Are Tax Lien Certificates A Good Investment?

 

Who doesn't want to make a guaranteed quick buck? Those who are savvy enough - and can generate enough initial investment capital - have found the relative safety of buying tax lien certificates an investment that is a relatively easy and fast way to make money.

Unlike house flipping, which requires the investor to front initial purchasing and remodeling costs - not to mention the stress caused by overseeing large renovation projects and the risk of a market slow-down -- tax lien investment may yield less initial profit on some buys, but is a virtually risk-free investment opportunity.

Property Tax Liens are legal judgments placed on a house or parcel of land for failure by the property owner to pay their local and state real estate taxes. A lien prevents the owner from selling the property, and allows the taxing authority to take ownership (repossess), or otherwise sell the property in order to recoup lost tax revenue.

Purchasing Lien Certificates is an easy way to either make a small profit immediately, or a larger one in the near future.

Investing in tax lien certificates is not the same as buying the property outright. When purchasing a lien certificate, the investor is actually paying the outstanding tax bill at auction for the property owner, with the promise of being paid back (with interest), in a timely manner.

If the owner can produce the funds necessary to buy the lean back, the investor has the satisfaction of knowing that he has helped a property owner save his home from foreclosure, while making a small profit on the interest the transaction generates If, however, the property owner fails to pay the certificate owner back within the specified timetable, then the lien certificate owner may take ownership of the property and either sell it at a lien deed auction; make necessary repairs and upgrades and sell it on the open real estate market; or sell it as is to another real estate investor.

Acquiring property in this manner is virtually risk-free considering that most tax lien certificates are purchased for a fraction of the value of he house or land.

There are some things investors of this type should watch out for before buying any tax lien certificate investment:

  • Be sure the property is indeed worth more than the taxes owed. Although not common, there have been reports of property owners allowing unusable properties to be sold at auction in order to get out from underneath their tax burden. Always inspect the property and check to make sure it is a profitable purchase.
  • Have Cash On Hand. Most tax lien auctions require the full purchase price at the time of sale - either in cash, or a certified bank draft.
  • Understand the rules of tax lien certificate sales in your area. While the basic rules are the same, every county and state has their own individual laws regulating the sale of tax liens and the acquisition of property. Research your local laws carefully to fully understand your responsibilities and limitations as the lien holder.

While purchasing tax lien certificate investments can yield a tidy profit for the careful investor, every real estate transaction does hold some risk, and should be carefully considered before making any purchase.

 

Investing In Tax Liens