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5 Questions Answered About Tax Lien Investing

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5 Questions Answered About Tax Lien Investing

Tax Lien Investing

Do you want to explore investing in Chicago-area property, but don’t want to deal with the hassle that comes with owning a rental or commercial building? Most people don’t realize that there are other options when it comes to investing in real estate. One of the most hands-off methods is to buy tax property in Chicago, in the form of tax liens. Below, you’ll find everything you need to know about tax lien investing.

  1. What are tax liens?
  2. When the owner of a property fails to pay his or her property taxes, the government can make a claim on the property. That’s referred to as a tax lien, which acts as a legal claim against that property — whether residential, commercial, or undeveloped land — for the amount of the taxes that are owed on it. A property with a lien on it cannot be legally refinanced or sold until the unpaid taxes are caught up on and the lien is removed.

    A tax lien certificate is created for Chicago tax property when a lien is issued. The certificate accounts how much is due in taxes, penalties, and interest. These certificates can then be auctioned off to investors, which helps the government recover the money that is owed. Certificates can cost anywhere from a few hundred dollars to thousands, tens of thousands, or even hundreds of thousands of dollars. Luckily, Dior Realty Group can help you navigate this type of investment.

    tax letters in cube wood over a stack of coins

  3. How can you buy tax liens?
  4. Liens on tax property in Chicago are sold like physical property, at online or in-person auctions. Investors can make bids on the interest rate of the lien or the premium they will pay for the lien, depending on how the auction is conducted. The bidder who makes the highest bid on the premium — or accepts the lowest interest rate — is then awarded that lien. Ask your Chicago investment real estate agent at Dior Realty Group to help you find these auctions and to guide you when bidding.

    signing a paper

  5. How do you make money on tax liens?
  6. Once you purchase liens on Chicago tax property, you’ll have to pay back the full amount of the lien to the issuer, usually a government entity. This includes the principal, interest, and all penalties owed on the property. Once this occurs, the investor is now in charge of the lien, and can collect the back taxes plus interest from the property owner. The interest rate on liens is typically between 10 to 12%.

    A repayment schedule is created between the investor, who owns the lien, and the property owner. Repayment can be anywhere from six months to three years. In around 98% of cases involving residential property, the tax liens are fully repaid by the owner of the property. The investor recoups the amount that they invested in the lien property and makes a profit from the interest accrued during the repayment process.

  7. What happens when tax liens are not repaid?
  8. If you purchase a tax lien and the property owner doesn’t pay back the taxes, penalties, fees, and interest during the agreed-upon timeframe, the property will go into foreclosure. As the owner of the tax lien, you’ll be responsible for foreclosing on the property and will obtain the property’s title, unless there are other tax liens against the same property. If there are no other tax liens, you’ll gain ownership after the property forecloses and you can do with it what you wish. This includes selling it as-is, remodeling it and selling it, or retaining it as a primary residence or second home.

    calculator and money bill

  9. What are some best practices when it comes to tax lien investing?
  10. If the prospect of buying liens on Chicago tax property interests you, there are some best practices that can help keep your money safe and ensure you get a good return on investment.

    • Be prepared for foreclosure. Although it only occurs in a small percentage of cases, you need to be ready to handle a foreclosure situationwhen you buy liens. If you aren’t prepared to take responsibility for a property — and one that may be in bad condition — you may want to invest elsewhere.
    • Make sure you know local and state laws. Depending on where you’re buying, laws regarding tax liens vary. Make sure you work with a real estate agent experienced in investing, who understands the laws and who can guide you to good decisions.
    • Understand this is not a passive investment. When you buy liens on Chicago tax property, it’s up to you to collect the back taxes from the property owner and to handle foreclosure proceedings if the taxes aren’t repaid. If you don’t want to take an active role in your investment, consider the aforementioned lien fund or turn your attention towards a different type of investment.

    Investing in tax liens is a form of non-traditional real estate investing that has a variety of benefits. If you’re considering this type of investment, make sure you work with an experienced real estate agent who has helped other clients buy tax liens.

Ready to dive into the world of tax lien investing? Reach out to one of the trusted investor real estate agents on Dior Realty Groupfor expert guidance. Our team is happy to help you make your real estate goals a reality.


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