Comments on: I want to invest in tax liens…and form an LLC? http://taxlieninvestingnews.com/questions-and-answers/i-want-to-invest-in-tax-liensand-form-an-llc/ Current news on Tax Lien Investing Tue, 22 May 2012 07:03:51 +0000 http://wordpress.org/?v=2.7.1 hourly 1 By: OPM http://taxlieninvestingnews.com/questions-and-answers/i-want-to-invest-in-tax-liensand-form-an-llc/comment-page-1/#comment-77 OPM Fri, 22 May 2009 20:49:37 +0000 http://taxlieninvestingnews.com/questions-and-answers/i-want-to-invest-in-tax-liensand-form-an-llc/#comment-77 No use a real estate code. However, be very careful that you fully understand what you are getting into in tax lien investing. I have managed quite a few properties for clients and have fifty pending foreclosures on client accounts. It is a tremendously expensive and potentially loss filled venture. I will illustrate. Let us imagine you have $50,000 to invest and you buy liens on fifty properties. In some states you are required to have a title opinion issued within so many months of the final potential foreclosure. It is fair to estimate that that will create an additional $5,000-$10,000 in legal fees. If you do not pay the legal fees and have the title opinion issued you will lose your lien. Likewise, although many will have paid down by the next time taxes are due, presume at least another $25,000 in taxes will be due soon. If you do not pay the taxes the property will be sold to another tax lien investor and you will have to pay taxes and costs to that investor to get the property back. Finally, there will be publication fees. I would presume $400 per property in publication fees. Presume you have ten properties left by that time so advance another $4000. You have earned interest over that time but most good properties are paid back almost immediately after the sale, so on your $50,000 initial investment presume you will get $3000 in interest. If you paid $100,000 to buy the $50,000 worth of tax liens you still only get $3,000. Depending on the jurisdiction you will also make money on the advances to attorneys and money to subsequent taxes, however since some of those properties will not repay, it just gets added to your cost basis. Now it comes to deed issuance time. Let us assume you have 8 tax deeds to issue. You can likely make them yourself, however in some states such as Florida you have to file a lawsuit to get the property to have a quiet claim deed issued. So plan on attorney's fees. Also, at least one jurisdiction gives prior owners a twenty year repayment right if they were disabled and unable to pay their taxes. Their heirs possess a twenty year right to take back the property just by paying the taxes. Any improvements you make on the property are a gift to the heirs. Although you bid $50-$100 for the total package, the eight remaining were almost always the eight least valuable parcels. They are almost all vacant parcels or condemned houses. One might have real value. You may owe utility bills from the prior owner if such bills run with the land in your state. You will have to pay transfer taxes in most if not all jurisdictions. The eight parcels are probably worth, if you can sell them, $40-$80,000. However, that is "appraised value." It is likely you will have to invest money to bring the properties up to code or to demolish buildings. Further, presume that six of these properties were up for sale for the past two years and no one has made an offer. Probably no one has even looked at them. You now owe another $800 in taxes. Over a period of several more years you will sell off four of your eight, maybe and abandon four to a future tax sale yourself. No use a real estate code. However, be very careful that you fully understand what you are getting into in tax lien investing. I have managed quite a few properties for clients and have fifty pending foreclosures on client accounts. It is a tremendously expensive and potentially loss filled venture.

I will illustrate.

Let us imagine you have $50,000 to invest and you buy liens on fifty properties. In some states you are required to have a title opinion issued within so many months of the final potential foreclosure. It is fair to estimate that that will create an additional $5,000-$10,000 in legal fees. If you do not pay the legal fees and have the title opinion issued you will lose your lien. Likewise, although many will have paid down by the next time taxes are due, presume at least another $25,000 in taxes will be due soon. If you do not pay the taxes the property will be sold to another tax lien investor and you will have to pay taxes and costs to that investor to get the property back. Finally, there will be publication fees. I would presume $400 per property in publication fees. Presume you have ten properties left by that time so advance another $4000.

You have earned interest over that time but most good properties are paid back almost immediately after the sale, so on your $50,000 initial investment presume you will get $3000 in interest. If you paid $100,000 to buy the $50,000 worth of tax liens you still only get $3,000. Depending on the jurisdiction you will also make money on the advances to attorneys and money to subsequent taxes, however since some of those properties will not repay, it just gets added to your cost basis.

Now it comes to deed issuance time. Let us assume you have 8 tax deeds to issue. You can likely make them yourself, however in some states such as Florida you have to file a lawsuit to get the property to have a quiet claim deed issued. So plan on attorney's fees. Also, at least one jurisdiction gives prior owners a twenty year repayment right if they were disabled and unable to pay their taxes. Their heirs possess a twenty year right to take back the property just by paying the taxes. Any improvements you make on the property are a gift to the heirs.

Although you bid $50-$100 for the total package, the eight remaining were almost always the eight least valuable parcels. They are almost all vacant parcels or condemned houses. One might have real value. You may owe utility bills from the prior owner if such bills run with the land in your state. You will have to pay transfer taxes in most if not all jurisdictions. The eight parcels are probably worth, if you can sell them, $40-$80,000. However, that is "appraised value." It is likely you will have to invest money to bring the properties up to code or to demolish buildings. Further, presume that six of these properties were up for sale for the past two years and no one has made an offer. Probably no one has even looked at them.

You now owe another $800 in taxes. Over a period of several more years you will sell off four of your eight, maybe and abandon four to a future tax sale yourself.

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