Invest in Tax Liens and Deeds with Retirement Funds

Many people know that real estate is a preferred asset in a self-directed IRA. It’s the number one investment clients of Advanta IRA choose to use to build wealth in their plans. Anything from commercial and residential property to rehabs and rentals to farm and timberland falls within the real estate-investing realm. This article explains how to invest in tax liens and deeds with retirement funds.

A few other real estate-related investments we see are in tax liens and deeds. Acquiring these assets Handsome investor who invests in tax liens and deeds with retirement funds reviewing paperwork. . is a fairly common technique that many people use to earn income. In the case of using retirement funds, your self-directed IRA makes the purchase. It earns tax-sheltered income on the interest due on the lien or by reselling the property attached to a land deed.

Here’s how investing in tax liens and deeds with your retirement funds works

The municipalities where the property is located sell tax liens and deeds for homes that are in arrears on these taxes. Why do they do this? Because cities and counties depend on the income these taxes generate. They can recoup this on a timely basis when investors purchase the liens and deeds for property whose owners have fallen behind on these payments.

After a certain period of time when taxes are in arrears, the municipality auctions off the liens and deeds to the highest bidder. Investors purchase them at an amount that includes late fees, taxes, and interest due at the time of sale. If you use your self-directed retirement plan to make these purchases, your IRA is listed as the owner of the certificate and earns tax-sheltered income on any gains the investment produces.

In the case of tax liens, the purchaser owns the note and is responsible for collecting payment from the property owner. New interest rates are set—and are typically higher than the governing entity charges. The investor makes income as the note is repaid. The average term of the new lien is usually set between one and three years. If the property owner defaults, the note-holder takes possession (adding another opportunity to earn income through resale).

Tax deeds operate in much the same manner, except in these transactions the deed to the property is sold. This gives the buyer ownership of the property. Investors can rehab-and-flip homes for a quick profit or use the property to gain consistent income over time on rental payments.

Purchasing tax liens and deeds can be relatively cheap, all things considered. However, if you haven’t done your due diligence it can be quite costly, too. Make sure there are not additional liens on the properties (like a huge mortgage, or a lien placed by a contractor that was never satisfied). Take proper steps to have additional liens removed. Otherwise, you’ll have a potential financial disaster when you purchase the liens or deeds associated with the property. You also want to investigate the area the property is located. If there’s not much chance for resale to earn a profit, you may want to reconsider investing in that particular parcel.

Also, when you invest in tax liens and deeds with retirement funds, all income flows directly into that account. And, all expenses must be paid with funds from the account. This matters if you find yourself in a situation where the payee of the tax lien defaults and your IRA takes ownership of the property. You must be sure your IRA has enough capital in it to cover any costs for maintenance or renovations.

If you’ve properly vetted your investment and all the particulars involved, you have the potential to earn income like many others do by investing in these alternative options.

About Scott Maurer

Scott Maurer, Vice President of Sales for Advanta IRA, is a recognized expert in the field of self-directed IRAs. With a law degree from the University of Florida and as a designated Certified IRA Services Professional (CISP), Scott’s keen understanding of rules and regulations fuels his passion to educate others on the power of investing in alternative assets using self-directed IRAs. Scott is a frequent guest on retirement and investing webinars and podcasts, and he has shown thousands of individuals how to achieve financial freedom by teaching them how to use their retirement funds to invest in private placements, real estate, private lending, and more. Throughout his two decades in the industry, he has watched numerous unique investments unfold, giving him great perspective of what is possible when people take control of their retirement funds and investing decisions.