It is best to familiarize yourself with these concepts now to ensure that you have a firm grasp of their meanings and implications before you begin using them in the tax lien investing process. A few additional terms follow.
Auction. If you have never been to an auction, there are few other things that can prepare you for the experience. The lien and deed auctions frequently mentioned in this book are live and open to the public. Each county typically holds only one a year and you must register in advance to bid. Because tax lien auctions are an integral part of investing successfully, we will take a more in-depth look at them later in the book.
Capital. This is what you can safely invest. Tax lien investing offers an opportunity for everyone, with some liens selling for as little as $400 and others for tens of thousands of dollars. Be aware of what you can safely invest in advance, and plan your buying strategy around that.
Debt. The debt mentioned throughout this book is specifically tax-related debt. That is, it is the money each property owner owes for back taxes, interest, and other related fees.
Foreclose. A lien gives a second party a conditional right to a property. If those conditions are not met, the lien holder is entitled to foreclose on that property. To foreclose means that the lien gives them the right to claim the property as their own in final settlement of the original debt. While it is rare that you will get to the stage of foreclosing on your tax liens, it does happen occasionally (to your advantage), and this is also covered in more detail later in the book.
Interest. Interest is a sum or percentage charged against money borrowed or owed. In this case it is charged against taxes owed. While most county governments charge a very low interest rate on back taxes, once the lien has been purchased by an investor they are free to raise the interest rate. This is how you will make your profit.
Investor. The dictionary definition of this word is “to use capital or money for the purchase of something with the intention of gaining a profitable return through interest, income, or appreciated value.” Put simply, in this book “investor” means YOU! This book is all about helping you to increase your capital by turning your investments into profitable returns.
Redemption Period. This is the amount of time the property owner has to pay their total debt before a lien holder can foreclose. The redemption period varies from one state to the next and may be as little as six months in some states and as much as three years in others, though the average is approximately one year. Some tax lien investors prefer shorter redemption periods because it gives them a greater chance of acquiring the property, while other investors prefer a longer redemption period because it allows them to accrue more interest.
Tax Deed. While most states sell tax liens, some sell tax deeds. A tax deed is the actual right to ownership of the property and can be purchased at public auction in the same way that tax liens are.
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