Avoid These 5 Risks Using Tax Liens in Houston

Using tax liens in Houston is an attractive yet widely misunderstood investment option that is becoming more popular. Here is a cliff notes guide on how they work. Every city and county collect property taxes on real estate.

When property owners fail to pay the tax bill, the city is more than happy letting you pay someone else’s tax bill. This doesn’t come without risk to the investor.

What do you get for being the kind person paying someone else’s taxes? You earn interest on your money with the property as collateral. In the case they dont pay you can foreclose on their house and sell it to get your money and more.

Sounds pretty simple, right?

Don’t be fooled. For every investor making money with tax lien investments, there are a dozen others losing in the process, barely breaking even or losing money because of some unforeseen risk.

Avoid these 5 risks using tax liens in Houston

Property Has No Intrinsic Value

People often assume that all real estate properties have value. Not always true. There may be a valid reason why the property owner isn’t paying his property tax bill. Maybe it’s in in a flood zone or is in such bad shape it need to be torn down. Maybe the owner thinks the house is haunted or even overrun by gang members.

So buying a tax lien on a property that the original owner couldn’t even unload my not be the greatest thing. Plus, If the property is deemed a nuisance or hazard, you could become liable for additional costs once you take ownership.

The bottom line: visually inspect homes and neighborhoods as best you can, talk to realtors in the area about crime, hazards and other potential supernatural issues, and determine if the owner is abandoning the property for any reason other than financial hardship.

Other Tax Liens in Houston

Generally, property taxes in Houston take the first position in a foreclosure process, meaning it can write off an entire mortgage for the cost of a tax lien. While this sounds great, you may find yourself stuck with other taxes that don’t get forgiven in the foreclosure process including potential county, city or public school taxes. Check with the county assessor’s office before tying up your investment funds on properties with other encumbrances.

Not Fully Understanding Purchase

Tax lien sales vary from state to state and even within counties. Tax lien sales are different than tax deed sales. Tax liens are an investment over time where a deed sale gives you ownership immediately (This is how Houston is). If you’re paying a higher premium for a tax lien mistaking it for a tax deed, you’ll probably overpay for something that you thought gave you ownership of the property.

When you buy a tax deed you get the property BUT there are redemption rights. ie. If the house is home steadied they have 2 years to pay you back plus internet. 25% the first year and 50% the second. This also means you have to evict the owners to get the house. It can have some challenges.

Talk to the tax collection office to make sure you understand how deed sales and tax liens in Harris County (Houston) work, what the process is and how foreclosures in Harris County works. Don’t assume that a good deal in Harris County is the same as another deal anywhere else in the country.

Laws and Politics Vary and Change

Unfortunately, things change in the investment landscape. Bankruptcy laws might delay foreclosures in some areas.  A foreclosure judge might not let you throw 98-year old Aunt Mae to the curb for being old and poor. This is also why you should do your do diligence. Being a good investor Is also about being a good person. Some times getting the house means you have to help someone in hard time. this is were creative thinking comes in. Like Buying her redemption rights so she has money to live in the future but also gives you a good deal on the house. But another topic for another time.

When you invest in Houston, make sure you understand and stay abreast of the rules that affect your investment. If you can’t, consider sticking closer to home with your hard-earned money.

Poorly Researched Auction Purchases

Auctions are exciting. This is good for auctioneers and cities. It isn’t good for an investor getting caught up in the emotional feeding frenzy. Don’t be the minnow, be the shark.

Sharks know exactly what properties they want and the max price is for each. They set their Max offer BEFORE they go. They know this because they researched every public detail available on the property and then conducted a visual inspection. Sharks estimate costs associated with fixing it and what the market in Houston will yield.

Sharks know their profit margins well. Take your time, learn the process and jump in when you know enough details to make smart investment decisions.

When considering new investment strategies, let us help you avoid the risks of using tax liens in Houston. Give us a call at 832-210-3088 or fill out the form on our website today.