How to Avoid Worthless Property Tax Liens When Investing
One thing you do not want to do when investing in property tax liens is to buy a lien on a bad property, and then end up having to go through the cumbersome process of foreclosing when the owner does not pay the taxes. You'll likely end up with a run-down property in a bad neighborhood that you'll never be able to sell. There's only one surefire way to avoid this happening to you.
Do not invest in tax liens.
Sure, if you are hell-bend on investing in property tax liens, you can research the property as best you can beforehand, but there's no real way to know what you're getting into. There's no guarantee that an owner is going to pay off the lien, especially in this economy. Even if you only buy liens on the nicest properties, you can not inspect them beforehand. So there's no real way to tell if the house is okay on the outside, but trashed within.
That does not mean you can make a lot of money from the tax lien auction; you just have to use the information gleaned there in a different way. How? Let the bidders at the tax sale sort through those worthless property tax liens for you. After the sale, you can see which properties got the most bids. That'll give you an idea which properties are nice. Also, you can be fairly certain these properties are free and clear – mortgage companies pay delinquent taxes when owners can not. So if it was sold at tax sale, a property probably does not have a mortgage.
Then, toward the end of the redemption period, locate the owners that still have not redeemed their properties. These owners are ones who have likely decided to just let the property go. You'll be surprised to find many of them are happy to sign their deed over to you for next to nothing – a few hundred bucks will usually do it – just to see it go to someone other than the government.
Then all you have to do is quickly find a buyer who is willing to buy the place and then deal with the tax situation himself. Since all you have invested is a few hundred bucks, you'll always be able to make a profit. It beats tax lien investing both from a risk standpoint, and a return standpoint.
Best of all? You'll never end up owning a dump that you've never seen the inside of.