How to be Smart at Tax Lien Investing

Getting involved in tax lien investing could be one of the best decisions that you make as an investor. Investing in tax liens is something that many people never even consider. They have no idea how the market works and they do not know where to start. While it can be confusing if you do not know what you are doing, there are a few things that you can do to make sure that you invest wisely.

Know the Basics

The first thing that you have to do to be a smart tax lien investor is learn the basics. If you have no idea how the market works you will not be able to invest correctly. While every county in the United States does it a little differently, the basic principle is the same. 

Counties need so much money each year in order to meet their budget. This budget is based partly upon property taxes for every homeowner in the county. If homeowners do not pay their property taxes on time, this amounts to a shortage in the county's budget. In order to raise that money, they sell these tax liens to make up the difference. Private investors come in and bid on the tax liens as an investment. If the homeowner decides to pay the taxes, they have to pay them back with interest, which benefits the lien holder. If they do not pay the taxes, the lien holder can actually foreclose on the house. Before you get involved in the market, you need to contact the county that you plan on buying in. Sit in on a bidding session first and watch what happens. Then you will be prepared for the next time one.

Don't Bid Too Low

The way that you win the bid on a tax lien is to bid the lowest interest rate that you would take. For example, the bidding on a tax lien might start out at 16%. Then someone bids 15.75% and so on. If you bid too low, you will not make enough money to make it worth the investment. You need to go into an auction with a minimum bid that you will use. If the auction goes below that rate, you should not bid. Stick with your standards and do not deviate from them.

Research the Area

Before the auction, you should do as much research as possible about the area. Make sure that you want to invest in the area before you part with your money. Make sure that you are investing in a decent area in which you will be able to resell the house if you were to get it. If possible, check out the houses before the auction. This can help you avoid any potential problems down the road.  

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