“Retirement is wonderful if you have two essentials- much to live on and much to live for.” ~Unknown
We work hard our whole life to enjoy the relaxing days of retirement, but the key to healthy retirement is to have a large retirement fund, along with someone to spend it on. For regular professionals, their employers have a plan to help them get through retirement, but self-employed professionals and small business owners need to bear this responsibility too. Solo 401k retirement plans aim to offer the same comfort to them, and if you are self-employed, this is your chance to assure financial security in your retirement. One of the key features of Solo 401k plan is its alternative investing choices, including tax liens, tax deeds, real estate, private business, private funding, and similar non-traditional investments. In the previous parts of this guide, Solo 401k Tax Lien Investing: Understanding Tax Liens (Part One) & Solo 401k Tax Lien Investing: How to find tax liens? (Part Two), we discussed tax liens and the best methods to find them. This part will discuss the practical tips for buying tax liens along with short insights to educate you about Solo 401k plans.
Solo 401k Tax Investing: Different ways to purchase tax liens for Solo 401k plans
Solo 401k Tax Investing: Live auctions in county courthouse
The first option is to visit live auctions that take place in the county courthouses, usually once per year. You will attend the auction, which will include premium bidding, bidding down interest, or bidding on ownership formats. Much like any other auction, if you don’t have a plan in advance, you are likely to overspend.
- Start with a spending budget: Figure out the maximum amount of money you are willing to spend on your selected tax liens, and factor-in additional costs, including foreclosure and communication costs.
- Carry Solo 401k account check: Live auctions format may vary in different states, but a majority of states require immediate payment. Make sure to carry your Solo 401k account check for the purchase, as cash payment for the lien will not qualify as a valid Solo 401k transaction. Pay close attention to the proceedings and wait for the properties you plan to buy. In case of premium bidding, set an over-budget limit, including the amount you are ready to spend, and avoid intuitive bidding.
Solo 401k Tax Investing Benefits: Get real checkbook control with Solo 401k retirement plan, and invest without custodian consent.
Solo 401k Tax Investing: Over-the-counter lien purchase
Another option is to purchase over-the-counter tax liens, which includes liens that didn’t sell in previous biddings, although some counties may sell exclusive tax liens over-the-counter. You can find about available liens from the local municipality office, and research the property before making a purchase. After choosing the desired property, you can either mail a check to the municipality office or visit in person to collect the tax lien.
Solo 401k Tax Investing: Online tax lien auctions
Several counties are switching to online tax lien auction format, as these auctions are easy to manage for the municipalities, while offering easy access to the participants. Start with the rules of online auctions, as they may vary in different states. Some counties will require an initial deposit of 10%, whereas others may charge a non-refundable registration fee for online participation, with mandatory pre-registration. You will need a taxpayer ID number for participating in the auction, and some counties may require you to sign legal documents in person.
Generally, auction websites open several weeks prior to the auction date, allowing participants to do research on available tax liens. Once the auction starts, several liens will appear under individual batches, so you will need to be attentive, waiting for your target property. As soon as your target property is available, submit your bid before the batch closes. Keep in mind that different counties have different payment methods, and you might not be able to pay via credit card.
Solo 401k Tax Investing Benefits: Apply for non-recourse financing for real estate investments through Solo 401k retirement plans.
Solo 401k Tax Investing: Notify property owner about purchase & put expiration date in your ledger
Once you have the lien certificate, inform the property owner about the purchase, especially if it is a mandatory ruling from the municipality. Always include necessary details, starting with the total taxes, penalty amount, interest payment, and the last date to clear due payments. In the majority of the cases, local counties inform property owners about the sale, so they will expect some communication from your end. Maintain records for the entire communication dialogue and other details.
Solo 401k Tax Investing: Collect taxes or prepare for foreclosure
Generally, property owners pay taxes before the due date and the respective county will contact you to collect the payments. However, if things go south, you might want to start working on alternative options, starting with a foreclosure. For starters, you will need a legal expert who understands local laws for foreclosures originating from tax liens. The next part will be to file for a foreclosure, and follow the entire process until closure. At the end of it, you will be able to get your money back, although states have different rules concerning the rightful ownership of the remainder amount after paying the due lien amount. Keep in mind that any returns that originate out of the transaction should go back to your Solo 401k account only, along with expenses being made from the account itself.