How to Make Money With Tax Liens

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Make money with tax liens by purchasing tax liens at auction with the hope that the homeowner will pay back taxes with interest. Purchasing tax liens could also result in owning a property at well below market value. Check out tax liens on file at the county courthouse with advice from a certified public accountant and personal financial planner in this free video on tax liens.

Part of the Video Series: Tax Law, Real Estate & Credit Tips
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Video Transcript

Hi, I'm Miranda Chook, a CPA. Tax liens usually occur when the taxpayer fails to pay the taxes on that property. The holder of the property then becomes the county, for example, and during that time the homeowner is prohibited from selling the property, or otherwise transferring ownership of the property, and the only way for the homeowner to regain ownership is to pay the taxes due. Now, tax liens are debts that can be bought or sold. The new the purchaser of that tax lien would basically become the new collector of the taxes. Taxpayers have a certain amount of time in which that they can pay back the taxes, and if they fail to do so then the lien is basically sold at an auction. Now, if you purchase that lien at the auction what you're hoping for is that the homeowner will pay you back the taxes plus interest. Now, one of the pros to this kind of transaction is that tax liens take precedence over mortgages for title purposes, so if the homeowner actually defaults you may end up having legal ownership of that property at well below market values. Now, a disadvantage is that perhaps not all liens and creditors were disclosed during the auction, so the IRS may have a lien on the property which may actually take precedence over yours. There also may be situations where the condition of the property wasn't fully disclosed, and perhaps you didn't do enough research on your own to know what it would take perhaps to get the property into selling condition if that's what ultimately has to happen. So, if you want to find out more information about this, first off, you can start by getting information on available tax liens by going to your county courthouse. That way, you can avoid third party search fees just in terms of finding out what's available. Next, perhaps you can just select a couple of those properties and just follow them through the process. See who buys the liens, and then find out what happens. Did the homeowner actually pay them back, or did the purchaser have to actually sell the property? And then, did they make money on that property, how long did they hold it, all of that. And finally, seek out some real estate investors who have done this quite a lot, and they'll be glad to share with you their experiences so you can really understand the risks and rewards.

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