Seven Reasons to get into Tax Lien Investing
Tax lien investing is well off the radar for most of the public. But, that’s only because it is not promoted by brokers or real estate agents. And why should it? No one can earn a commission because you buy straight from the county or municipality! The returns are great—up to 24% a year in some states. Here are seven reasons why you should get into tax lien investing:
1. Great returns. While the 24% is only found in one state (Iowa), the rate of interest you earn is typically in the teens for almost all states selling delinquent property tax liens and certificates. Plus, with quick redemptions (meaning, when the taxpayer pays you back), your annual returns could be much much higher if you reinvest your funds throughout the year.
2. Safe Investment. Tax lien investing is more secure than the mortgages held by the banks. Why? Because you take priority over them! As a delinquent tax lien investor, you take the place of the tax collector. There is no one ahead of you. You are on equal basis with the IRS, municipal fines, other property taxes. And, in some states, you can buy those fines and taxes and roll them into your own investment.
3. You could end up with the property and a gain. What happens if the taxpayer doesn’t pay? You can get the property! That’s right, in as soon as a year, you can receive deed to the house, land, office, whatever real estate you held the lien on. You can then sell, rent or hold that property for an additional gain.
4. The county or municipality forecloses for you. In most states, you don’t even need an attorney to foreclose on the property. The county does it for you! All you need to do is notify them that you want to begin foreclosure (after the statutory redemption period expires) and they do all of the hard work of running title, notifying parties of interest, and auctioning the property.
5. Your attorney is paid for you. In those few states that require you to hire your own attorney to do the foreclosure, the taxpayer is billed—not you! So, if you start the foreclosure and the taxpayer or lender pays their taxes, you can charge for your attorney bills. You may even be able to get paid yourself for part of the work!
6. You can double or triple down on your investment. If you purchased an initial delinquent tax lien, you have priority in most states, to purchase subsequent taxes that become due. And, those taxes may have a much higher rate of interest than your first investment.
7. It’s enjoyable. If you like real estate but don’t want the hassle of tenants, brokers, repairs, title companies, etc., then this may be right for you. You spend your time performing due diligence—researching the market, the property, and your competition. Then, you make your investment and wait for your return!
Tax lien investing can be a safe and profitable, but there are risks. We’ll get into an overview of risks in my next tax lien summary then look into each state’s procedures at taxliens.garrettcapitalmanagement.com.
Comments (7)
I must say J.G. this was a very well informed and just outstanding explanation of the tax lien certificate process on just a few basic knowledge. I have been doing my research, studies etc., on this widely unknown to millions of people, way to become financially free from debt. I have now come to the point of moving forward with purchasing liens and deeds in South Carolina and California for starts. I really appreciate your Blog. I just joined BiggerPockets just now. Thank you.
Levi Coleman, over 7 years ago
Shobi--I'm not familiar with Ted Thomas's system. My advice would be to focus on one particular jurisdiction and learn as much about the process through the county websites and other free sites. As far as doing this from home, you could do alot of the work from home but my recommendation is to absolutely take a look at the properties yourself before you invest your money. Finally, how much do you need to start with? Depends on the state, but not much. You can find liens as small as a few hundred dollars. It's probably best to start small and always diversify your hard earned money.
J G., over 13 years ago
Thanks for your post. I am considering this option as it sounds like something I can do from home. Typically how many hours do you have to spend to find a good lien and how much money is required to start with? Also have you heard of Ted Thomas? He is selling his "system" and wanted to know if there are any other gurus out there that I should follow.
Shobi Raj, over 13 years ago
thanks for the clarification. Makes sense that the better properties pay faster.
Kevin Kaczmarek, over 13 years ago
Great information thanks for sharing this. I've consider these investments. Washington state doesn't sell tax liens but many other states do.
Account Closed, over 13 years ago
Typically, you earn a monthly or daily rate of interest on your investment. For example, in Florida, you accrue interest monthly. Thus, if you buy a lien at a rate of 18%, then you would earn 1.5% a month. There is also a 5% initial penalty. Regarding the timing of when you get your return, it is a function of the underlying real estate. Good quality properties tend to get paid in a matter of months; whereas, it may be years before a lower quality property is paid by the taxpayer.
J G., over 13 years ago
good post. Question for you on Tax Lien investing. When you mention the rate of return, what is the timeframe to get that rate of return? I have always wondered that with tax lien investing. Often I hear 16% returns but it takes 2 years to get the return, so really its less than 8% a year when you take inflation into consideration.
Kevin Kaczmarek, over 13 years ago