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What is A Hybrid Tax Sale?

Understanding a Hybrid Tax Sale. When it comes to tax sales, investors usually think of tax lien sales or tax deed sales, but there is a lesser-known third option: a hybrid tax sale. In this article, we’ll break down how hybrid tax sales work and why they may be worth considering for investors seeking a profitable and relatively safe investment.

Hybrid Tax Sales are a mix of tax lien and tax deed sales. In some states, a property goes up for sale as a tax lien certificate, but if the lien isn’t redeemed (the back taxes aren’t paid), the buyer can receive a deed to the property.

This two-step process provides flexibility:

1. First Step: Purchase the tax lien, which allows the property owner time to pay off their debt.
2. Second Step: If the owner fails to redeem the property within the redemption period, the lienholder can acquire the deed.

This hybrid model is beneficial because it provides the chance to earn interest during the lien phase while also securing the property in case the lien isn’t paid off.

How Do Hybrid Tax Sales Work?

Step 1: Bid on a Tax Lien: Investors bid at an auction for the right to pay unpaid taxes. The highest bidder typically pays the lowest interest rate they’re willing to accept.

Step 2: Redemption Period: The property owner has a set amount of time (usually between 6 months and 3 years, depending on the state) to repay the taxes plus interest.

Step 3: Property Acquisition: If the owner does not redeem the property, the investor can claim the deed and take ownership of the property.

Hybrid tax sales blend the earning potential of interest payments from tax liens with the possibility of acquiring real estate through tax deeds.

Why Invest in Hybrid Tax Auction?

1. Potential for High Returns

Investors can earn interest on the amount paid for the tax lien. If the property owner redeems the lien, investors collect this interest, which can be higher than traditional savings accounts or bonds.

2. Lower Risk with Dual Opportunities

In a hybrid tax sale, if the property owner redeems, you get a return through interest. If they don’t, you potentially get the property. This dual opportunity makes hybrid sales an attractive option for risk-conscious investors.

3. Property Acquisition at Discounted Prices

If the owner fails to redeem the property, investors can acquire real estate at a fraction of its market value. This can lead to significant profits, especially in regions with rising property values.

Pros

Interest Earnings: Even if you don’t acquire the property, the interest payments can provide steady returns.

Property Ownership: In the case of non-redemption, investors can become property owners without having to pay full market value.

Lower Initial Investment: Bidding on tax liens generally requires less upfront capital compared to buying real estate outright.

Flexibility: You have two chances to profit—either through interest or property acquisition.

Cons

Delayed Returns: Investors may need to wait months or years before knowing if they’ll earn interest or acquire the property.

Property Condition: If you end up with the deed, the property may be in poor condition, requiring repairs or upgrades.

Due Diligence Required: Researching the property and its potential issues is essential to avoid unwelcome surprises.

FAQs

Q: What happens if a property is redeemed?
A: If the property owner pays off their back taxes, you receive the interest on your initial investment.

Q: What is the redemption period?
A: This varies by state but typically ranges from 6 months to 3 years. During this period, the property owner has the right to pay off the tax lien.

Q: Can foreign investors participate in hybrid tax sales?
A: Yes, in most states, hybrid tax sales are open to both domestic and foreign investors.

Q: How do I find hybrid tax sales?
A: Hybrid tax sales are held at county auctions. Some states also offer online auctions, which can make participation more accessible for remote or international investors.

Why Is It a Great Option for Investors?

Hybrid tax sales combine the best of both worlds, offering investors a chance to earn interest with a safety net of property acquisition if the lien is not redeemed. This dual opportunity can lead to high returns while also minimizing risk, making it an excellent option for both beginner and seasoned investors.

Pro Tips for Investors

• Always Perform Due Diligence: Research the property thoroughly before bidding. Know the property’s condition, location, and any potential liabilities.
• Monitor Deadlines: Keep track of the redemption period and any required actions to claim the deed.
• Attend Online Auctions: Some states offer hybrid tax sales online, allowing you to participate from anywhere.

Ready to explore tax hybrid tax sales? Book a call or claim our FREE tax lien and tax deed courses to begin your journey today. All the resources you need are here: Free Courses & Book a Call.

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About Dustin Hahn

Dustin Hahn is a Tax Lien & Deed investor with over 22 years of experience and hundreds of deals under his belt. He created Tax Lien School.com to help you buy Tax Deeds up to 90% off mortgage free and earn up to 36% ROI with Tax Liens. This site was voted the “Most Useful Resource” for new investors. Dustin’s YouTube Channel is the #1 Channel on Tax Liens & Deeds with over 98,000 Subscribers and 3600 videos to help you start. “The Best Time To Start Real Estate Investing Was 20 Years Ago, The Second Best Time Is TODAY!”

20+yrs

5–10deals/mo

2009TLS founded