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Guide to Real Estate Investing: REITs & Tax Liens
Posted By Guest Contributor On 06/12/2008 @ 6:49 am In Investing | No Comments
This is the final installment to the Trisha Allen’s Guide to Real Estate Investing.
As a reference, the Active/Passive measure is a five star scale with one-star being the most active and five-stars being the most passive.
A Real Estate Investment Trust is an entity that invests in real estate–usually large commercial cashflowing rentals. When you invest in a REIT, you’re not buying real estate—you’re buying stock in a company (a trust, actually) that buys and manages real estate. Typically, you’ll receive dividends. But, dividends from REIT’s are taxed at ordinary income tax rates, unlike stock dividends. So, REIT’s may not be a great choice for people in higher tax brackets.
Entrance Difficulty Level: Easy
Tax liens are imposed on properties when property taxes go unpaid for an extended amount of time. And, until the overdue taxes, accrued interest, and fees are paid to the local government, the tax lien will stay with the property. Anyone purchasing the property will be subject to the lien. In many states, private investors can purchase the liens themselves as tax lien certificates—which then transfers the government’s interest and rights over the property to the investor! The rules vary from state to state. But, in some states, when you purchase a tax lien certificate, you receive the right to collect the interest on the unpaid taxes. The interest rates can range from 8% to 50% per year, depending on the state. Also, depending on the state, if the taxes go unpaid for long enough, the tax lien certificate purchaser can either sell the property or the property will be auctioned off for them to collect the total amount of interest and fees.
Entrance Difficulty Level: Easy
Note: I did not include a category regarding purchasing property in hopes of capitalizing on future appreciation. In my mind, that’s not investing—it’s gambling! If the property doesn’t cashflow well or can’t be sold for more money than was put into it, a buyer is taking a HUGE risk that could result in selling at a significant loss or losing the property to foreclosure.
An educated, careful investor has no reason to be afraid of investing in real estate. With an education behind you, you’ll be able to spot opportunities as they come along—sometimes when no one else can! Much of the knowledge you’ll need can be found for free by investigating online resources like blogs, forums, and even reading books from the library or while sitting in the café at your local bookstore. Now, don’t just read one motivational book and think you’re ready! Take the time to get to know your target market, cover your bases, and you should do just fine.
I’ve done real estate investing successfully since 2003 and have blogged about it since 2005. A word to the wise: before you invest, check with an attorney and a CPA to evaluate your goals, investing options, and the laws in your state.
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