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A Beginner’s Guide to Hybrid, Redeemable Deed, and Over-the-counter (OTC) Tax Sales

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If you’re new to property tax investing, you’ve probably heard about tax lien certificates and tax deed sales. But did you know there are other types of tax sales that might be a perfect fit for your investment goals? Hybrid tax sales, redeemable deed sales, and over-the-counter (OTC) tax sales offer unique opportunities to earn money by helping local governments recover unpaid property taxes.

Let’s break each one down in simple terms so you can see how they work and decide which one might suit your needs.

What Are Hybrid Tax Sales?

A hybrid tax sale is a blend of two common types of sales: tax lien sales and tax deed sales. In a traditional tax lien sale, you’re essentially lending money to the government by covering someone’s unpaid property taxes. This earns you interest until the property owner repays the amount. On the other hand, a tax deed sale involves buying the property outright after the taxes remain unpaid.

With a hybrid tax sale, you get a combination of these options:

  • You purchase a tax lien certificate, which represents the unpaid taxes on a property.
  • If the property owner doesn’t pay back the taxes within a specific time, you can acquire the property through a simplified foreclosure process.

Example: Let’s say you buy a hybrid tax lien for $5,000 in unpaid taxes. The property owner has a redemption period to pay back the taxes with interest. If they don’t, you can file to own the property.

Why Choose Hybrid Tax Sales?

  • They offer flexibility: You could earn interest on your money, or you might end up owning the property.
  • They’re great if you want more control over your investment outcome.
  • The rules vary by state, so it’s important to research the specific process where you’re investing.

What Are Redeemable Deed Sales?

Redeemable deed sales are like buying a ticket to the property, but the owner still has a chance to reclaim it. When you buy a redeemable deed, you’re buying a deed to the property, but the law gives the owner a period (called the redemption period) to pay back what they owe, plus a penalty. If they don’t redeem the property in time, you become the legal owner.

Key Points to Know:

  • Penalty Returns: The property owner pays a flat penalty rate instead of an interest rate. This rate can be very high in states like Texas (25%).
  • Redemption Period: The time the owner has to redeem the property varies but is usually between 6 months to 2 years.
  • States Offering Redeemable Deeds: States like Georgia, Texas, and South Carolina are known for this type of sale.

Example: You buy a redeemable deed for $10,000, and the penalty rate is 20%. If the owner redeems, they pay you $12,000 within the redemption period. If they don’t, you get the property

Why Choose Redeemable Deeds?

  • They often have higher returns than traditional tax lien certificates.
  • You have the security of owning the deed if the property isn’t redeemed.

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What Are Over-the-Counter (OTC) Tax Sales?

Over-the-counter tax sales are exactly what they sound like: unsold tax liens or tax deeds that are available after the auction. During a tax auction, not every lien or property attracts a buyer. Counties don’t want these unpaid taxes lingering, so they sell them directly to investors after the auction, often at a discounted rate.

How It Works:

  • Check with the county to find out which tax liens or deeds are still available.
  • Purchase the lien or deed directly from the county without competing with other bidders.

Key Advantages:

  • Lower Competition: Since these are unsold items, there’s no bidding war.
  • Affordable Options: These are often less expensive, making them great for beginners.
  • Fixed Returns: For tax liens, the interest rate is usually set by state law and doesn’t involve bidding it down.

Potential Risks:

  • Some properties may have issues, like being landlocked or having environmental problems. This is why due diligence is so important!

Example: A property with $3,000 in unpaid taxes didn’t sell at the auction. You purchase the tax lien over the counter. If the property owner redeems it, you earn the interest. If not, you may eventually own the property.

How Are These Different from Regular Tax Lien and Deed Sales?

  • Hybrid Sales: Blend tax lien and deed sales, offering flexible outcomes.
  • Redeemable Deeds: Provide a high penalty rate but require a redemption period.
  • OTC Sales: Allow you to buy properties or liens that didn’t sell, often for a lower price.

Why Should You Consider These Tax Sale Types?

  • Diverse Opportunities: They give you more ways to invest beyond traditional auctions.
  • Higher Returns: Redeemable deeds often come with penalty rates that exceed the interest on tax lien certificates.
  • Lower Barriers to Entry: OTC sales are especially helpful if you’re just starting or have a limited budget.

Things to Watch Out For

  • Research is Key: Always investigate the property before buying. Check for issues like unpaid utility bills, property access, or structural problems.
  • Understand State Laws: Each state has its own rules for tax sales, redemption periods, and penalties.
  • Have a Plan: Decide whether your goal is to earn interest or own property and tailor your strategy accordingly.

Tax investing can feel overwhelming at first, but hybrid tax sales, redeemable deeds, and OTC sales open the door to exciting opportunities. With a little patience and research, these options can help you grow your portfolio while supporting local governments.

Let’s explore these methods further. Book a call with us now and save 3-4 years of trial and error.

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