The Most Important Player - You
There are essentially two categories of tax investors -
What Is Your Investor Profile?
This is largely determined by your resource constraints. For example, the cash that you’ve set aside to invest, time available, and your ability to travel, etc. Write down answers to the following questions:
Profile 1: a tax lien certificate investor
These investors want to generate high interest returns and will do it through tax liens.
You can invest through live auctions or through online auctions. Travel is not necessary. This investor can also use their self directed IRA or 401k accounts to invest. The other thing about tax liens is it won’t take that much time to invest. Tax liens are pretty simple and don’t require very much research. It simply requires that you know the basics of each investment before pulling the trigger. It’s not necessary to fly anywhere to evaluate tax liens since most will redeem. And tax liens are typically less expensive than tax deeds so investors can get started here with little capital.
Profile 2: a tax deed investor
Most tax deed investors will be required to do some travel to evaluate properties and to make the purchases at the auction.
Most tax deed states will require the investor to attend the auction to purchase the property. Tax deeds can also be purchased through self-directed IRA accounts. Tax deeds typically require more money to get started with and will require more time than tax liens. It’s also important to evaluate each investment before pulling the trigger because you will own the property shortly, so they require more time.
Profile 3: an over-the-counter tax lien investor
This refers to investors who buy tax liens after the auction has ended.
These investors spend most of their time online researching and finding deals. These investors are not as interested in attending auctions and bidding against other investors. They are content with the tax lien opportunities left after the auction. These investors are also interested in the full promised interest rate since some auctions require the bidders to bid down the interest rate if buying at the auction. So an investment that starts at 18% may end up much lower if buying at the auction. When buying over the counter, or after the auction, an investor gets the full interest rate every time. The time and money constraints are similar to profile 1.
Profile 4: an over-the-counter tax deed investor
This investor is constrained by similar things as profile number two and is interested in building lots, vacant land, raw land, and other properties like that.
With the struggling economy and lack of investors, investors are seeing more over-the-counter, single-family homes, so don’t count those out completely. Most new and advanced investors are looking for single-family homes, which is wise. But down the road, don’t pass up great deals just because it doesn’t have a white picket fence. For example, building lots can be fantastic investments. It’s possible to make great profits with them. They typically require less capital but can be flipped fairly easily. You could buy a lot sandwiched between two homes that has power and sewer set up to one of the property owners.
Profile 5: a pre-sale tax deed investor
A quick note on this one, it’s not legal in all states so check before you go for it. These investors are also referred to as short sale tax deed investors.
These investors are aggressive and have significant funds to invest. They are short-term investors looking for quick returns. When the tax sale list is released a couple weeks for the tax deed sale, the investor contacts property owners offering another solution besides tax sale foreclosure, which is surely coming. If the property owner is interested the investor evaluates the property and makes an offer including cash for the property owner and cash for the county for the delinquent property taxes and fees. If the market value and payment to the property owner and county make sense, then go for it. This could be a great solution for popular or competitive tax deed counties.
Profile 6: a limited time and resources investor
If you don’t have a lot of time or money then this is the one for you.
This means starting small and starting slowly. These investors are looking for tax liens to go to foreclosure to make a lot of money from a little investment. There are ways to do that, which may take a little more time and research.
Profile 7: a redemption deed investor
This investor has time, money, and the ability to travel (if not living in a redemption deed state).
This investor is interested in large returns and potential property ownership, but is willing to wait, if necessary. This investor will be required to do a lot of due diligence on properties to ensure good investments. This is a great strategy.
It isn’t necessary to focus on just one strategy or profile. You might fit into more than one profile; so if you would like to do more than one, then go for it. You just need to adjust your time and money to accommodate. So think about these profiles in relation to the answers you gave to the questions earlier. Where do you fit in and what would you like to do? If you have constraints, then raise money, save money, free up time, or do what you need to do to fit into another profile.
After you know what profile you are and what kind of investing you want to do, go through the reference materials for states to find out what states you can invest in and how they work. After you know which states you are interested in investing, follow the tax sale investment processes we have outlined here.