be used. Nevada uses the random selection method.
Rotational Selection. Using this method the liens are offered to the bidders in sequential order. If this bidder refuses the lien, bid ticket number two may then bid. However, bidder number one will not be offered another lien until their ticket number comes up again in the rotation. 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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