Detailed object research for Tax Liens

Is the Tax Lien property a good investment?
In the Tax Lien investment, you are purchasing a TLC, a tax lien certificate. A property owner could not pay the property tax, you advance him this tax debt, so to speak, by purchasing the Tax Lien certificate. But what kind of property is actually behind your TLC?

Tax Lien Auctions

There is a very large supply of Tax Liens in online auctions. What is the reason for this?
In the U.S., all public facilities such as schools, fire departments, hospitals, etc. are funded by property tax revenues. If property owners do not pay their property taxes, the county lacks the money to maintain these facilities. Counties are therefore very concerned that investors continue to provide funding by advancing the outstanding balances.
The question for investors is how to filter out good investments in the auctions to acquire only very good and therefore profitable Tax Liens.
With Tax Lien Investments, investors have up to 99% probability of getting their money back with interest and possibly other fees. Aren’t these great prospects!
The fact that an investor is not paid out in the Tax Lien acquisition is rather the exceptional case. If you do a detailed research process and only purchase Tax Liens for great properties, you can usually assume that the debtor wants to keep his property + house and will therefore do everything possible to settle the outstanding amount of property tax debt.

But what happens if you are not paid off, do you go empty handed?

No, your investment was not in vain, but you can then become the owner of a property instead! With the previously made investment for the Tax Lien Certificate you can buy a plot of land + real estate at a fraction of the actual object value.

Example: Assuming you buy a Tax Lien certificate at an auction for 2.000 US$. Behind this Tax Lien is a plot of land with a garden and a nice family house at an estimated market value of 200,000 US$. If the debtor does not pay, you can become owner of a property with a value of 200.000 US$ with your small investment! Going further, you then have the opportunity to rent or sell this property and generate further returns.
As you can see, Tax Liens can be an extremely lucrative investment. You have high return opportunities and the property serves as collateral.
At Tax Liens, we only want to purchase certificates that are backed by great properties. To ensure good investments, filtering by criteria can be done through various websites.

How do you conduct a research for the properties behind Tax Liens?

The research should be done in different steps. Before turning to the auction, the state should be selected. Which states are of interest to you and offer a high rate of return? Each state has set specific interest rates for this purpose. In Illinois, you would have a very high return with 36% penalty interest per year, whereas Indiana has set only 10% interest on Tax Liens. The higher the interest rates, the higher your profit can be. However, it is also important to consider the bidding procedures.

A very important question for you as an investor from abroad in the US is whether online auctions are offered in the state at all.

Tax Lien online auction can be found as an example on the page of https://www.realauction.com/.

Counties

In the USA, the individual states are divided into different counties. For the research process it is important to take a closer look at the counties. Look at the county in which you would like to obtain a Tax Lien certificate. As a rule of thumb, you should only purchase Tax Lien certificates if you would like to own the property behind the certificate yourself. The reason for this is that in exceptional cases (1 to 5%) the owner might not pay his tax debt and you might become the owner of the property (+real estate). You could become a proud homeowner for the fraction of the actual property value, so it should be an attractive property.

Which counties are interesting for investments?

There are several websites that can help you filter criteria for good neighborhoods. For example, you should make sure that there is not a high crime rate in the corresponding county. Also ask yourself if the residential area is in demand. How can you find this out? Look at the population, is this number decreasing or increasing? An increasing population can be an indication of a desirable neighborhood and therefore an indication of a profitable investment.

Let’s take as an example the site of NACo https://ce.naco.org/. You can select different criteria there and call up the individual counties. What is the population growth rate in Florida in Orange County?

Compare the values for the different counties. What do the numbers tell you? A high population growth value can be an indicator of a desirable location.
Once you have decided on a state and county, the detailed property research can be done for the eligible Tax Liens offered in the online auctions. After the initial filtering process, you should only have a maximum of 25 properties remaining.
Also think about how much you want to spend for a Tax Lien certificate. Tax Liens start already in the low price range, e.g. at a few hundred dollars, but can cost up to several thousand US$. What is your starting capital and how many Tax Liens do you want to bid on?

What are the filter criteria?

As an example, let’s focus again on a good neighborhood. What makes a good neighborhood to live in? Think about what criteria a neighborhood needs to meet in order for you to feel comfortable there. If you have children, they need a good education. Are there good and sufficient school facilities, and for later also possibilities to study nearby? Take a look at the schools and universities in the district. In this way you can filter for many other criteria, such as good medical care, infrastructure, no high crime rate, etc. Also here we should always ask ourselves if we would like to live there ourselves. The selection of criteria should be based on this.

Where can we see such criteria and filter the areas according to them?
Through various websites you can filter individual cities according to your desired criteria. As an example you can look at the website of City-Data https://www.city-data.com/.

If you have decided on a certain district (postal code) and subsequently on certain Tax Liens, the actual object search begins.

What should you look for in an object?
When purchasing a Tax Lien, you should make sure that there is a great property behind it. Find out the current market price. Look at the size of the property and living space. Look for pictures of the property, do you like the lot + property? What does the neighborhood, the surrounding area look like?
You can find pictures of the property through various sites and for example Google Earth. Depending on the type of property, the probability is higher or lower that the owner pays his tax debt. Therefore, this should also be taken into account when researching and selecting Tax Lien Certificates.