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Tax lien auctions provides investors with an opportunity to purchase a home for a fraction of its actual value. However, investing in this way requires some insight into the way the process works. What Are Liens? Liens occur when a property owner does not pay his or her taxes. Each county has a different time frame in which the property owner can get that tax bill up to date. If he or she fails to do so in the set period of time, many counties will sell the property through tax lien auctions. These procedures allow interested parties to purchase the property, and usually the minimum bid amount is the amount of the taxes, any interest on the taxes, penalties, and other costs owed on the property. If the property is worth enough, these costs can be significantly lower than the actual value of the real estate. How to Bid The bidding process in tax lien auctions varies tremendously from one county to the next. Some will allow bids online or over the phone, while others require interested parties to come to a physical sale event. If you live in an area that allows you to bid online, you can make the most of this investment vehicle. You can set your maximum bid, bid on more than one property, and better manage your auctioning if you have this online bidding option. Be prepared with your money in hand shortly after you win, though. Most counties require electronic or certified checks within a few days of closing. Potential Risks Buying properties for pennies on the dollar seems like a no-fail investment option, right? Truthfully, there are many pitfalls that can come from buying properties at tax lien auctions if you do not do your homework first. In some states, the deed you get from these auctions is not as strong as a traditional deed. For instance, it may be that other creditors or even the IRS can step in and take the property from you if the original owner declares bankruptcy, leaving you with nothing. Also, you may be bidding on properties without seeing them. You could end up owning a property that has extensive damage and is not livable, making renting or selling the property difficult without costly repairs. To cover your tracks and prevent some of these risks, thoroughly research the laws in your city and county. Then, if possible, drive by the property or hire someone who lives locally to do so with you. While you may not be able to get inside the property before bidding, having someone see it for themselves, at least from the outside, can help limit some of these problems. Finally, look through public records to see if there are any potential dangers in the properties past. While these steps cannot fully protect you, they can make a big difference. Investment always carries some measure of risk, but the potential returns are tremendous. Just do your homework before you bid, and start realizing the potential in distressed real estate. Tax lien auctions provide a great opportunity for the savvy invester. Learn more here: http://www.civicsource.com.
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