Real Estate Tax Sales
Real estate tax sales are another avenue to acquire investment property. They can require some research and comfort with having your hard earned dollars unavailable to you for a period of up to two years in some cases. The good news is that the rules usually require the original owner to pay the lien holder interest if they are able to redeem the property. In some areas the interest can be up to 24%!! That’s what I call a great savings account. In fact many investors use them for just that.
Tax sales require cash at the time of purchase, and usually a deposit in order to bid. The cash outlay is modest considering the value of the property. In the Baltimore and Washington DC metropolitan areas, the interest rate is around 18% per annum. This means that the investor is paid 1.5% each month that the original owner has not redeemed the property. Also anyone who has an interest in the property can redeem it, i.e. lenders, certain lien holders, etc.
Tax sales procedures are different in every county/city but in many cases the interest earned is only on the amount of taxes outstanding. In other words if a property owner owes 5k in taxes but your winning bid was 20k, you will only earn interest on the 5k. The other 15k is an interest free loan to the city/county. Remember that the chances that you will actually receive the property are very slim. The chances are said to be less than 3 percent in many areas. Therefore, do you research prior to the sale. Find out who the owner is and drive by to see the condition of the property. The worse it looks the better the chance that the owner will not redeem. Do your research prior to diving into tax sales and make sure that you understand the potential impact to your finances.
