By
eHow Personal Finance Editor
Difficulty: Moderately Challenging
Step1
Find tax lien sales in your area. Some counties announce tax liens online, in the local paper or at the county courthouse.
Step2
Research the specific process to purchase a tax lien in your area. For example in Cobb County, Georgia, you must show up at the county courthouse the first Tuesday of each month. A county official will announce the tax liens properties for auction. The award goes to the highest bidders, who must pay that day in cash.
Step3
Realize that it will take a while before you can recognize any profit from a tax lien purchase. For example in Georgia, an owner has one year to reimburse you for paying the delinquent taxes.
Step4
Plan on keeping long-term records. Understand that if the owner of the house does not pay you back after one year, the title to the house passes to you. This is why people bid on tax liens--the potential to acquire a house far below its value exists. You cannot do anything to the house during the one-year grace period, such as renting it, renovating it or evicting the tenants. Even if the owner does reimburse you, you may earn a 20 percent or greater profit (in Georgia), which is greater than the stock market's historical average.
Step5
Keep your risks in mind. Be aware of the downsides associated with tax liens. You must have a great deal of cash to be able to buy a tax lien property, because they are usually auctioned off for far more than the outstanding tax debt. If a property has an outstanding $3,000 tax lien, and you purchase the tax lien for $50,000 on a house that is worth $100,000, you may be able to get the house for half-price. However, you must have that kind of liquidity, and you have to be able to float the $50,000 for up to a year before you realize any return. In Georgia, it is also your responsibility to foreclose on and evict the current owners at the end of the one-year grace period.
Comments
Tcmerida said
on 3/31/2008 Hello,
I've heard that you can buy homes for really cheap like $200 and up, is this possible.
Thanks Todd