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Tax Lien Investing: Simple DIY Investing for 18% Returns

Simona Goldin shares her strategy for tax lien investing. What to look for and how to make money.

After talking about my own experience in tax lien investing as an indirect real estate investing strategy, I reached out to a few experts for another perspective. I met Simona Goldin, a five-year veteran of tax lien investing, on a Facebook group of investors.

Simona agreed to share some of her strategy in buying tax liens and real estate investment in an interview.

Tell us a little about yourself and how you got interested in tax lien investing.

My name is Simona Goldin, originally from Vilnius, Lithuania but living in NY since 2001. Investing is a passion of mine and I love sharing what I’ve learned with others. I’ve been investing in tax liens since 2010 and only recently starter working with people who want to learn more or just want another vehicle for their money.

During the day I work as a director of digital marketing and brand strategy at Projectzou, own a health and wellness product called Glow30.com and if that’s not enough, I raise a sassy toddler who keeps me occupied when I’m not working.

Simona indirectly points out one of the great benefits of tax lien investing, that it doesn’t require a full-time schedule to research and track the investments. I’ve seen people make it a full-time job, investing in tax liens on a huge scale but a lot of the investors I’ve talked to do it in their spare time.

This is a big plus compared to other forms of real estate investing like rentals or flipping. You’ll still need to do your research ahead of a tax lien sale and will need to understand how tax liens are handled in each county in which you invest, but it is much more a passive income real estate strategy than direct real estate investing.

Tax Lien Investing States

Tax Lien Investing States

What got you started in tax lien investing?

I’ve always been interested in investing and knew that that I had to get my hands on real estate, but didn’t have the capital for a down payment at the age of twenty-two. I found out about tax liens through a course I took. Actually, my husband signed me up because he went to a conference and knew I’d eat it up.

And I did.

When I started only a couple of states were online and the user experience was awful, which meant a lot of manual work. It helped to carve out a very clear cut strategy for how I invest in tax liens. I avoided bid down auctions and went straight for over the counter liens to maximize my gains. I did my property research in hopes of scoring a deed, but was happy with the 18% return in Florida, because let’s face it, you won’t get that anywhere.

My own experience in tax liens started in 2003 when I went to a tax lien auction in Polk County, Iowa. As with any jurisdiction, tax liens are placed on a property when the owner fails to pay property taxes. Since the county is not in the business of holding property, they sell the tax liens to investors and collect the cash. The property owner then has a set amount of time to pay the lien plus interest or the investor can foreclose on the property.

Depending on the county and other liens on the property, a tax lien might allow you first right on a property. Most tax liens are eventually paid by the property owner but you can get a few properties if you invest in enough liens. The real draw is the return potential on the liens. The property owner is usually responsible for paying 1% to 2% interest per month on the lien. Even if the lien is paid off quickly, the return on tax lien investing can add up.

How is the tax lien investing process different around the country?

I always say, “Invest in what you know.” I know Florida so that’s where I do my tax lien investing. I like that a lot of the counties there are online and they offer a rather short redemption period (2 years) and a high annual yield (18%).

I stick to what I’m comfortable with, so I’ve been investing in Florida since I started. The way the state is separated by counties and the huge crash in real estate after the financial collapse means there are plenty of tax liens available.


In Iowa, the process for selling tax liens is through a random-draw auction. You register for a number at the auction, held once a year. The assessor goes through the list of tax liens and randomly selects a registration number for each one. If your number is called, you can buy the tax lien in question or pass. You’re guaranteed to have your number called at least once but have no idea on which property it will be called.

Other counties do a bid-down auction on returns or a bid-up auction on prices for tax liens. On bid-up price auctions, investors bid up the price they are willing to pay for a tax lien. The interest rate you’ll collect is on the original lien amount so the higher the price you end up paying, the lower the actual return you’ll make. In a bid-down auction, investors bid the interest rate lower so the end result is basically the same.

One of the simplest ways to manage your tax lien investing is by starting an investment club of real estate investors. You can start a face-to-face group or one online with people in different tax lien jurisdictions. This makes it easier to get information on different areas and find the best deals.

Can you describe your process for being successful in tax lien investing?

First, decide what you want. Are you going for the home run or just the annual return? If a house is what you want, do your research! Don’t invest into a property that will be tough to sell or develop. Due diligence is absolutely crucial in tax lien investing.

Stick to single family homes. They are easy and you don’t need to deal with layers of issues. Stay away from vacant lots or commercial plots, unless you know exactly what you’re doing!

Partner up with someone who knows their stuff. Pay someone to show you the ropes. I did that and took the guesswork out of it. It’s a worth while investment if you’ll continue on this path.

A tip: Don’t buy homestead property liens. Chances are you’ll never get the house.

I know a few tax lien investors that deal in commercial land and vacant residential lots. They are real estate developers so can work with pretty much anything. Research is key for individual investors. Just like real estate investing in rental properties, where the rule is don’t buy a property that you wouldn’t want to live in (because you might have to if the investment goes bad), don’t buy a tax lien unless you’d be comfortable taking the property.

Another important tip here is to understand that tax lien investors are responsible for subsequent taxes on the property. It may be years before you can begin foreclosure if the lien is not paid. Property taxes are going to come due over that time and can result in another lien if not paid. Buying a huge property with a high tax basis may mean you can’t keep up the tax payments yourself.

What three things do you wish you knew when starting in tax lien investing?

Go bigger and don’t be scared to take risks! I actually passed on a house that was basically given to me once the owner passed away and the bank wanted the property. I was too afraid to deal with it at the time. I still think about it sometimes, it’s the one that got away.

What risks would you warn new investors about tax lien investing?

If you invest with the hopes of scoring big and getting the deed on the property, do your research. Use every tool available to you online before you make that purchase. Investigate how many prior liens are on the property. If you are last in line, most likely you will not get the house. So check the county records to see where you stand.

In most states, a county tax lien will wipe out the mortgage holder. Most of the time, a bank will pay up the taxes instead of letting a tax lien go to auction. It doesn’t make sense for the bank to lose tens of thousands or more on a mortgage for failure to pay a few grand in property taxes.

Federal taxes usually tax priority over the county tax lien so be aware that there may be other liens on the property that are higher than yours. It’s all about knowing the rules in the specific areas in which you invest.

What returns are likely for investors in tax liens?

If you want to be first in line and bid on a property that you could potentially get the deed for, go to the auction. Do your research. People show up with huge booklets to these sales. They do their research and know exactly what they want.

Be prepared to only get a fraction of the properties you set your eyes on. The auctions are bid down in Florida, which means you win the lowest return. But in the grand scheme of things, there are a lot of profitable exits for tax lien investing. You can get a double-digit return on the lien or you can take possession of the property for a huge discount.

If you buy a lien for $3,000 and get the deed, buy up the rest of the liens, pay the agents and sell quickly, think an investment of 10-15K for a house worth 80K. Not bad if you ask me!

If buying over the counter is more your speed, still hone in on those single family homes, because you never know, you might get a home run. But expect the people to pay the taxes off earlier than two years. Have the next plan ready to go to re-invest quickly.

A tip: Open up a QRF/QRP (Qualified Retirement Fund) and manage your money there. Avoid paying the 30% taxes now and wait till retirement to tap into that money, paying only 15% instead. Set up your LLC and that way you can write off any tax lien expenses (computer, office supplies, travel to the potential property) when filing your taxes.

Taxes can be the biggest burden to tax lien investing so any strategy you use should include something to defer the tax bill. You can still deduct tax lien expenses without a formal business structure, just reporting your investment as a sole proprietor business, but it is best to formally set something up like an LLC to keep your tax lien business separate from your personal finances. Doing your investing through a retirement account is a great idea.

The New Real Estate Investing Opportunity in Crowdfunding

Simona has been successful with tax lien investing but I’ve heard many other cases that were not so successful. Fortunately, investors don’t have to miss out on real estate returns because a new type of real estate investing has just been made possible.

New laws around crowdfunding real estate have opened the door for portals like RealtyShares to offer direct real estate investment to investors. Unlike real estate investment trusts (REITs) which are indirect investments in real estate funds, real estate crowdfunding is a direct investment in property. Properties are professionally-managed but costs are generally lower than investing in REITs and the returns are comparable with direct ownership.

Best yet, because you can invest smaller amounts in each property, real estate crowdfunding allows investors to pick different property types and multiple properties across the country for more diversification. Laws were just recently passed opening up this new form of real estate investing but I suspect real estate crowdfunding will become the popular way to invest.

Click for more information about investing on RealtyShares and real estate crowdfunding.

Tax lien investing is obviously more complicated than we can cover in a short post but I hope the interview helped to clear up some questions you had on the subject. Investing in tax liens can be extremely profitable and require much less time and money than direct real estate investment. If you are interested in finding out more about tax liens or working with Simona as a partner, you can email her at simonagoldin@gmail.com or look for her on Facebook. The National Tax Lien Association also lists some great information and resources on its website.

 

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Joseph Hogue, CFAAbout Joseph Hogue

An investment analyst by profession, I run two blogs (Crowd101 and PeerFinance101) in personal finance, peer lending and crowdfunding. I've been on both sides of the table as a lender and a borrower and am excited to be a part of the peer movement. With the power of the internet, people are helping other people manage debt and raise money in ways never before possible.

A veteran and Iowa-native, I now live in Colombia with my wife and son. Like so many people, I was once trapped into the money myth and what it means to be successful. After taking control of my finances and learning how to make money in a job I love, I found a level of financial freedom that just has to be shared.

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