You might have asked this before, “Is it possible to invest in tax liens and tax deeds tax free?” Well, the answer is yes. It is entirely possible to use cash from a self-directed IRA to invest tax free in tax lien certificates and tax deeds.

You see, if you use the cash from a regular self-directed IRA to invest in tax deeds and tax liens, your cash will grow tax free until you decide to withdraw from your own account after you retire. However, if you plan to use the cash from Roth self-directed IRA and you did not withdraw until you retire, you will not pay your profits’ taxes! Sounds great, isn’t it?

Though a lot of brokerages may say that they contain self-directed IRAs, these may not be true. A true self-directed retirement account can permit you to invest anything as long as it is not prohibited by the law. Investments that are allowable are tax deeds, tax lien certificates, notes, real estate, and other usual investments. True self-directed IRAs are not allowed to sell investments but they suggest investment types that you can utilize your self-directed IRA account for and may even teach you in doing the paperwork but they cannot make any commission.

Now, retirement account specialists say that you are only allowed to roll-over the money from your 401k if you are not working anymore for the company where you set up your retirement account from. But you can roll over the money from a regular IRA account into a self-directed IRA.

Just a heads up, there will be fees when you open and maintain a self-directed IRA but they are of minimum compared to taxes that you will be paying for the government for your capital gains and investment income.

In one form or another, almost every county government offers tax lien sales on properties. The government seizes these properties by delinquent homeowners who didn’t pay real estate taxes within a specific time or even not at all. Public auctions are held as a way for the government to make up for the taxes owed.

A person who wins a bid at real estate auctions can purchase the property at an amount which is lower than its actual market value. Every state has different laws and way on conducting such sales which is why you need to conduct some research on your own if you plan to buy tax liens.

Basically, you must learn everything you can about property tax laws, tax foreclosure process, redemption periods, and other aspects of real estate. You can find many resources on the internet as well as books talking about the subject. You would surely get the helpful information that makes buying tax lien certificates a breeze.

Contact the county where you plan to buy such properties. You can visit the county’s website or call them. After doing so, they can tell you when and where such auctions are taking place. They can also provide you a listing of the properties for sale. You can also find the auctions as it is published on local newspapers.

You should go see the property in person if you’re planning to bid on it. If you bid on it and win, it is yours. You can make improvements on it and maybe do some renovations. You can also keep it as a rental property or resell it in the future. Furthermore, to buy tax liens offers you the chance to move in yourself to that property.

What you can expect from a tax sale all depends on the state you are attending to. Just remember, counties and states have different processes in doing tax lien sales unlike tax deed sales wherein they are most likely to be the same.

Take Florida, Illinois, and Arizona for example, these states have interest rates that are bid down. Other states, on the other hand, have interest rates that are in constant and their lien prices are bids up. Now a premium is the fee that is bid up from the original amount due, it’s also called as overbid. And again, different states handle these things differently.

There are states that you can actually get an interest from the premium that is paid for tax liens such as Indiana and Alabama. While there are also states that you are not able to receive an interest on the premium like West Virginia. States that somehow don’t pay interest on the premium and don’t give back the premium to its investor include Vermont and Colorado. But there is one state wherein you can bid down its interest rate to zero and then to premium – New Jersey.

There are also states that use a random selection process and even the so-called round robin process to award the tax lien certificates during tax sales. In the first process, the person who conducts the auctions randomly chooses bidders. Oklahoma and Wyoming use this procedure.

The round robin process on the other hand, the auctioneer will offer a parcel according to the list to the next waiting bidder. The problem with this procedure is that you are not able to choose freely which properties you would somehow like to bid on to. So you will really have no idea which properties will be offered to you and the only thing you can do is to either accept the offer or decline it. Some counties in Colorado use this procedure to tax liens on certain amounts.

It is indeed important that if you decide to bid on a certain state or county, make sure to know the procedures so as not to be disappointed and to fully take advantage the great opportunities being offered in tax lien auctions.

Question 1: What is a Tax Lien?

A tax lien is a right to take ownership of a property due to tax payment delinquency usually by a federal government, a state, or even a county.

Question 2: Who can buy tax lien certificates?

Anyone who has the money can buy tax lien certificates. Just remember, you are only paying for the owner’s unpaid taxes, so you are not actually doing any foreclosures.

Question 3: What is the limit of acquiring tax liens?

There is no limit actually. You can acquire as many tax liens as you like if you have got the cash to pay for them.

Question 4: Where do I pay?

You will be paying the government agency not brokers or any other intermediaries.

Question 5: Who will then pay me the returns?

The government agency to which you paid the delinquent taxes for will be the one to contact you when the property owner has paid for his taxes. The agency will then require that you return the tax lien. After the process, you will be receiving a government check.

Question 6: Are tax lien certificates transferable?

Yes, tax liens are transferable. You can transfer these to anyone you like.

Question 7: Will all the counties and states have the same processing when you purchase tax liens?

Actually no, each county and state have different rules to acquiring tax liens. So before you go and purchase tax liens, make sure to research about your chosen county’s rules.