Are you looking to diversify your investment and delve into real estate investing? Tax lien investing is one of the most popular low-risk investment options that might fit your preferences. Discover how you can use tax liens to add a new income stream and build your portfolio.
What Is a Tax Lien?
Homeowners are legally required to pay property taxes on their real estate holdings. When they fail to do so, the local government may place a tax lien on the property. In essence, a tax lien is a legal claim against the property for unpaid taxes.
In Maryland, the state government could place a lien on your property if you’re behind on property taxes. The amount ranges from any delinquent amount to $750, depending on the County. Homeowners can’t sell their properties until they pay their lien. The government won’t foreclose on your home, but they will eventually get their money.
How To Generate Profit From Tax Liens
The process of investing in tax liens is similar to buying one. In Maryland, the government could put a tax lien certificate for auction if the property tax debt reaches the minimum amount. Investors will offer their best price, and the winning bidder gets the tax lien certificate.
The winning investor pays the owed taxes and other fees associated with transferring the tax lien certificate. The investor has the option to hold onto the certificate and collect interest from the homeowner until they pay off their debt. They can also initiate foreclosure proceedings if necessary.
Another way to invest in tax liens is through purchasing a tax lien fund. These funds pool together money from multiple investors to buy tax lien certificates and distribute profits among the investors.
Benefits of Tax Lien Investing
Tax lien investing provides several advantages over other forms of real estate investing:
- Low Risk: Tax liens are backed by the property, so if the homeowner fails to pay off their debt, investors can foreclose on the property and potentially make a profit.
- High Returns: In most cases, tax lien investors can collect interest rates of 10% to 25% from homeowners. If the homeowner pays off their debt, the investor can make a significant return on their investment.
- No Maintenance: Unlike rental properties or fix-and-flip assets, tax liens require little to no maintenance.
Risks of Tax Lien Investing
While there are many benefits to investing in tax liens, there are also some risks involved in this investment:
- Competition: Tax lien auctions can be highly competitive, and investors are not guaranteed to win bids.
- Delinquent Homeowners: The investor may undergo lengthy foreclosure proceedings if the homeowner continues not to pay their taxes. An experienced Maryland tax sale attorney can help you with this issue.
- Property Value: There is always a risk that the property could decrease in value, resulting in a loss for the investor.
Contact Our Team
Tax lien investing is attractive for investors looking to diversify their portfolios and generate passive income. However, it’s essential to thoroughly research the property and understand the risks involved before making any investment decisions.
Talk to our experienced Maryland tax lien attorney, who can also help guide you through the process and ensure a successful investment. Contact LewisMcDaniels now for a consultation.
