Buying tax liens can be a very lucrative way to make income. An investor can make 12% to 18% in states that sell liens. Also, an investor can control their own investment without putting their money in the hands of another person. However, understanding some strategies that will insure you have a profitable venture will make your investing easier.
- When you buy a lien and fail to get paid within the redemption period you are going to need to foreclose in order to get paid. Understanding what that foreclosure process will entail will help in your decision-making. For example, will you need to hire an attorney to help you go through the foreclosure process? If so what will his/her legal fees cost you? Will you be able to recoup those fees when the judgment is rendered? Knowing the answer to all of these questions, as well as understanding the process, will free you of a lot of stress and help make your investment profitable.
- You need to know and understand what the redemption period is of the liens you are holding. Redemption periods can go from six months to three years. The redemption period is the time the homeowner has to pay you, the investor. After the redemption period, you can proceed with a foreclosure. Each state will have a different period. If you get involved with a lien deal, you are going to need to know how long it is going to take for you to get your investment to pay off. There are secondary markets where you can get rid of a lien early, but you will usually pay a steep price to do so. Having a good understanding of how long your money will be working for you is important. You are going to want to know when you get paid.
- Understand the way you will buy your liens and collect your money when it’s due. Will the county accept a personal check or require a credit card? Will your money be mailed to you or will it be direct deposited to your bank account? Will you be able to buy your liens using an LLC? All of these things will be important as you move forward with your investing. Understanding the correct way to pay and receive your money will go a long way in helping you succeed in your investing. Understand the details and you will make the dollars.