Rich Dad Education – Real Estate Blog

Dedicated to Elevating the Financial Well-Being of People from All Walks of Life

Tax Liens and Deeds Series – Part 3

This is the third installment in a series of articles on the topic of tax liens and deeds. Tax liens and deeds are just one of the many subjects that are offered through Rich Dad Education’s Elite Training. Rich Dad Education has gathered some of the brightest minds and experienced investors to teach and create the subject matter for these intense and rewarding elite trainings. It is the hope of Rich Dad Education that the information contained in this series offers the reader practical information that they can apply to their investing and gives a small taste of the quality education that Rich Dad offers.

Multiple Favorable Outcomes

In the last article in this Rich Dad Education Series, the multiple favorable outcomes of tax liens and deeds were discussed. Once you own a tax lien, essentially one of three things can happen:

  1. The property becomes yours (due to the prior owner not paying off taxes)
  2. The property is sold at auction and you make the full amount of interest on your investment (due to the prior owner not paying off taxes and state law dictating that an auction be held, your lien and resulting interest will be paid off as part of the auction proceeds)
  3. The owner of the property pays off the lien and you receive your original money back, plus interest and, depending on the location, sometimes even an extra early redemption penalty

It is due to these positive outcomes that Rich Dad Education regards tax liens and deeds as a favorable investment strategy, one that can eventually help you get out of the Rat Race.

Tax Liens or Deeds

As with any new investment strategy there is a bit of terminology that must be learned, but fortunately it is minimal with tax liens and deeds. There is no universal method that states across the country use to enforce the collection of property taxes. Each state has different methods and allows for different levels of interest and penalties for their enforcement mechanisms.  Numerous states use tax liens, others use tax deeds, and some states offer a combination of the two. In the past, a state’s particular set of rules might have limited an investor’s options due to the state they resided in. However, online auctions have dramatically opened up the options that investors have today. Online auctions will be discussed in an upcoming article

Tax Lien Certificates are offered in approximately sixty percent of the states. When you purchase a tax lien certificate you are not granted the title to the property, you simply have a first-priority lien on the property. A first-priority lien simply means that your lien must be paid first, ahead of mortgages and other liens. Depending on state law you may also get the rights of foreclosure, which would give you the ability to own the property, or the property would go to auction and your lien plus interest would be paid as part of the auction proceeds.

Tax deed auctions provide the title of the property to the winning bidder. These auctions usually occur approximately two to five years after taxes become delinquent on a property. Because some states have certain conditions that might conditionally transfer the title, it is important to know the specific regulations of the state you are dealing with. Because the majority of states issue a non-warrantee deed (there is no warrantee to the condition of the property) your knowledge of other real estate investing areas will come in handy. Fortunately, Rich Dad Education and future articles will cover many of these topics.

Many investors settle in on tax liens as an initial investment due to the low cash requirements (you just need the amount of back taxes owed and other fees) and because of their relative ease to acquire. These investors often target homes in nice neighborhoods looking to get nice rates of return on their investment with relative ease.  It is this type of passive income that Rich Dad students are always trying to find. Other investors with the available capital focus on tax deed sales because of the ability to acquire properties at sometimes dramatically reduced prices. They use their knowledge of real estate investing and put it to work at these auctions. Other investors use both tax liens and tax deeds to take advantage of opportunities presented.

Tax liens and deeds are one of the favorite strategies of Rich Dad Education’s students. In the next article in this Rich Dad Education series we will discuss the auction process.


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