Are tax liens a good investment? Yes, tax lien certificates pay inflation-beating interest rates, and they’re low risk if you know the rules and do your homework.
Tax liens are an alternative real estate investment, and the majority of the population has no idea what these government-controlled certificates could mean to them.
I’m going to give you a very realistic look at tax lien certificates, explaining the pros and cons of tax lien investing, how you can mitigate risk with savvy investing strategies and reap the huge rewards that tax liens have to offer.
Today we’ll be exploring the question, “Are tax liens a good investment?” and covering the following topics.
Table of Contents:
- Tax Lien Certificates and Tax Defaulted Properties
- Tax Lien Investing Pros and Cons
- Tax Lien vs Tax Deed
- Tax Lien Auctions
- Tax Lien Certificate vs Redeemable Tax Deed
- How Lucrative are Tax Lien Certificates?
- Conclusion
Tax Lien Certificates and Tax Defaulted Properties
Tax liens and tax deeds have been available for investment for over 200 years, and they are legal in all states and counties in the United States.
Local counties have an enormous need for funds to pay school teachers, police officers, and fire fighters, and that’s just a few of the responsibilities of the local county.
The revenue to pay county services comes from local property owners within the county.
Property owners pay taxes which are usually a small percentage of the property value that is estimated by the tax assessor. It’s in the area of 1% or 2% in most counties.
Are tax liens a good investment? Yes, and I’ll share with you positive money-making examples that the individual state legislature and the local county have created to collect past due property taxes and to make you, the investor, a beneficiary. You are in the right place.
I’m Ted Thomas, and I’ve been involved as an investor purchasing and reselling tax defaulted property and tax lien certificates for the past 30 years. I’m also an author, a coach and a guide.
Tax Lien Investing Pros and Cons
Are tax liens a good investment? Like every investment there are risks and rewards, tax liens included. So what are the pros and cons of tax lien investing?
The Benefits of Tax Lien Investing
There are ample positive things to say about tax lien certificates.
Tax liens are safe. You invest with the local government. You actually purchase the tax lien certificate directly from a county or municipality and your investment is protected by the law.
Tax liens are abundant. County governments will have millions of tax lien certificates available nationwide.
Tax lien certificates pay high returns. The earnings on a tax certificate are generous, and in some cases, outrageous. Interest rates paid on tax lien certificates are 16%, 18%, 24%, and even up to 36%. The check comes from the government.
Tax liens are secured by real estate. If the homeowner does not pay, or repurchase and redeem the tax lien certificate, the certificate holder will be awarded the property.
Tax liens are a benevolent investment. The delinquent property owner does not lose the property immediately – they are not evicted. The tax lien certificate holder does not get possession of the property during the redemption period.
There are tax certificates for every budget. How much do tax lien certificates cost? Small investors can start with only a few hundred dollars, or investments can be as large as $100,000, such as when paying delinquent taxes on a shopping center or an office building.
The Challenges of Tax Lien Investing
There are some challenges and even potential risks associated with tax lien investing, so are tax liens a good investment? Yes, because risks can be mitigated through knowledgeable investing strategies.
Tax lien certificates are not available in every state. You may not have tax liens in your location or county. Not every tax lien district will have tax lien certificates. Only about half of the states will sell them; the remaining half will sell tax deeds. However, nowadays most counties enable you to buy tax liens online. Simply go to the county website to find the auction date and the list of properties with tax liens.
The tax certificate interest rate may be bid down. Tax lien auctions can be competitive. Others may outbid you or underbid you and take lower returns on their investment. At tax lien sales, the best certificates will likely sell quickly and the certificates may be bid down to lower interest rates than you may prefer, however the certificate still remains safe and secure.
You may end up managing a property. Purchasing a tax lien certificate could leave you with ownership of real estate which requires you to manage the property. However, you can generate lucrative cash flow and passive income streams from successfully managed real estate.
You may end up selling a property. If you own the tax lien certificate property, you may have to put forth the time and effort of selling the property. However, if you utilize savvy marketing strategies, the sale could end up putting $25,000, $50,000 or even $100,000 into your pocket.
To mitigate the risks of tax lien investing, you must know the rules and do your homework. Tax liens require you to do your research. You must understand property value, the process of selling in a competitive market, and the development of an exit strategy so you will be paid.
You also must have some computer skills since most tax lien certificate auctions are now conveniently online.
Tax Lien vs Tax Deed
Are tax liens a good investment for beginners? Yes, absolutely. Most newcomers start with tax lien investing before moving on to tax deed investing.
Investing in tax liens can be learned more quickly and generate a safe passive income while investing in tax deeds can be more lucrative and require more effort.
For newcomers to the tax delinquent property business that have not invested, here are some fundamental pieces of information about tax liens certificates and tax defaulted property.
The United States is divided into 50 states. Each state legislature chooses:
If they want to sell tax lien certificates on real estate that is delinquent on taxes, or
If they want to give notice to the property owner who is in tax default and then confiscate the property
Tax Deed States
In tax deed states, the consequence will be that the county will resell the seized property at a public auction, and the revenue will pay the delinquent taxes.
Approximately half of the states use this system of tax deed auctions.
This means the legislature authorizes the county treasurer to levy taxes, collect taxes and if uncollectible, the treasurer will confiscate and then sell the property at a public auction. The revenue will be used to pay the taxes.
Tax Lien States
The remaining states will sell tax lien certificates.
Are tax liens a good investment for ethical investors? In my opinion, yes, because tax lien states are more understanding and benevolent. They do not evict the property owner or confiscate the property immediately. They do not seize the property.
The tax lien states also give notice of default to the delinquent property owner just as in tax deed states. However, the county treasurer will issue a certificate on the property that is delinquent on taxes.
This certificate in the amount of the past due taxes is auctioned at a public auction. Anyone with funds may purchase the certificate and pay the delinquent taxes.
Tax Lien Auctions
The state legislature mandates to the local counties when and where the auction should take place.
The county executes and manages the public auctions and determines how big a reward they will pay the purchaser of the tax lien certificate holder. This is a county decision.
You will find, for example, in Maryland, certain counties pay 12 %, yet other counties within the same state pay 24%.
Tax Lien Certificate vs Redeemable Tax Deed
Some states are penalty states. The county auctions the deed to the property, however, it’s a redeemable deed, which means the county is auctioning the delinquent property owner’s deed.
The property owner has a limited time to redeem. In this case, redeem means come forward and pay the delinquent taxes plus a penalty and redeem the property.
Here’s a tax lien investing example. In Texas, the penalty is 25%, and the delinquent tax payer has only 180 days to redeem. I’d say in Texas, they are pretty firm about collecting property tax.
For clarity, in Texas, and in all states, if the property owner fails to come forward, pay the taxes, and redeem the certificate or the deed, the property owner forfeits the property to the purchaser of the redeemable deed or tax lien certificate.
How Lucrative are Tax Lien Certificates?
Are tax liens a good investment? Though there are tax lien investing pros and cons, the pros far outweigh the resolvable cons.
This is a big money business.
Recently, one of my students purchased a redeemable tax deed in Texas. The property was a residential lot in a well-kept subdivision. The purchase price was $42,000, and the property owner did not redeem.
The student sold the property for $75,000 and did so within nine months of purchasing. Nice deal! That’s more than a 40% profit over nine months.
How does that compare with your current investments?
Conclusion
We hope you enjoyed Ted’s lesson, “Are Tax Liens a Good Investment?”
Ted Thomas draws on his decades of experience to provide a realistic perspective of this lucrative real estate niche that’s been the best-kept secret of the wealthiest investors for far too long.
While tax lien certificates are not sold in every state, many auctions are done online these days, which still makes them available to you wherever you may be.
Note that tax lien auctions are competitive, and the rates can be bid down. However, once you’ve purchased your certificate, the rate is locked in.
You also need to be prepared to end up owning the property. 95% to 97% of the time, you end up with a passive investment that pays you an excellent interest rate, but it’s also possible that you could end up with the property and dealing with all that property ownership entails. So you should have an exit strategy in place before you purchase tax liens in case you do end up owning a property.
Are tax liens a good investment? They’re a great investment. The rewards of tax lien investing are powerful.
Tax lien certificates are secured by real estate. You won’t find a safer investment that pays such outrageously high rates of return, What is the highest interest rate on tax liens? A whopping 36%!
Tax lien investing is also benevolent. You can sleep well at night knowing you’re helping local communities and distressed homeowners.
Even if you don’t have a huge bank account, there are tax lien certificates for every budget. You don’t need to be rich to begin investing. Whether you have $50 or $50,000, there’s a tax lien certificate out there for you.
Ultimately, when weighing tax lien investing pros and cons, Ted has determined that the pros far outweigh any cons. The lion’s share of what could be called cons are actually easily resolved through proper education, which is why Ted’s answer to the question, “Are tax liens a good investment?” is a resounding, “Yes!”
For over 25 years, Ted Thomas been teaching students how to successfully invest in tax lien certificates and tax defaulted property, and many of Ted’s students have gone on to earn 6-figure incomes within a year of completing the training.
Ted Thomas offers full support and a complete training with home study courses, Q&A sessions, live tutorials, workshops & web classes, and personal one-on-one coaching.
If you want to learn more about how to make lucrative profits from tax lien and tax deed investing, you can get started today this FREE Gift from Ted. It costs you nothing, so why wait when you can change your life today?
Ted Thomas is America’s Leading Authority on Tax Lien Certificates and Tax Deed Auctions, as well as a publisher and author of more than 30 books. His guidebooks on Real Estate have sold in four corners of the world. He has been teaching people just like you for over 30 years how to buy houses in good neighborhoods for pennies on the dollar. He teaches how to create wealth with minimum risk and easy-to-learn methods.
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