Real Estate Investors buying government backed tax liens take little risk and can make great returns.
Every property in the United States has a property tax owed against it to support local government and services provided. An estimated 2% of all property tax bills are in default and go unpaid every year. Meaning, every year, there are more opportunities for real estate investors to buy tax liens.
Ted Thomas is a former commercial airline pilot and apartment investor. After he lost big in the crash in 1986, Ted got into tax liens, deeds and certificates and has never looked back.
Every property, residential, bare land, and commercial has a property tax assessed against it.
The taxes go to support the local government and services provided by the local government; schools, roads, police, fire, etc. In some jurisdictions, they are liens and others they are certificates. In both cases, they represent tax that is owed.
The tax rate and percentage of value varies by municipality. At a minimum, for residential property, the property tax represents 1% of the value of the property.
When a property is sold, or a change is made on title, the tax lien is the first lien that must be satisfied. Tax liens have priority over any first mortgage, second mortgage, or lien.
When the property tax does not get paid, the government sells the tax bill to willing investors. If after a determined amount of time the property owner does not pay the taxes due, you, the investor, become the owner of the property.
The local municipality has the authority to tax and sell the unpaid tax liens to a willing buyer. If the property owner does not pay the tax owed, the tax liens are sold at an auction. In many cases, the opening bid is for just the tax owed.
The annual interest rate charged against a tax lien can be as much as 18%. When the property owner elects to pay the tax, refinance, or sell the property, you get paid the tax plus accrued interest direct from the local municipality you purchased the tax lien from.
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