Property tax lien certificates sales allow investors to add real estate exposure to their portfolio without actually purchasing the actual property. But experts warn that novice investors can easily get burned and should take some time to learn the ropes.

Local governments rely on homeowners to pay property taxes, which help fund essential services like fire departments, schools and law enforcement. When homeowners fail to pay their property taxes, the local or municipal government auctions off the delinquent properties in an attempt to recover its lost revenue. Private investors can then purchase the property tax liens at these auctions, and earn interest and penalties from their investment in the process.

A city or county will typically advertise the sale of property tax liens in a local newspaper, either in print or online, for three consecutive weeks prior to the date of the auction. Those interested in investing can contact the local treasurer’s office to find out how, when and where the next property tax lien certificate sale will be held, as well as what kind of properties are eligible for the auction and how it will be conducted. Read more https://www.4brothersbuyhouses.com/we-buy-houses-in-fairfax-va/

At the property tax certificate sale, the investor bids on the certificate by offering to pay the unpaid taxes on a given piece of property. Once the bid is accepted, the investor receives a certificate with a lien attached to it that will last for one to three years. During this time, the property owner can “redeem” the tax certificate by paying the amount owed to the investor plus any fees and interest.

If the property owner fails to redeem, or if the investor chooses not to pursue redemption, the certificate holder can foreclose on the property just as the municipality would in a mortgage foreclosure. This can be a costly process, but it is also an effective way to obtain below-market property and generate strong returns for investors.

While property tax lien certificate sales may offer good returns, it is important for investors to do their homework and possibly take a course before getting involved. This is particularly true because large institutions often outbid individual investors at these auctions. It is also wise for investors to avoid buying liens on damaged or otherwise unusable property, and to consider the cost of a potential environmental clean-up before bidding.

Private buyers who win the tax liens often have no interest in the property itself, so it could be a long time before the property is sold to a new, responsible owner. In the meantime, these properties can deteriorate quickly and become magnets for crime or squatters. This is why many cities and counties limit the types of property they sell at these sales. They don’t want to turn their properties over to private buyers who will never use them or even move into them. This limits the number of property tax sale properties in the market and can reduce a city’s financial returns.