Solo 401 k Tax Lien Investing: How to find tax liens? (Part 3)
“In this world nothing can be said to be certain, except death and taxes.” ~ Benjamin Franklin
“Diversification is not just about investing across asset allocation but also across tax-advantaged investments.” ~ Joel Bruckenstein
Benjamin Franklin was able to summarize one of the biggest financial realties in a single quote, whereas Joel Bruckenstein emphasized over the importance of tax-advantaged investments in a diversified portfolio. These quotes reflect the incessant nature of taxes, and the power of tax-advantaged investments. Is it possible to combine both of these qualities into a single investment? It is possible!
Solo 401k is a retirement plan for self-employed professionals and small business owners, and it allows investing in tax lien certificates as well as tax deeds. It comes with the ability to grow your investments tax-deferred, as the taxes are applicable only on distribution. At the same time, tax lien investments offer a stable return without any of the market risks. In this first part of this series, Solo 401 k Tax Lien Investing: Understanding Tax Liens (Part One), we discussed the benefits of investing in tax liens, including different types of tax liens, pros and cons of investing in tax liens, and tips to generate healthy returns with tax liens. In this part, we are going to discuss the best practices to find tax liens for your Solo 401k retirement portfolio.
Solo 401 k Tax Lien Investing: How can you find tax liens for Solo 401k portfolio?
The availability of tax lien certificates depends upon the state you are residing in and at least 25 states in our country offer tax liens, whereas the others offer tax deed certificates. The states offering tax lien certificates are:
Alabama, Arizona, Colorado, the District of Columbia, Florida, Illinois, Indiana, Iowa, Kentucky, Maryland, Mississippi, Missouri, Montana, Nebraska, New Jersey, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Vermont, West Virginia, and Wyoming.
It is quite likely that tax liens are known under different names in different states, such as tax sale certificate, tax sale receipt, tax claim, tax certificate, certificate of delinquency, certificate of purchase and similar synonyms. However, their contents and working mechanisms are more or less similar in each of these states.
Solo 401 k Tax Lien Investing Benefits : Solo 401k investments enjoy tax-free growth, which means your investment will grow without annual tax deductions, hence accelerating the growth of investment.
Solo 401 k Tax Lien Investing: Focus on a target county
The local municipality issues tax liens, so you need to focus on specific counties, or set a range for your search. An online search will help you find out the public records of any county, and the key is to choose one with slightly bluer financial statistics, as they are likely to offer better returns. While choosing a county, keep in mind that different counties have different real estate laws, which might put a limit over what you can do in case no one comes forward for redemption. The same rule applies to the foreclosure laws in any of these counties, and if you are not an expert on foreclosures, it is best to hire a local real estate lawyer.
Solo 401 k Tax Lien Investing: Prepare a list of available liens and property research
“Don’t buy the house, buy the neighborhood.” ~ Russian proverb
If you have physical real estate in your Solo 401k portfolio, you are likely to be aware of the property research process, and the same is required in lien purchase. Before you choose a lien, make sure to research the underlying property. Your target should be liens representing single-family homes, mortgaged properties, homestead properties, and multi-family housing units. On the other hand, avoid tax liens that represent vacant lots, commercial properties, or abandoned houses/properties. Do research on the neighborhood and about the current property owner. Your preparation should be nothing short of what you would do for purchasing that property directly.
Once you complete necessary research, prepare a final list of properties, and make sure to target them in the auction. Tax lien auctions are much like any other auctions, so don’t come under any influence or external factors.
Solo 401 k Tax Lien Investing Benefits: Higher Solo 401k contributions, up to $59,000 in 2015, opens multiple investment options for investors. You can invest in real estate, tax deeds, private business funding, or purchase precious metals with the fund.