I am a student who recently took out a private student loan for school. I will have roughly $10,000 left after I pay a few debts off. I want to find a way to invest the remaining money so that I can create a profit on the loan, and I was interested in buying a tax sale home. The problem is, I know nothing about this. I have looked online, but can only find sites where people are trying to sell their "get rich" programs. I want to know the negatives to this type of home purchase, and how to get started if I decide to go further.

Jaime Spencer

It is not always the deal you think it could be. These go to auction and end up with the highest bidder, in my state the homeowner has a 6 month period of redemption where they can try to repay all outstanding debt and accrued interest. If they manage to do this then they can reclaim their property. After six months, you are given a sheriff's deed to the property.

I found this description on the interweb:

"Anyone can buy a home for a fraction of its appraised value at a tax foreclosure auction, but few people know how. There are foreclosed properties in virtually every city that will be going to auction, and anyone is eligible to bid on them.

All properties are subject to taxes, but not everyone who owns the property is able to pay the taxes on them. When the property owner gets behind on their taxes, the government agency (either the state or county) will conduct a tax foreclosure auction and sell the property to the highest bidder.

The laws regarding the sale of the property depend on which state the property is located in, so before you head down to the auction block, you need to be familiar with the rules and regulations for your state. Some states require the full purchase price to be paid on the date of the auction; other states will allow you pay off the purchase within a certain time frame. Some states require a cashiers check on the date of the auction; others will allow the fees to be deposited the next day. Again, check with your state to determine what the rules and regulations are.

Most property owners that have a home that is headed for a tax foreclosure auction will redeem the property prior to the auction. So the property that you really would like to purchase may not even be auctioned at the sale.

Keep in mind, the property owner may have additional rights to redeem the property after auction. If this happens, the owner usually must pay the fees and interest to the person who bought the property in the auction. Depending on the state, these interest charges can be quite substantial. Several people actually make a good living buying and redeeming properties at the tax foreclosure auction.

Usually the state sets the minimum price that the property must sell for, if that price is not reached, the state will acquire the property. Usually, this property will go back on the auction block with a reduced price.

This is not a get rich quick scheme (most of them never work), but it is a legitimate investment opportunity to buy property at below appraised value. You may not always get the home you were looking at, but sometimes you really can get lucky and get a home at substantial savings."

I recently happened upon John T. Reed Publishing, while researching tax foreclosures after seeing John Beck's infomercial. Seems to have a good deal of info for the beginning real estate investor as well as reviews of the get-rich-quick gurus.

$10K is not enough to invest in this area. Its also a very speculative, high risk investment.

Actually $10,000 is enough to begin investing in tax sale property. Just not by buying tax liens or tax deeds as the infomercial says.

Instead, find properties that have already had a tax lien sold against them, or are heading to a tax deed sale, and offer the owner a small amount of cash in hand if they're unable to pay the taxes (say $200 - $500). Then do a title search and purchase the property without paying the taxes.

Then you can pay the taxes or resell the property before the tax deadline to make a profit. This way you let the tax sale buyers research all the properties (this is a major headache of tax lien investing) and let most of the buyers pay off the tax liens, as they always will, and concentrate on those losing unwanted properties.

Rick Dawson
DeedGrabber.com

Here is a specific example.

My state sells tax liens with a one-year redemption period. Meaning that the owner loses the house after the lien is on the property for one year.

So I went and looked up what houses had liens put on them at the last sale. Then I checked which ones had been paid. Now I had a list of the ones that were still active and these were about 9 months old already.

I sent letters to all the owners telling them they were about to lose their property and asking if they were going to let it go. One person said he was going to let it go and I offered him $1000 for the deed to his property. I checked the title and it was clear. I bought the property and sold it for $16,000. After I paid the taxes due out of that I walked away with $10,000.