Determine if Tax Lien Investing is In your future
Even before you choose to tax on tax lien investing, you should understand the rewards involved as well as the risks.
You need to understand some of the common terms and procedures such as redemption period for the particular county, bid down the interest, bid on the premium, etc etc. When you have a good grasp on the fundamentals of buying tax liens, you should decide if this is something that you would really like.
If you determine that Tax Lien Investing is something you would like, read on!
Locate a good Tax Lien Web Site
This is actually the easy part. Tax lien sales are done at the county level, not the state level. So you should start with the county website.
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.
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 the Rules Of Bidding For Tax Liens Online
There are different ways to bid on tax liens during an auction. In the event that there is more than one tax lien investor one of several bidding methods are used.
Depending on the laws of the county, the bid winner will be determined by one of the five methods below. 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.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 a state that uses the premium bid method.
Random Selection.the order of bidders is selected at random with the random selection method. 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 the first bidder passes on the lien, the next bid ticket holder gets priority of the lien. The first bidder cannot bid again until all other bidders have had an opportunity to bid or pass on a lien. 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. 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. 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.