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Government Tax Sales - How To Profit From Government Tax Sales

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Wise investing is a crucial part of any money management plan. You can let your money sit in the bank and collect a gain of a few percent each year, but that is not getting the full value out of your money. Government tax sales are one of many good opportunities to put your money to work for you and get the most out of your investment strategies.

How Does It Work?
Unlike bank foreclosures, tax foreclosures are perpetrated by the IRS. When people fail to pay their property taxes within a reasonable amount of time, the IRS may put a lien on the house or, if the debt is still not paid, seize the property. The government then sells these properties to the public at a highly reduced rate in order to recoup the unpaid taxes they are owned.

Tax Lien
When the government no longer feels it will be able to collect on the owed taxes in a reasonable time, they may put a lien on the house. This simply means that they sell the debt to a third party investor. This is typically done at a reduced rate, since it is a greater advantage for the government to collect some of the money owed than none of it. The debt then becomes the property of the purchaser, and the owner of the property will continue to make payments to the new holder of the debt. If the owner continues to pay off the debt, the investment is regained along with interest. If the home owner is unable to pay the tax debt in a predetermined amount of time, the holder of the debt may foreclose on the house.

Tax Sale of Deeds
When no third party purchases the tax lien, the IRS will eventually foreclose on the house themselves and sell it at auction. This allows a purchaser to obtain the deed to the house immediately rather than obtaining it through a separate foreclosure process. Since the main goal is to collect the amount owed in taxes, many of these properties are sold for well below market value, giving the purchaser an opportunity to rent out the property or resell for a significant gain at market price.

This type of investment is not for everybody. There are certain requirements that will give you a better chance of making a worthwhile profit with government tax sales. First, it is helpful to have a basic working knowledge of the real-estate market and what properties in the neighborhood are worth at market price. If you intend to resell the property, it is also important that you not require an immediate return on your investment, since selling a house takes time. Government tax sales are not the best choice who are looking for quick gain.

It is important to have someone reliable check a property before making any purchases. Since many of these properties are very low cost, it can be tempting to jump right in and purchase them before someone else can, but this is not always the best choice. The need for costly repairs can greatly reduce your final profit. It is crucial to make sure the house is up to code and has satisfactory wiring, plumbing, roofing, and other structural factors before making a decision.

Another thing to consider if you purchase a lien is whether you are emotionally prepared to foreclose on the property. This can be a wrenching experience, as it can feel like you are taking a family from its home. While purchasing the lien gives the family another chance to repay the debt and personal foreclosure will be better for their credit than an IRS or bank foreclosure, the final process can be difficult. If foreclosing is not something you are prepared to do, you may loose heavily on your investment, so it is important to know what you are willing to do before beginning this type of business venture.

Government tax sales can be a great investment if you take the time to research and learn what you are getting into. As with any business venture, it is crucial to know all the facts before taking that final step and signing on the line.

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