How Do Tax Liens Work?

A lot of people are curious about tax liens and how you can invest in Tax Liens. First, the legal definition of a Tax Lien is…
A Tax Lien is the government’s claim on your property and is generally placed when a taxpayer, such as a business or individual, fails to pay taxes owed. This does not mean that taxation authorities will seize your property, it just ensures that they get first right to your property over other creditors.

As an example, if someone living in a home in Arizona fails to pay their property taxes, the state files a lien against the property owner for that amount of the property taxes. The state then auctions off that lien for someone to purchase.
How Can You Make Money From Tax Liens?

  1. As an example, say the property owner owes $10,000, you could purchase that Tax Lien for that amount. The home owner also is accessed a penalty for not paying their property taxes. The state of Florida has a government mandated interest rate of 18% per year on that amount. In 5 years, your $10K investment could potentially provide you a return of $21003. If the owner pays their back taxes, you get your original investment back, plus the state mandated interest.
  2. As an investor, you could purchase the Tax Lien and you will have first priority on that property. If the home owner stops making mortgage payments or their penalty payments for any reason, the home is turned to the person who has first priority of the lien. This means that your $10,000 investment could potentially allow you to take ownership of the home without having to pay the remaining balance of the mortgage. When you take ownership of the property, you could flip the home, rent it, or even move in.
    The Problem With Tax Liens?

The biggest problem with acquiring Tax Liens is that as an individual investor, it’s very difficult to acquire them on your own. Some of the largest investors in Tax Liens are banks and large financial institutions. If you show up at a county auction with the intent of purchasing Tax Liens, you are usually bidding against large investors or large financial institutions. Carnegie Academy can teach you how you can easily acquire tax liens throughout the country and show you how you can build wealth with tax liens.