Tax Liens: The Hottest Real Estate Trend of the Century

House flipping is out and tax liens are in! As housing prices continue to dip, eager real estate investors have forgone the house flipping trend of the last few years for a safer, more profitable way to make money in this changing real estate environment.

With profits reaching the 300% and even 400%, tax liens are among the hottest real estate trends of the decade. What makes investing in tax liens even more desirable is the fact that investors are virtually guaranteed at least a small profit (and usually much more!), coupled wit the fact that even a small-time investor with capitol as little as $5,000 can enter this lucrative market. Many of todays tax lien investment buyers are simple, ordinary, middle class people looking for a safer, and more profitable, way to make money.

So, what exactly are tax liens and why are they such a safe investment Simply put, a tax lien is a judgment placed on a piece of property such as a house, acreage, a barn, a garage, or any other type of real estate, in order to satisfy an unpaid tax bill. When a property owner becomes delinquent on their taxes, the local taxing authority has the legal right to place a lien on the parcel in order to recoup the lost tax revenue.

Once a lien is filed, the property owner has a certain amount of time to pay off the debt, plus penalties, without losing ownership of the property. In the event that they can not pay off the debt, the lien can be sold at auction.

There are two types of tax lien sales: the deed sale which sells the property outright, or the more popular tax lien certificate sale. In a tax lien certificate sale, the buyer does not purchase the property. They only purchase the right to the lien for the amount of taxes owed. This gives the delinquent taxpayer one last chance to pay off their debt and retain ownership. In essence, the lien certificate buyer is lending the homeowner the money to pay off their tax debt, with the promise of paying him back (with interest generally ranging between 10-50%), within a set timetable. In the event the taxpayer fails to meet the deadline, ownership of the property is transferred to the lien certificate owner for the amount paid on the taxes. This means that if you purchase a lien for $15,000 in back taxes, and the owner fails to pay you back on time, you get to keep the entire property for the $15,000, no matter what its really worth, and resell it on the open real estate market. It is not uncommon for tax lien certificate buyers to resell most properties for $20,000, $50,000 or even more over the lien purchase price with little more work than having a cleaning crew come in and sprucing up the place a bit before listing it!

In the end, tax lien buyers are always guaranteed some sort of profit: either the interest due on the lien certificate at payoff (which can be as low as 10% or as high as 300% in some states!), or money made from the final resale of property acquired. The entire process takes about one year.

Since tax liens are generally purchased for pennies on the dollar, they are a relatively safe form of real estate investment, irregardless of sudden downturns in the market.