Finding ‘out of the box’ investments can be a great way to find success in real estate investing. In our latest post, we explore how to purchase tax liens and other distressed properties in Southern California.
What Is A Tax Lien Property?
When a homeowner isn’t paying their property taxes, a lien is placed against it, barring the property from being resold or refinanced. The period of time before a county issues a lien varies across the country. Once it is issued, it is auctioned off as a tax-lien certificate to the highest bidder. This bidder is then entitled to collect the back taxes as well as interest and fees from the current owner. If the owner isn’t able to pay, the owner of the tax lien certificate can foreclose on the property owner, thus taking ownership themselves.
Either way, the buyer of the tax lien certificate will make some money, it just takes time and patience. They could walk away with the back taxes plus applicable interest or the house itself!
Before You Buy
Have some cash set aside in case you do end up taking over the home. Chances are, you will want to make some changes, repairs or have it professionally cleaned.
Learn about the process in detail, and make sure any liens you are interested in buying, were filed properly. Research previous sales and buyers to get an idea of what you will be dealing with.
How To Buy
Go to your county’s website to find out when the next auction will be. Auctions are held differently from county to county. Learn about the bidding process in the county you wish to buy. Take a look at when the sale will be and what’s available. Research past sales to learn about previous opening bids and sale prices. Remember to not overbid. The homeowner only has to pay you the back taxes plus interest, not any additional funds you paid for the lien. Interest can vary at anywhere from 5-36% of what is owed. Run the numbers to make sure you don’t get stuck buying an overpriced tax lien.
Know What You Are Getting Into
Research the property and financial records. Make sure the property isn’t worthless and that the lien was correctly filed. Homeowners aren’t going to be thrilled about being foreclosed on, so don’t expect the property to be move-in ready if you end up taking it over. You can expect the place to be messy, appliances removed, and perhaps even some damage to the house.
Forclosing on the house can be a long and difficult process. You will likely need the help of a lawyer and a good amount of patience. It is good to partner with a professional, at least for your first few deals!
Buying Southern California tax-lien properties can be risky. Before you buy, do your homework. Talk to other investors, your accountant, attorney and trusted real estate professionals!