Today we are going to explore how to make good money in a scary economy, by learning how to buy a tax lien certificate.  I’m going to show you how to do it, or at least cover the basics and then tell you where you can learn more.  In this week’s blog, we are going to explore some of the ways on how to buy a tax lien certificate.  Before we go there, let’s discuss why I feel so strongly that this a great investment.  When you compare tax lien certificates vs. CD’s for example, the results are compelling.  CD’s are averaging, at the time of this writing, between 1-1.5% depending on the length of time involved.

See Bankrate or Investopedia

That means that CD’s don’t even keep up with inflation.  You would actually be losing value on your money in many cases, which is hardly my definition of a good investment. So if tax liens regularly return over 15% interest, we can all agree, there is no comparison. Don’t take my word for it, check out what some of the experts of alternative investments have to say.  

In our first blog, we answered the question, “Are tax lien certificates a good investment?” With a resounding “Yes! Often they are great investments “Let’s get to what everybody wants to know; how to buy a tax lien certificate, and make some serious money.

When answering that question,  as with many good things, there is no easy answer. That answer depends because it varies from state to state, and from county to county.  

how to buy a tax lien certificate

How to buy a tax lien certificate: Where they are offered 

First of all, we would have to determine if the state that you are interested in sells them or not.  About half the states do.  So you are probably are asking, “What are the best states to buy a tax lien certificate?”.  Well to answer the first question, here is a link to a list of tax lien certificate states.  

 

Here is the list of states that offer tax liens of some type: Alabama, Arizona, Colorado, Florida, Illinois, Indiana, Iowa, Kentucky, Maryland, Mississippi, Missouri, Montana, Nebraska, New Jersey, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Vermont, West Virginia, and Wyoming. The District of Columbia is also a tax lien jurisdiction.

And just like best-of lists about everything else, it depends on who you ask and how you define “best.” Even if we were to define best by the highest percentage of interest offered, that wouldn’t be the end-all.  That’s because there are other factors involved.  

Some of the factors involved are how large is the state, how many properties are behind in taxes, and how competitive are the sales?  So for example, tax lien certificates, in Florida, are available in abundance, and there is a variety of property types, and accordingly, the market is competitive.

That competitive nature means that while there are lots of opportunities, tax lien investing in Florida requires some serious study and preparation.  

Before we even go into the factors that should be considered when bidding on an individual property, let’s start with asking where the auctions are held, and how one actually buys them.

Where can you buy tax liens?

So you want to know how to buy tax lien certificates?  First things first right? Tax liens are offered at auctions, either in person or online at the county level.  Even if the county has been offering tax liens at auctions in person, you are going to have to check again. Right now, because of COVID-19,  counties that had auctions in person have either suspended their auctions, or they have gone to online platforms. So check with the county that you are interested in, and find out what their tax lien status is currently.  I personally believe even after CoVid-19 is no longer an issue, most counties are eventually going to end up holding auctions online.

Before you can even bid at an auction, there is a whole checklist of things required to do so.  So anyone interested in actually buying tax liens absolutely needs to do their research and find somewhere to get fully educated and familiarized with all the details of the individual county they are interested in.

How to buy a tax lien certificate, nuts, and bolts…

Ok, so you still want to know how to buy a tax lien certificate.  In asking that question you want to know what is the best state to buy tax lien certificates, but you think that you will decide with a list of tax lien interest rates state by state. Let me tell you here and now, that is not necessarily the best way to decide.  Here is my reasoning.  Let’s look at tax lien investing in Florida.  In Florida, the return of interest offered on tax liens is 18%.  But…

In many auctions,  bidders compete for who is willing to take less of a percentage of interest.  So even though the bids start at 18%, one never knows what interest rate they will be bought at. 

The way they would arrive at a lesser interest depends upon the actual auction and the competitiveness of the auction.  Do you want to know how to buy a tax lien certificate?  Well, that depends on where you want to buy it.

How to buy a tax lien certificate: Where you are trying to buy it.?

So while in every state the rate of return offered varies, one never knows what the actual percentage rate will be. In most cases, at whatever point in the bidding process the buyer purchases the certificate,  their interest rate on the tax lien is locked in.  So while that percentage may vary, it is guaranteed.  

Sometimes the auctions are bid up, sometimes they are bid down.  Sometimes there is a scenario where the bidder gets a percentage of the value of the home. Lastly, in places like Texas, tax liens are bid up, then if the lien is not played off (redeemed) then the lien holder can end up as a deed holder with a chance at being the property owner.  So can you buy a property by paying back taxes?  In some places, yes.

Tax lien investing course: my recommendations…

Now I have to say, there is a lot to learn about each of these scenarios.  There is a whole vocabulary to learn as well.  If you want to learn how to buy a tax lien certificate, you better know the difference between buyer’s bid/bonus bids, premium or overbidding, reverse bidding (like we read about in Florida), and a portion of the property bids.  It’s beyond the scope of this blog for me to even try to go into each one of these terms and scenarios. 

For more in-depth information about how to buy tax lien certificates, there is only one place to go.  In my opinion, the people at Ted Thomas.com are by far the best source of information out there to prepare you how to buy tax lien certificates.

I recently had a friend tell me they had seen an ad for a 16% tax lien certificate and asked me if he could buy one in Florida where he lives.  I answered that the answer was yes and no.  I explained that in many states the rate of return offered could even be higher, depending on several factors.  As previously stated, if he was buying a tax lien in Florida, and the bidding for property started at 18% and went down to 16%, and that bid won, then he would end up with a guaranteed rate of return of 16%.  So even though I’m not aware of a specific tax lien advertised as what he had mentioned, he would effectively end up with exactly that.  

I also mentioned how in order to be able to purchase such a tax lien, he had better do some serious study, as it was not a case of the drive up to the auction and write a check.  Again, each county has specific rules and prerequisites.  Some were annual, and some were monthly.  Taking advantage of the fantastic opportunities that tax liens present, is dependant upon investors doing their research, knowing the rules, and following them.  Hopefully, I’ve answered some basic questions about the rather complex question, “how to buy tax lien certificates?”. If the prospect of making 15%, 20%, or even more interest has you ready to take action, then check it out. 

Once again, I recommend Ted Thomas.com, as its where I learned most of what I know.  They not only have an amazing amount of information available for every one of the three thousand and seven counties in the country, but they also have coaches available to walk you through the processes involved.  Stop worrying about what the economy is doing and start making good money now.

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