Are Tax Liens a Good Investment? 

I had been curious about investing in tax liens for many years.  So last year I paid a small fee to some friends who have been investing in tax liens for years to mentor me.  We met in Charles Town West Virginia and proceeded to the tax sale.  They provided solid instructions along with some good recommendations and I ending up buying 4 tax liens at that sale.

So what is a tax lien and how does it work?  As you know, counties all around the country fund their operations by imposing taxes on property within their county. When people don't pay their taxes the county still needs to operate so they allow other people, just like me, to pay those taxes and receive a tax lien secured by the underlying property.   

Each county sets their own rules under their respective state's guidelines.  For instance, in the county where Charles Town is located they add fines and fees for processing delinquent taxes and set the maximum interest rate the property owner will need to pay to redeem the tax lien.  In West Virginia that rate is 12% and this is paid to the person who bought the lien.  In some states the maximum interest rate is much higher, even in excess of 20%.

The interest rate is actually set so if you buy the tax lien for the exact cost of the lien and associated fees you will receive the maximum rate.  The way the interest rate you earn may become lower is when there is competition at the auction for the lien and the price you pay for the lien goes up.  This is because the interest is earned only on the delinquent taxes and associated fees not the price paid in excess of those items.  People will bid up the price because they are willing to accept a lower return.

So what happened with those 4 tax liens I bought.  One was paid off within a month but three have still not been paid so Mary Jane and I drove up to West Virginia to look at each of the properties to determine if we wanted to pay this year's taxes.

Maybe you're asking "why do you want to pay for this year's taxes?"  Well there are two primary reasons you would want to do that.

• There isn't any competition until they go to auction so if you buy them you receive the maximum allowable rate of return on the new taxes.  In this case 12%, beats the heck out of what my bank is paying.  

• Here is the big secret many people don't know about tax liens.  While unusual, if the tax lien is not redeemed within the time frame mandated by the state then the lien holder can foreclose and capture the property.  But wait there's more!  Because a property tax lien is considered superior to all other liens, all those liens are removed from the property.  This includes any mortgages, IRS liens, mechanics liens, etc.  So it is possible you can get the property for the price of the tax lien, fees, and fines! 

So we went and looked at the properties to verify they were worth what we would have invested in the tax liens before we were going to pay this years taxes.  One is a multiple acre lot on a paved road a few miles outside of town.  One has a house on it that needs some rehabbing.  And one has a mobile home on it with terrific mountain views.  If the tax lien goes all the way to foreclosure we will have no more than $2,000 invested in each of these liens and we have determined that we can probably sell two of the three liens quickly for considerably more than the price paid for the tax liens.  If they don't go to foreclosure we will receive 12% on the additional amount we pay for this years taxes.  So what do you think we did? 

A final note on tax liens.  Due to space limitations I didn't go into the research that should be done in buying tax liens.  You can wing it, but I recommend a little research and find yourself a mentor to go to your first auction just like I did.  A mentor can take years off your learning curve and help you avoid the minefields.

This month we still have a vacancy in the mobile home park we personally manage and another of our rentals will be vacant on September 1st. This seems the perfect time to talk about renting up vacant units.   

We have had great tenants and we have had really bad tenants.  We prefer great tenants or residents as we like to call them.  These people pay for our properties and in turn our entitled to clean safe places to live.  The big question is how do you attract them, after all they often have lots of choices as to where to live.  And the most expensive part of being a landlord is turnover.  So we want the best residents and we want them to want to stay in our homes forever.

WHAT IS YOUR WOW FACTOR?

When prospective residents do call and come to view your rental, most often one of two things will come to mind when they see your place.  Either they'll think WOW! or Whoa!  Obviously you want them to think WOW!   

Your rental needs something to SPARK the attention of prospective residents in a positive way.  If it's something that also separates you from your competition, even better!  Here are some ideas to SPARK that WOW factor:

• Make sure the property is clean and don't forget the windows, sparkling windows bring the outside in.

• Adding a beautiful ceiling fan to the living room or dining room can make your property stand out from the competition.

• A washer and dryer or dishwasher ads convenience and can become a huge selling point.

• Place a "Move-In" basket with lots of goodies on the counter so the prospective residents will see you treat residents right.

• Help them picture their furniture in their future home but staging it with furniture.  Even some pretty towels with a matching rug in the bathrooms and/or homey type items on the kitchen counters can help the space seem warmer and more inviting.

•  Offer a "Bonus Resident Service" that is included with the rental.  Lawn care, cleaning services, renters insurance, gym memberships, moving help, etc.  Of course you consider the cost of these services in your rental price.  The point is, it is easy for the resident, they don't have to do it.  You've taken care of it for them!    

• Provide residents with discount offers to both local and national merchants.  These can be provided for as low as $7.20 for the year and can be arranged at www.ResidentRewardsProgram.com/Landlord. 

In each example, you're still talking far LESS than a month's rent, far better than having a place sit empty for two months.  On top of all that, some of these WOW service factors benefit not only the resident, but you the landlord as well.  The maid or lawn service helps to keep your properties well maintained.      

Kevin actually grew an old Sea Captain's house in Connecticut that his father had divided into apartments.  He remembers his parents telling him that you do all you can to hang onto the good residents.  Replacing them is costly and risky cause who knows what you'll get.  

We hope this has been helpful to those of you who are landlords and interesting to those of you who are not.  It is very satisfying to know that you are renting clean, safe, affordable and pleasant housing to your tenants.  Everyone should have a pleasant place to live. 

Many of the tip(s) above are shared on the MrLandlord.com website and newsletter from landlord contributors and real estate advisors and authors featured on MrLandlord.com.  To receive a free sample of Mr. Landlord newsletter, call 1-800-950-2250 or visit their informative Q&A Forum at www.LandlordingAdvice.com, where you can ask landlording questions and seek the advice of other rental owners 24 hours a day.

Laughs and Interesting Stuff 

A little boy went up to his father and asked: "Dad, where did my intelligence come from?"

The father replied. "Well, son, you must have got it from your mother, cause I still have mine."

A man recovering from surgery was asked by the Surgical Nurse how he is feeling. 

"I'm O. K. But I didn't like the four letter-word the doctor used in surgery."

"What did he say," asked the nurse. 

"Oops!"

The graveside service just barely finished, when there was massive clap of thunder, followed by a tremendous bolt of lightning, accompanied by even more thunder rumbling in the distance.

The little old man looked at the pastor and calmly said, "Well, she's there."

And this warning just in watch your valuables:

The following photo shows how it works. 

This is referred to as the AFLAC Scam