Investing in Tax Liens

IN THIS GUIDE

What is a tax lien?

A tax lien is created by the government when a homeowner fails to pay property taxes.

Why should real estate investors look into tax liens?

Investors can purchase tax liens from the government which makes them the new owner of the tax lien. The investor can now request payments with interest from the homeowner. If the property owner fails to pay the investor back within a certain period of time, the investor can foreclose and acquire the property.

Total Addressable Market

Investors should see this as a great investment opportunity. According to the National Tax Lien Association, the total addressable market for tax liens in 2017 was $14 billion. This is an affordable alternative to investing in real estate which can lead to owning a property.

Why was this investment asset created?

With tax liens being available to investors, the government is able to decrease their risk by recovering the money they are owed through investors. The risk is now transferred from the government to the investors purchasing these tax liens.

What should investors who assume ownership through a tax lien know?

  1. Investors assume all responsibility for repairs required for the property to operate properly
  2. Investors are responsible for evicting the current homeowner and/or tenant
  3. Investors may need to hire a property manager if they are inexperienced

How to get started investing in tax liens?

  1. Decide what type of real estate to hold tax liens on (commercial, residential, raw land, etc.)
  2. Only 30 states sell tax liens. Decide which market you want to invest in.
  3. Contact the city and request information on tax lien auctions (when, where, and how)
  4. Attend an online or in-person auction to bid on tax liens

Institutional Investors

Investors who don’t want to do due diligence on real estate properties with tax liens or attend auctions can invest in tax liens through institutional investors. It’s highly recommended to invest through an institutional investor who is a member of the National Tax Lien Association as 80% of the tax liens on the market are sold to National Tax Lien Association members.
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