Depending on the state that you live in, there are many opportunities to find homes at bargain prices for those who are willing to research tax foreclosures. The sale of a home as a tax foreclosure happens when the government takes possession of the property and puts it up for sale for unpaid taxes. Investors who understand this type of real estate investing recognize it is a way to get a high rate of return on the investment made.

How Does It Work?

There are usually two types of tax sales when it comes to homes. The first type is when the property is sold at an auction. In this case, the buyer would actually bid on the house outright. This is often what an unseasoned investor thinks of but it is the less common of the two tax sales.

The second type is a tax lien that is auctioned to the highest bidder and allows the winner of the bid to place a lien on the home and charge interest to the homeowner. If the homeowner won’t or can’t pay then the investor is able to foreclose on the property. The allowable interest rate on such a situation is usually favorable to the investor and this makes it entice.

Twenty-Nine States and the District of Columbia allow for tax liens. In these states when a property owner fails to pay their taxes, then after the waiting period passes it is auctioned and sold to an investor. The money collected at the auction is applied towards the taxes on the property. The law requires the homeowner to pay the lien holder plus fees and interest or the investor can foreclose on the property.

Some states such as Florida have an allowable interest rate of 18% that the investor can charge on their investment to the homeowner. If a homeowner fails to pay back the lean with interest, then the investor can start foreclosure procedures. It does require some effort on the investors part if the home goes into foreclosure.

Six Tips For Buying Tax Foreclosures

  1. Locate A Property Being Auctioned For Tax Foreclosure

The most common way to do this is by searching the publicly available records. There are also ways where you can check the National Database for properties that are up for auction. You will want to look specifically for those that have unpaid taxes due on the property. To learn how to find probate real estate leads click here.

Part of the process to make sure you’re making a good investment is to go to the County clerk’s office to find out what other leans are already on the property and how much remains on the mortgage. Some leans such as the mortgage are likely to take precedence over the tax liens which would mean those would need to be satisfied before you would be able to collect on your investment should it go into foreclosure.

  1. Determine Market Value

Like any investment, you must understand what the true value of the investment is before you can determine what you can afford to pay for it. Once you know the value of the property and all that is owed on that property then you can use those figures to determine how much you’re willing to pay at auction. If the property needs improvement, then you’ll also want to factor in how much you would need to invest to get the property in a condition that you could sell it.

It is common for new investors to rush in and think only about the fact that they’re getting a house for the tax lien. But in reality, the only way it is a good investment is if they can get their money back with interest. For this reason, investors must understand the value of the home and what it’s going to take in order to sell that house should they need to foreclose on it.

  1. Inspect The House

It will be necessary to actually go to the home and look at it if possible and at the very least, see it from the outside and see the surrounding neighborhood to help understand the condition and value of the house. Often damage can be spotted from the outside even when it’s not possible to go in the home. It’s also helpful to see the type of neighborhood where it is located and the neighbors around to see how they care for their home to help determine the value of the home in question.

  1. Getting A Line Of Equity

In order to raise enough funds to purchase a home at auction, it is sometimes necessary to get a line of equity. To do this you may need to talk with your own bank about getting a line of equity against your property. One of the advantages of getting a line of equity on your personal property is the fact that you will usually not have to come up with a down payment.

This can mean that you’re able to invest in the foreclosure without money out of pocket.  Obviously, this is something you need to be cautious about but when done correctly it can be a great tool for investing. It is a matter of doing enough research to make certain the home you’re going to bid on is one that you can profit from.

  1. Find The Location Of The Auction

The auction will take place on a schedule and if you fail to be there then you can lose out on your chance to bid on the property. So it’s important to know where the auction is going to take place and at what time. It’s very common for the auctions to take place at a county courthouse near the location of the property. Other times it will be auctioned on the property being sold.

  1. Understand The Bidding Process

Some states will require all investors to have a cashier’s check or cash for the entire amount of the bid the investor makes. Other states require the investor to have 10% of the bid and then the remainder paid within a matter of days. You will want to make sure what the requirements are before you go to the auction to ensure that you’re able to bid.