Tax foreclosure investments have a much higher rate of return when compared to other types of real estate investing. Many people are enticed because of this to invest their money in this manner. Tax Foreclosures are considered as one of the safer investments as the investor has a great guarantee.
Many states in the country want to increase the number of bidders for the tax liens by offering incentives. These incentives are probably to be close to 5% of minimal return for the investor in these properties in tax foreclosures, upon the redemption of the liens. These efforts to lure investors in this way convinces many of them to go for these extremely profitable deals. There are some drawbacks in tax foreclosure investments that an investor should be mindful of, before acquiring these kinds of investments which include:
* Redemption Period – The ‘Redemption Period’ in the tax liens should receive a priority in studying the viability of the investment. For the investor’s interest, the repayments of the lien, interest and other amounts should be during this period. The investor has to be sure of this because he is not allowed to contact the property owner in this period. The lien holder has to follow strictprocedures prescribed during the redemption time , any deviation could cause the tax foreclosure certificate to be forfeited. In some cases the investor may be required to pay the lien and some ancillary amounts within a certain period, otherwise he could be the subject of a “buy-out” by a subsequent lien investor.
* An investor who still has to make arrangements for the money he will use in the investment must make such arrangements well in advance, as the time allowed him to do so is only good for 24 to 72 hours , which is quite a tight one.
* The filing of “Bankruptcy’ by the homeowner can be another problem for the investor and he might end up with very little on his investment. It could be hard for the investor to make any money for his efforts, if the bankruptcy court lowers the interest rate or wipes out part of the lien.
* There can be other dues that need to be taken care of Apart from the amount of the lien. The lien sale does not include these and may lead to more complications for the investor.
* The investor may not be able to ‘cash’ out on a lien investment since liens are not liquid assets. These liens must be kept until the time the foreclosure act starts. If you would need to draw some amount from your investment in the tax liens, it is better for you to avoid going into it entirely.
*Large institutional investors have greater resources at their disposal creating the last drawback. Because of this, humble investors may be limited in the number of choices he or she may have. Its possible that the best investments may not be the ones that are left.
Finding the investment properties that interest you is possible, if your willing to work for it.