tax delinquent properties

What Are Tax Delinquent Properties?

In real estate investing, it’s key to find investment opportunities at a price point that allows room for profit in order to make money and continue growing your real estate investment business. Whether you are purchasing an investment property to rent or resale or purchasing a property lien, knowledge of the real estate investing industry is vital for success. One type of real estate investing is with tax delinquent properties that have a property tax lien.

What is a Tax Delinquent Property?

Property taxes are real estate taxes determined by and paid to the local government by the property owner. Most often property taxes for properties with mortgages are paid into an escrow account when the monthly mortgage payment is made. The mortgage company then uses those funds to pay the property taxes to the local government on the property owner’s behalf.

In some cases, like when a property doesn’t owe a mortgage, the taxes are paid directly from the property owner to the local government. When a property’s taxes go unpaid, the property becomes tax delinquent. Tax delinquent properties simply refer to any property, residential or commercial, that has unpaid taxes.

If taxes are unpaid, state law allows the county to place a lien on the property. After a certain amount of time with a delinquent tax status, usually determined by state law, the county will put the property in a tax sale. The waiting period varies from state to state and can be anywhere from a few months to a few years. It’s beneficial to local governments to sell the lien for tax delinquent properties and recoup the outstanding tax balance.

What is a Delinquent Tax List?

When a property is delinquent on taxes, it is added to a delinquent tax list. The list usually includes the property owner’s name, the property address and the delinquent tax amount. Counties often publish the list either online, in the local newspaper or both.

As a real estate investor, local property tax delinquent lists are a valuable tool to research properties before a tax sale. The list can also be used to reach out to property owners that may be in a financially challenging spot to discuss purchasing the property. A property owner may be willing to sell at a lower price in order to pay outstanding debt and taxes.

How Property Tax Lien Sales Work?

In some cases, only the property tax lien is sold and not the deed to the property. In these instances, the real estate investor is purchasing the lien in order to collect the outstanding tax delinquent amount. The purchaser of the lien becomes the lienholder. The lienholder is given an interest amount at the time the lien is purchased that they will also collect from the delinquent property owner. If the tax amount plus interest is paid, then the real estate investor makes money.

If the property owner doesn’t pay the amount owed, then the lienholder may foreclose on the property. However, the process of foreclosure can be tedious, costly and time consuming. This is where researching the property in order to understand the condition of the property and the property value are key to turning a profit. An undesirable property in bad condition could cost you more money than you could make on the sale of the property.

Property tax lien investments work best for savvy and experienced real estate investing women. These aren’t the easiest or best ways to enter the real estate investing business. However, with the right property, interest rate and strategy, purchasing a property tax lien is a solid way to diversify your real estate investing portfolio.

How Property Tax Deed Sales Work?

Another way a local government may handle delinquent property taxes are by selling the deed to tax delinquent properties. A tax deed sale offers ownership of the property to the highest bidder. In this case, the government seizes the property and sells the entire property at auction. These sales are also referred to as foreclosure auctions. The property is usually offered at a starting price that includes the amount of the outstanding taxes owed plus any fees and interest.

The winner of the auction doesn’t immediately have ownership rights to the property. Instead, any outstanding liens, including the unpaid mortgage debt, must be paid and all liens cleared prior to the transfer of ownership. The risks with a tax deed sale is that the condition of the property is usually unknown. As the buyer, you are risking purchasing a property that may have extensive damage or code violations.

Again, this is where quality research is critical to avoid losing money. Like with the property tax lien purchase, a property tax deed sale may not be the best option for first time real estate investors. These types of investments work better for experienced real estate investing women. Not only will your knowledge help reduce your risks of a bad investment, but you will have the network to help support you in repairing and finding a buyer for the property.

The Final Word

Tax delinquent properties offer a solid real estate investing option for real estate investing women. Both property tax lien and deed sales are best invested in by experienced real estate investors. With experience, you will be able to properly research the properties to find a good investment opportunity. Avoid properties with lots of damage or in heavily depressed communities because it will be hard to turn a profit. Be selective with your tax delinquent investments, and use your knowledge and experience to make a smart investing decision.

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