Cap Rate & tax Lien- Explaining the Two Major Terms of Property Investment

Real estate is a prospective yet perplex subject for the investors. Are you too interested in real estate investing? Well, the article here can come handy for you as it’s a brief on two of the major terms in a property investment space- cap rate & tax lien.

Cap rate

Cap rate or capitalization rate is the tool by which the property investors decide on the worth of their income property. In simple words it can be said that the capitalization rate reflects the yearly return on your investment before the mortgage payments & property taxes. The broker would price the property counting on its NOI (Net Operating Income) & then divide that by sales price which brings out the cap rate of a property. So, if the income property comes with the NOI of 125,000 USD & the sales price is 1,125,000 USD – then as per the calculation the cap rate would be 11.1 %.

125000/1125000= 11.1%.

Tax lien

Tax lien investing is one of the potential forms of investment in the real estate space. Every county or city collects property taxes from the property owners which help the government to complete its budgetary obligations towards the citizens. Now, in case the property owner is unable to pay the taxes in time, it becomes difficult for the government to fulfill the budgetary obligations. In this case the due tax becomes lien against that property. The government needs money and when the property owner is unable to pay the property tax the government is authorized to put up that property for sale on public auction. The investor who buys the delinquent property would be issued the Tax Lien Certificate on the basis of which the property owner would have to pay him the actual tax amount & interest charges within the redemption period. In case the property owner fails to fulfill his obligations within the set period, the Tax Lien Certificate owner gets “absolute deed” of that property.

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