How good Are Investments In Properties under Tax Foreclosure?

Investments in tax foreclosure cases have much higher rates of return compared to the other types of investments and because of this, many people are enticed to put their money in this venture. They are also considered as among the safest investments because of the guarantee which is assured the investor.

 

Many states in the country, in a desire to increase the number of bidders for the tax liens, offer incentives which are likely to be almost 5% of minimum return for the investor in these properties in tax foreclosures, upon the redemption of the liens. Luring efforts investors this way convinces many of them to go for these highly profitable deals. There are however drawbacks in tax foreclosure investments which an investor should explore first, before going for this kind 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 strictly the procedures prescribed during the redemption period or any deviation therefrom 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 to attempt to invest. The bankruptcy court may lower the interest rate or wipe out a part of the lien making it hard for the investor to make any money for his efforts.

* There can be other dues that need to be taken care of aside from the lien amounts. 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 altogether.

* The last drawback the small investor has to handle is that the large institutional investors have greater resources at their disposal, limiting the number of choices for him. He could just be left with properties which are not of viable investment values.