What Is a Tax Deed?

Ahhh, the joys of real estate! 

Among the many terms and jargon you encounter, “tax deed” stands tall and mighty, often leaving folks scratching their heads. But fear not, real estate investor! 

We’re here to unpack this concept and give you the essential info on tax deed investing. 

Find out if this is the right path for your investing needs…

What Is a Tax Deed?

Imagine you’re the proud owner of a picturesque piece of real estate, but you forgot to pay those pesky property taxes. Ack! The government isn’t too thrilled about that oversight. 

Enter the tax deed. It’s essentially a document that gives a governmental body ownership rights to your property when those property taxes remain unpaid.

The good news is that the owner will get several notifications before that happens…

No, the government doesn’t just snatch away properties on a whim. It has to go through a maze of legal steps — from alerting the property owner and posting all sorts of notices to finally hosting the main event, a public tax deed sale.

What Is a Tax Deed Sale?

This is the title for the property in question that’s up for grabs. During this event, the auctioneer announces a starting bid, which generally covers the overdue taxes, interest, and some added costs.

Attendees place their bids, with the highest bidder getting the crown — or in this case, the property. What’s more, the victorious bidder typically has about 48 to 72 hours to settle the full payment. Miss that, and it’s a game over, with the sale getting canceled. 

It’s important to note that any amount bid over the base can potentially find its way back to the original property owner. Though, it does come with its share of ifs and buts, depending on the jurisdiction.

And there’s this… some original owners might get a golden ticket to reclaim their property during a special window called the “redemption period.” Keep that term in mind, as we’ll be coming back to it in just a second.

So, bottom line? 

Tax deed sales are more than just sales… they’re a blend of strategy, timing, and even some luck. And if played right, they can be a lucrative avenue for the savvy real estate investor.

What Is a Redemption Period?

Ok, now imagine you’re that homeowner who, for some reason, lost their property at a tax deed sale. But the universe (or in this case, some states) tosses you a lifeline known as the redemption period. (Cue the bit of relief!)

It’s a set time frame after the auction where you can swoop in, repay your tax debts, and reclaim your beloved property. (Yay!)

During this redemption period, if you choose to reclaim your property, you’re not just settling the tax debts… 

You’ve got to pay the winning bidder the amount they shelled out at the auction, plus a sizable chunk of interest. And let’s just say the interest isn’t always pocket-friendly.

Please note, too, that the redemption clock is different in various states. While the good folks in Idaho get just 14 months, those in Iowa have 17 months. 

And if the sand runs out of the redemption hourglass without any action, the winning bidder gets a green light to foreclose on the property.

What’s the Difference in a Tax Deed & Tax Lien?

For many, it’s a classic conundrum: tax deed or tax lien? 

It’s like comparing apples to oranges, or perhaps more fittingly, a house to its mailbox. Both are related to real estate, but they operate in distinctly different universes.

First, let’s talk about the nature of the investment:

• Tax Deed: When you invest in a tax deed, you’re setting your sights on the actual property. If the owner fails to pay their taxes, the property is yours to claim after an auction. It’s a direct path to ownership.
• Tax Lien: This one’s a bit trickier. With tax liens, you’re not hunting for property. Instead, you’re buying a debt. The delinquent property owner owes the government taxes, and by buying the lien, you’re covering the debt with the expectation of receiving interest.

Next, let’s discuss scope:

• Tax Deed: It’s all about real estate. If you’re a fan of tangible assets and brick-and-mortar investments, tax deeds are right up your alley.
• Tax Lien: While tax liens can be tied to real estate, they also stretch to personal property and even financial assets.

And now for the outcome:

• Tax Deed: Buy a tax deed, and you’re setting the stage to potentially own the property. If all goes well, you might just get the keys.
• Tax Lien: This is where things get suspenseful. If the property owner doesn’t settle their debts within a specific time frame, the tax lien holder can initiate a foreclosure. But beware: if the lienholder dilly-dallies too long, they might lose their investment.

Finally, foreclosure vs. sale:

• Tax Lien Foreclosure: This is the dramatic climax for tax liens. If the property owner doesn’t cough up the owed amount, the lien could lead to a sale of the property.
• Tax Sale: This is the grand finale for the tax deed route. Delinquent taxpayers see their properties auctioned off when they reach a peak level of tax-payment naughtiness.

In the end, tax deeds are straightforward, while tax liens are intricate. Depending on your investment appetite and penchant for risk, one might just tickle your fancy more than the other.

How Do I Invest in a Tax Deed Property?

Thinking about dabbling in tax deed investing? 

Start by poking around local tax auctions. A lot of counties have their info online, making it a breeze. 

Once you’re in the know, swing by a tax deed investing auction. They happen online and in person, so take your pick. If you snag a property, be quick with the payment — usually, you’ve got about 48 to 72 hours. 

And once all the dust settles, that property is yours. Just be ready for any post-auction responsibilities, like handling former tenants.

Main Takeaways for Tax Deeds

If you’ve stayed with us this far, give yourself a pat on the back! 

You’re now privy to the ABCs of tax deed investing — a realm that can be both thrilling and financially rewarding. 

Whether it’s understanding what a tax deed is or learning how to navigate an auction, you’re set to proceed. Just remember to do so with caution. 

Now get to it!