Investing In Tax Liens

Tax liens can be a relatively safe investment. A good return on your money is also possible. The catch? Everyone knows about this now, and the bids are pushing down rates of returns.

When we went to the local tax lien properties sale here in Fremont County Colorado, we were amazed that a little community like this could have so many investors wanting to buy tax liens. This is good for the county, but not for an investor.

Tax liens are handled a little differently in each state, but they are essentially the debt that a property owner owes for late taxes. Investors buy these, and to pay them off and so not lose their property, an owner must pay whatever fees and interest rate the law specifies. Here in Colorado, that is 15%. We liked the idea of a 15% return on our money.

The ABCs of Tax Lien Investing

Are you interested in yields of 6 percent to 50 percent on your money, secured by a property tax lien against real estate?

Author Joel S. Moskowitz explains how investors can buy little known tax lien certificates that pay high yields in his book, “The 16 Percent Solution”

As a bonus, although the author warns it rarely happens, the investor might get kicky and foreclose on the property. However, he cautions that property owners usually redeem, so investors must be content with just high yields.

3 Ways To Profit From Tax Lien Certificates

When you buy a tax deed there is really only one way that you can make a profitable return on investment and that is to sell or rent the property. However, when you purchase a tax lien certificate, there are three ways that you can profit from your investment. These three ways are summarized in this article. Read on to find out more about them.

The first and most obvious way to make a profit on tax lien certificates is with the redemption of the lien. The delinquent property owner redeems the lien and you, as the lien holder, will receive the certificate amount of the lien plus any interest and penalties that have accrued. Since an annualized rate of interest is offered in most states, you will earn more money the longer the lien is outstanding and before it is redeemed.

How Much Money Do You Need For Tax Lien Investing?

I am frequently asked, “How much money do I need to start investing in tax liens.” Well, that all depends on what your goal for investing is. If you’re using tax lien investing as a way to invest for the future, then you can get started with a couple of thousand dollars. But if you want to create an income from tax lien investing than you need to invest much more.

One thing that you have to remember is that tax lien investing is not a get rich quick scheme. It’s not like other types of real estate investing like buying and flipping properties, or owning rental properties. With foreclosure properties, you have an idea of when you’re going to cash out of your deal, and with rental properties you have a steady income. With tax liens, you don’t get paid until the delinquent taxpayer decides to redeem the lien or redeemable deed. This may not be until the redemption period is over and foreclosure notices are delivered.

Tax Lien Investing FAQs

Recently I sent an e-mail out to my subscribers asking them some questions. I wanted to find out what it is that most people want to know about tax lien investing. I got a lot of good questions and I won’t be able to answer them all in this article, but I want to try to answer those that were asked most often and that weren’t answered in my new free video course.

I especially like to answer questions that start out with the words “How do I…” or “How can I…” This type of question shows me that someone is really interested and is ready to take action. So let’s answer some of these types of questions that are not answered in my video series. So here are some frequently asked questions about tax lien investing.

Tax Lien Certificates – The Hidden Investment Secret

How would you like to gain 16%…18%…24%…even up to 50% on your investment? The government, irrespective of what goes on with the stock market, rising prices, recession or bank rates of interest, securitizes & guarantees the extremely favorable rates of return of tax lien certificates.

This little-known secret is often referred to as the “wealth maker”, and very few people recognize or take advantage of their benefits. Introducing the Tax Lien Certificate. In many counties throughout the U.S., local governments are owed millions of dollars in outstanding and delinquent property taxes.

Tax Lien Investing – Keeping Your Exit Strategy In Mind

When investing in Tax Liens you need to first STOP and think about what you want to accomplish. Too many people just run to a Tax Lien Sale intrigued by the prospect of a very high interest rate (which they will get) only to realize after they bought some good tax liens, that

1. The interest payments are not monthly or yearly but only when and IF the property owner redeems the Tax Lien on the property.

2. There is no way of knowing when and if the redemption will happen, and therefore there is not way of knowing when the investor will get his initial capital plus interest will be paid back.

3. It is possible to want to just get a high interest rate and then end up with the actual property (usually though that is a good thing and I call it “hitting the jack pot”)

Tax Lien Investing – Interest Rate or Property Ownership

When it comes to Tax delinquent Property Investing and Tax Lien Investing in particular the investor (=you) has two choices.

1. Does he want to go for the high interest rate offered by “Tax Lien Certificates”
2. Does he want to go for the chance to get the property through foreclosure of the Tax Lien Certificate?

Although I personally like the Second option better and am actually a fan of yet a third way of buying tax delinquent property directly from the owner outside of auctions for as little as $100 to $500 and sell it within days for many thousands of dollars.

Invest in Tax Lien Certificates and Tax Deeds Tax Free

Did you know that you could use money from a self-directed IRA account to invest in tax lien certificates or tax deeds? I’ve interviewed retirement account specialists from two different self-directed IRA companies; EntrustCAMA and Equity Trust Company, and I’ve learned that it is possible to invest tax free in tax lien certificates and tax deeds with a self-directed IRA.

If you use money from a regular self-directed IRA account to invest in tax lien certificates or tax deeds, than your money grows tax free until you withdraw from your account after retirement. But, if you use money from a Roth self-directed IRA, and you do not take any withdrawals until retirement age – you do not pay any taxes on your profits! So if you are using tax lien or tax deed investing as a way to save for your retirement, you need to look into this.