Investing in tax liens isn't exactly a get-rich-quick endeavor, and it's not without its risks. Done correctly, however, it can turn a tidy profit – if you know where to find the properties. Taxes are a matter of public record, so finding properties headed for auction isn't usually too difficult.
How Tax Liens Work
You're looking for homes and buildings whose owners haven't paid property taxes in some considerable time. Municipal and county tax authorities aren't willing to let this go on forever, so they eventually allow others to pay the taxes in exchange for liens against the properties. The tax collector will schedule an auction, allowing investors to bid for the right to pay the taxes and acquire the liens.
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If you win the bidding, you can make money in one of two ways. If the owner wants the lien removed, he must reimburse you for the taxes you paid, plus interest. He has a period of time -- called a redemption period -- to do this. If he doesn't act by the deadline, you can foreclose on the property and take ownership of it, according to Bankrate.
Watch the Newspaper
Some areas, such as Florida, post delinquent properties in newspaper notices. You can begin your search there and narrow it to properties you're particularly interested in. Bankrate suggests then visiting the municipal or county tax office to actually review the property records. You can do this even if there's no newspaper notice -- you'll just have to scroll through a lot of properties you're not really interested in to find those you might want to invest in. Viewing the properties' files can prevent you from buying a pig in a poke, such as by purchasing a lien that can't be perfected because the tax collector didn't provide proper notification to the owners or he made a mistake with some other technicality. Looking at the property's records can give you some peace of mind that everything is in order.
Check Out Government Websites
Many metropolitan areas post their auction dates on their county or state websites. Some states, like New Mexico, go a step further and list each property's details, including the assessed owner and the address. You can take a ride and make sure the property's not a pile of rubble, or make sure the owner isn't deceased so you avoid getting tangled up in a probate proceeding if you successfully buy the lien.