Low Risk High Reward Way To Make Money In Real Estate
This investing strategy is a little known secret to make passive residual income and banks and savy investors want to keep it that way.
A Word On Property Taxes
If you are not familiar with home ownership, then you may not know that every year the home owner is required to pay property taxes (to the county) on their property.
The property tax amount is usually some percentage of the assessed value of the house.
For the sake of numbers, the property taxes due on a $230,000 home might be around $2,000. The city uses the money received from property taxes to pay for public services like police, firemen, trash collection, etc etc.
If a homeowner does not pay their property taxes, the county is then unable to pay their bills. So to address this, the city exercises their right to place a lien on the property for the value of the delinquent tax amount.
What happens then is that the homeowner will then have a period of time (known as the redemption period) to pay the delinquent property tax fees plus some additional penalties. Now here is where the Tax Liens come in.
Make Passive Residual Income With Tax Liens
When the home owner falls behind in property taxes, and the county places a lien on the property…investors can then bid on these “tax” liens.
Different states have different rules and penalties, so it is important to know the rules of the states you are investing in.
Once the tax lien on the property has been purchased by an investor, the home owner has a period of time to redeem (pay) the tax lien plus penalties and get their home released from liens placed on it by the county.
When the homeowner gets caught up, the investor is reimbursed for the value of the tax lien plus a nice percentage, usually in the neighborhood of an annualized 18% to 20%.
Texas is one of the best states for tax lien investing as the redemption period is only 6months and the “penalty” is 25%.
Penalties are good for the investor because even if the homeowner get’s caught up after 1 day of the lien being purchased by an investor, he will still be required to pay the value of the lien plus the 25% penalty and any additional penalties imposed bythe county!!
If the homeowner fails to get caught up on the property taxes within the redemption period, the owner of the tax lien can then start the foreclosure process, this is where Tax Deeds come in.
Make Passive Residual Income With Tax Deeds
With Tax Deed investing, the house is being auctioned off because the home owner failed to pay property taxes.
With Tax Deed Investing, the investor is bidding for ownership of the property itself, NOT ownership of the lien to the property. The bidding will typically start at the amount of past due property taxes plus some administrative costs.
The successful winner of the bid will own the property free and clear of ANY liens including any mortgages on the property. It is not uncommon for properties to be sold for pennies on the dollar relative to actual value of the property.
It is a known fact that banks invest in tax liens and collect returns as high as 18% per year.
Where do the banks get this money from? They use the money that you have locked up for two years in a 3% CD.