Pinpoint If Tax Lien Investing is Something you would enjoy
Even before you choose to become a tax lien investor, you should learn about the pros and cons
You must understand some typical terms and methods like bidding down the interest, bidding on the premium, bidding on the ownership and redemption periods. When you get to the point where you have a good understanding of tax lien investing you should then determine if this suits your personality.
If you decide that this is something you want to get into, then proceed to Tip #2.
Select an online resource for Buying Tax liens
This is actually the easy part. Tax lien sales are done at the county level, not the state level. So you should start with the county website.
Go to the google search engine and type in the state that you want to invest in, followed by “tax collector”. If I wanted to buy tax liens in California, I would type in “California Tax Collector” in the Google search engine.
Using google will turn up a lot of results for tax lien investing and allow you to even sign up for a few auctions from the comfort of your couch.
Register With Online Tax Lien Directories
Keep in mind that not all Tax Lien auctions are available online so your county of choice may not be available.
You will be required to provide information such as your social security number or EIN (Employer Identification Number) if you will be purchasing the liens through a corporation. You may also need to fund or provide funding for your account which will be used to purchase the Liens if you win a successful bid.
Learn The Ways to bid on Tax Liens
There are several different types of bidding methods involved in a tax lien auction. In the event that there is more than one tax lien investor one of several bidding methods are used.
Depending on the laws of the county, the bid winner will be determined by one of the five methods below. Bid Down the Interest.with this method, investors will bid against each other to see who will accept the lower interest rate. In some cases the interest rate can go as low as 0%, but this is rare.
Premium.Under this method, the investor bid against each other to see who will pay the higher “premium” (above the face value of the lien). Note that the amount bid over the original value of the lien may not earn interest. Colorado is a state that uses the premium bid method.
Random Selection.bidders are selected at random with this type of method. Typically a computer is used to select bidders at random, but this can vary from county to county. Nevada uses the random selection method.
Rotational Selection. With this technique, the bidder with bid card 1 gets the first lien, bid card 2 gets the second lien and so on. In the event that bidder number 1 refuses the lien that is offered, the bidder with the next number will have priority over all the other bidders. However, bidder number one will not be offered another lien until their ticket number comes up again in the rotation. The bidding process continues in this sequential way until all the liens have been presented.
Bid Down the Ownership. This method is used in Iowa and a few other states, the investor willing to purchase the lien for the lowest percent of ownership on the property will be awarded the lien. An example of this would be a case where the winning bidder only owns 60% of a tax lien. If the lien is not redeemed, the bid winner only receives 85% ownership of the property with the remaining 15% owned by the original owner. In actuality, very few investors will bid on liens for less than full ownership to the property.
So in the even there are multiple bidders on the same tax lien, the random selection method will be used. If a tax lien is not purchased at an auction, the county will take possession of it. Liens not sold at auction will then be available for “over the counter” purchasing.