Tax Liens - Risks
I’ve read a lot of material her and on the web but nothing seems to focus on the risks – only the rewards. That makes me nervous.
One thing I read stated that, depending on the state, you might be forced to hold onto a property for a significant period of time before being able to rent or sell it. So in a worst case scenario, you’d have to maintain a home for 5 years without being able to rent or sell it?
Can anyone list some risks here?
Nameless65--(CA)-----------------
This has been discussed many times in the past. Your fastest way to get information on basic things is, in my opinion, to do a search of the archives. For this topic I recommend you try "risks" "risk" "pro and con" and the like.
Good Investing*********Ron Starr*********
This site has some articles regarding tax sales and risks.
I have written a few for Joel and you should find them in the archives section.
Best of Luck!
[addsig]
Here is a bit for info and an old article I contributed to the site:
Here is link to an article I posted on this site. Its fairly general and your investment state may have more risk issues or less. Some people favor less research for tax lien certificates but more for tax deeds. I completely agree with that statement. However at a bare minimum you should be aware of bankruptcy issues, evironmental liens, state tax liens, and FDIC held liens in the tax lien scenario. Here is a link to the general article:
http://www.thecreativeinvestor.com/modules.php?name=News&file=article&articleid=547&mode=&order=0&thold=0
[addsig]
1. As suggested search on risk.
2. Understand that a tax lien means you effectively have a note and not the property. The risks are you will have a note secured on a dud property, etc. You write it off. You might get the property from a lien but that is statistically a very unlike occurrence. You can up the odds if you want liens that convert into ownership of the property.
3. Tax deeds are where you are buying the property. This is closer to the message you posted.
So, a large risk is not know the difference.
John
[addsig]
Quote:
On 2004-05-25 10:45, active_re_investor wrote:
The risks are you will have a note secured on a dud property, etc. You write it off. You might get the property from a lien but that is statistically a very unlike occurrence.
Thanks for all the responses. I was more interested in liens.
One thing I don't understand though - if getting the property from a lien is statistically unlikely, then aren't you guaranteed the interest rate you signed up for? Isn't that the whole attraction of liens - super high interest rates OR the actual property itself? John Beck makes it out to be a no-lose investment.[ Edited by Nameless65 on Date 05/25/2004 ]
Nameless65--(CA)-------------
Theoretically, there is no risk. John beck is mostly right in what he says. However, he omits telling you that to be very safe you need to do a lot of work. Less work equals more risk, although not really a lot, usually.
And if you take some simple, sensible steps, you will have little risk. If you want even less risk, you do even more due dilligence on the properties that are the security for the liens you buy.
Many tax sales properties are junk. Don't buy liens on properties you have not seen or at least have seen the assessor's parcel map for them, after already studied and visited that area before. That is, you can learn about some subdivision or some part of the city or county and then use that knowledge again in subsequent years.
If you buy a lien and it is not redeemed within the first year, you might want to do more research on the property before you pay out additional money to buy subsequent years' taxes to protect your situation. If you find some bad news about the property you might decide to just not go forward with that property. Thus, you reduce the amount of money you have at risk.
Similarly, if you have not done careful research on a property and it is time to push on for a deed, do some research first. You might decide to just walk away from the property and the lien(s) rather than take title. Especially if you find contamination.
Put risks and "pro and con" into the search function on this list and start reading some of the horrible things that can go wrong and what you should watch out for. You might also John Beck to tell you the story sometime about the mineral rights that he bought that were immediately under Interstate Freeway I-5 in Colusa County, CA. Did he make any money on that property?
So, no, tax lien investing is not "riskless." However, you can minimize your risks by being alert to potential problems and being conservative in your buying of liens.
Good Investing***********Ron Starr************