I don’t know anyone who likes to wait.
Waiting can be stressful. Like when your flight is delayed because of mechanical issues or when you’re stuck on hold awaiting the next available representative or — my favorite purgatory of all — going to the DMV.
On the outside, you’re the picture of poise and fortitude. But on the inside, you are suppressing an incensed scream. With each passing minute, your blood pressure rises until all anger subsides and you sink into hopelessness. You are now a hostage — powerless and subject to the timetable of others.
But when you’re the one in charge, how do you know when to pull the trigger? By that I mean when the right of redemption period expires, how do you know if you should exercise patience or begin the foreclosure process?
Let’s take a look at your options…
To Wait or Not to Wait
There are distinct advantages and disadvantages to waiting. First, let’s examine the benefits of holding onto a delinquent tax lien:
- You’ll keep accruing interest. By holding onto the tax lien, you can continue to accumulate the annualized rate of return.
- There is a higher probability the property owner will default. If this happens, you can procure the deed to the property for a fraction of the property’s value.
- The property value may increase. The local real estate market may grow stronger and the value of the property continue to appreciate while you hold the tax lien. If you end up with the deed to the property, it could be a much more valuable property than if you immediately initiated foreclosure.
Now let’s look at the disadvantages of holding a tax lien too long:
- Your expenses may increase. Every additional month you hold the tax lien, the out-of-pocket expenses to satisfy the other tax lien holders will increase. This impacts the profitability of selling the property if you acquire the deed.
- The property value may decrease. Not all property owners maintain their houses or investment properties to a satisfactory standard. If they neglect the property, it could depreciate in value, which also affects the profitability of selling the property if you end up with the deed.
If you continue holding a tax lien after the right of redemption period has expired, I recommend periodically checking on the property via Zillow.com or Trulia.com. You’ll be able to keep tabs on the state of the property, as well as the economic condition of the surrounding area.
Also, look at what comparable properties have sold for within the past six–12 months. If the real estate market starts trending downward, you should nudge the property owner for payment, receive the interest and move on.
Really, How Long Is Too Long?
That depends on you. There are no hard-and-fast rules, because everyone has a different level of real estate savvy.
Some people might want to start the foreclosure process immediately after the right of redemption period expires, and that can be right. In fact, that would probably be the safest and most economical strategy.
Other people might want to continue accruing interest and wait six–12 months before nudging the property owner for payment. That, too, can be right.
Once I held a tax lien for 51 months before initiating the foreclosure process and nudging the property owner for payment. Why did I wait so long? Part of the reason I waited was because I was also investing in rental properties at the time…
At the end of 2013, when the right of redemption had expired on this particular tax lien, I made the decision to liquidate my rental properties. I became focused on rehabbing and selling my rental properties and simply allowed my tax liens to continue earning interest.
Because although I had management companies overseeing my rental properties, I had grown tired of constantly replacing window blinds, repairing AC units, painting, cleaning carpets, etc.
I was also weary of dealing with tenants. On more than one occasion, I forgave nonpayment of rent to help a tenant get back on their feet financially. (I’m on the softhearted side.)
Through all the hassle of maintaining rental properties, I learned firsthand that no good deed will go unpunished.
That’s why investing in tax liens is my No. 1 real estate strategy today. They are a safe, high-yield investment secured by a hard asset (real estate) and hassle-free.
In the event the property owner defaults and I do get the deed, I’ll sell the property as is or wholesale to another real estate investor. My goal is to get in, get out and end up with a healthier bank account.
And that’s easy to do by investing in tax liens. You either win big or win bigger.
Expect the best,
Mark R. Walter
P.S. Even though Mark waited over four years, all’s well that ends well. The property owner redeemed, and he received an awesome 79.5% rate of return on his investment. That’s the power of investing in tax liens — you’ll never see a rate of return that good on traditional investments. Click here to start your tax lien investing journey today.