Today I’m answering your questions on “How to Buy a Tax Lien Certificate in 3 Simple Steps,” and the topics I’ll be covering are:
- Exploring Tax Lien Certificates
- Tax Lien Certificates vs. Bank CDs
- Which States Are Tax Lien States?
- What Are the Best Tax Lien States?
- Finding Tax Lien Auctions
- How Bidding at Tax Lien Auctions Works
- Tax Lien Investing Course
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Exploring Tax Lien Certificates
Today we’re 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.
Today, we’re 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.
Tax Lien Certificates vs. Bank CDs
When you compare tax lien certificates vs. CDs for example, the results are compelling. CDs 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 CDs 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.
We answered the question, “Are tax lien certificates a good investment?” With a resounding “Yes! Often they are great investments.
Which States Are Tax Lien States?
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.
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?”
Here’s a 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.
What Are the Best Tax Lien States?
Just like best-of lists about everything else, it depends on whom 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? 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 study and preparation.
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Finding Tax Lien Auctions
So you want to know how to buy a tax lien certificates. 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. This is step 1. First things first, right?
Tax liens are offered at auctions, either in person or online at the county level.
The county will advertise the auctions and list of tax lien properties on the county’s website and in the local newspaper.
Before you can bid at an auction, there is a whole checklist of things you’re required to do 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’re interested in.
How Bidding at Tax Lien Auctions Works
Step 2, knowing how to buy a tax lien certificate means understanding how the auctions work. As an example, let’s look at tax lien investing in Florida. There the return of interest offered on tax liens is 18%. But…
At the auctions, bidders compete for who is willing to take less of a percentage of interest. These are bid-down auctions on the interest rate, so even though the bidding starts at 18%, one never knows what interest rate they will be bought at.
The way they arrive at a lesser interest rate depends upon the actual auction and how competitive it is.
So while in every state the rate of return offered varies, one never knows what the actual percentage rate will be. However, at whatever point in the bidding process the buyer purchases the certificate, their interest rate on the tax lien is locked in. While that percentage may vary, it is guaranteed.
Sometimes the auctions are bid up; sometimes they are bid down, and sometimes there’s 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
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 drive up to the auction and write a check. Step 3 is doing your research. Again, each county has specific rules and prerequisites. Some are annual, and some are monthly.
Taking advantage of the fantastic opportunities that tax liens present, is dependent upon investors doing their research, knowing the rules, and following them. Hopefully, I’ve answered some basic questions about the rather complex question of 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.
There is a lot to learn about each of these scenarios and 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 article for me to even try to go into each one of these terms and scenarios.
For more in-depth information about how to buy a tax lien certificate, Ted Thomas provides full support and complete training with home study courses, Q&A webinars, live tutorials, workshops, web classes, and personal coaching with certified coaches.
Get started today by taking advantage of this Free Gift from Ted. Act now, it costs you nothing and will give you a big head start!
Stop worrying about what the economy is doing and start making good money now.
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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