Have you considered the possibility of using tax sale properties as a way to invest in real estate?

Here’s how it works, if a person is delinquent paying their property  taxes, the local government or municipality must take action in order to collect these unpaid taxes.

You see, property taxes are an important resource of funds that help pay for schools, city infrastructure, police protection, and other important local social services. The other thing is the local government realize that if someone isn’t forced to pay taxes, then you’ll have a situation where NO one pays their taxes so it’s important to have some sort of penalty or some way to collect these property taxes.   Therefore, the local government subscribes to a zero tolerance policy when it comes to property taxes.

Now there are three ways  local governments collect defaulted taxes.

They are:  Property Tax Liens, Expired Property Tax Liens and Property Tax Deeds.

The method used and laws pertaining to each vary from state to state. A summary of how each option functions follows:Property Tax Liens:Government auctions sell these types of certificates and, as an investor, you loan a homeowner the total amount they own on taxes, interest and penalties.

In return you are paid a high interest rates (12%-18%), for a time range called the redemption period. If a homeowner misses a contracted payment during the redemption period, you can obtain control over the property (as detailed in the terms and conditions).

Furthermore if the total owed to you plus all interest has not been paid in full by the end of the redemption period, you have the choice to renegotiate and continue the loan or exercise your first right to the immediate title ownership of the property.

Expired Property Tax Liens:If the government was unable to sell a tax lien certificate then they are forced to loan the homeowner the amount of the taxes owed for the redemption period. If the homeowner has still not paid the amount owned by the redemption expiration date then the government will foreclose on the property and sell it to the public, usually for the outstanding amount owed. This is often called ‘Over the Counter Tax Liens’ because they are usually sold at the local office or bank rather then at a government auction. These are done in ways that don’t lead to much public notice, so many properties are priced very cheaply, often at less than $2000.

Property Tax Deeds: If taxes are owed on a house, the government may foreclose on the house and sell it at auction rather than sell a Tax Lien Investment Certificate. Tax Deeds are usually put into place several years after a homeowner’s initial default, whereas Tax Liens can happen quickly. You can buy both at a local government auction.

Real estate investors are aware that not only can property tax sales be the most profitable real estate investments available, they are the most reliable and versatile.

Your  tax lien will maintain a reliable income investment, whereas, you will make more per transaction when you invest in an expired tax lien or tax deed. Since housing costs and interest rates are down this is the best time to begin dabbling in property tax sales.

Tax sale properties investing has an advantage over other investments because a little common sense is all that is needed to be instantly successful.

Theoretically you can get some cheap property at tax sales. However, it can be difficult to get good information, not many properties make it to a tax sale, and the sales are getting more competitive.

Tax sales, or to be more precise, property tax sales, are the selling of real estate for back taxes. These are properties that have not had the property taxes paid on them for some time – as much as three years in many states. The local taxing authority can then sell the property to recover the taxes owed.

Of course, if tax liens on the property have been sold, then the lien holder is the one that can take title to the property. Only if the county doesn’t sell liens, or if the liens on a particular property aren’t sold, does the property go to the tax sale.There Aren’t Many Tax Sales

Relatively speaking, tax sales are rare now. If the tax liens are sold, the lien holder will likely take the property. If there is a loan on the property, the lender will foreclose on the loan, take the property and pay the taxes. If the owner of the property owes nothing on it, he would have to be mentally challenged not to sell the property rather than lose it over a tax debt of 15% of the value.

However, there are tax sales. People forget to pay their taxes on land that they haven’t even looked at for years. Banks may even forget to foreclose and pay the taxes in time. For whatever reasons, some properties do make it to the tax sale.

You will hear stories of people simply bidding the amount necessary to cover the taxes owed, and getting the property. Getting a $60,000 house for $2,100 makes for a good story – and it is sometimes a true story. Don’t count on it though.

Bottom line? If there are good properties regularly showing up at tax sales in an area, there will be good investors regularly showing up. You will not be buying properties for pennies on the dollar. But you might still get a good price. Just be sure to do your homework before showing up at the tax sale.