Tax Liens and Tax Deeds
Slow and Steady Growth
As investors look for ways to steer clear of the stock market, and stay resilient, tax liens might make sense for slow and steady growth. The process to purchase tax liens varies from state to state, but the premise is simple: when a property owner fails to pay the property tax bill, the tax receiver files a lien against the property and then auctions off the tax lien. Tax liens take precedence over all other liens except an IRS lien.
For the self-directed IRA holder, this non-traditional investment provides an inexpensive option with a reasonably high level of safety and a nice return. The tax receiver will establish a redemption period during which time the property owner or secured lender can bring the taxes current.
If the property owner or the lender pays the delinquent tax bill, the tax lien holder will receive interest on the funds paid for the tax lien. If the property owner does not redeem the tax lien during the redemption period, the tax lien holder could acquire title to the property via a tax deed.
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