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Public tax liens and tax deeds are the ideal choice for some investors, in part because they do not require a lot of money to get started. A public tax lien is placed on a property when its owners fail to pay the property taxes for that home, land, or business. The investor pays the property tax in the owner's stead, and then adds on a penalty or interest payment to be paid by the homeowner. The homeowner now has to pay the investor back the amount of the taxes paid for him, plus the interest or penalty determined by the investor, which then serves as the investor's profit. If the owner cannot repay the taxes after one year, the investor has the right to take possession of the property. Since many homeowners are unable to pay their taxes, many investors have found this to be an efficient way to acquire real estate. It actually helps homeowners by giving them another year (or more, depending on state statutes) to catch up on their back taxes—something the government would be unwilling to do. If the homeowner is simply unable to catch up, the property would have been auctioned anyway, but now it goes right into the hands of the investor without having to go through the process of a public auction. The deeds to these tax properties are called tax deeds. Though the above is the general process, it is imperative that you check with your state to verify its exact procedures. Some states will allow you to buy the public lien without giving you the property; other states give you the tax deed immediately—that is, you not only pay the back taxes, but you acquire the property immediately. The owners must then negotiate with you if they want to re-acquire or retain their property (which is now yours, of course). However your state works things, you can often acquire property through public liens at pennies on the dollar. Property taxes on homes or businesses can range from several hundred to a few thousand dollars, but that is a very small price for real estate property. If your county's property taxes are $1000, and you pay off that lien for a homeowner, and then eventually take possession of a $90,000 house, you have saved $89,000. You can then sell the home or property and keep the profit for yourself or invest it in more real estate. Public liens are often the result of an unfortunate situation, when homeowners fall on hard times and are unable to meet their obligations. Keep in mind, though, that while their situation is unfortunate, you are actually giving these homeowners a second chance to meet their obligations. If they can't do that, they will lose their property to someone—either a private investor, the government, or the bank. There is no shame in acquiring a tax deed through a public lien and it can be an excellent investment for you and your community.
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