A tax lien certificate is issued when a property owner is having trouble paying their taxes. Investing in these certificates is a highly profitable investment strategy that few people know anything about.
When a property owner is late paying their taxes and defaults on the payments,
their county or town offers one of these liens. The person then has a limited time to pay the money back. If they don't, a tax lien certificate is then issued and put into the market. You can buy these certificates.
There are a couple of good reasons why you might buy tax lien certificates. They offer a potential for profits. Once you're in possession if it, the property owner still has a chance to get it back. They have a specified period of time in which to pay it back. If they can't do this, the property is transferred to you. It's just a matter of doing some simple paperwork, and then you're the proud new owner of their property.
If they do pay, you still gain. The certificates have high interest rates. You will get a percentage of what they're paying back. How much you get exactly depends on the specific laws of your state. The amount can be anywhere from 10 to as much as 50 per cent. Most states' certificates are much lower than that, however, in the range of 10 to 25 per cent. Still, it can be quite a bit of money. Because of the penalty system that certain states have, the amount that you get may go up during the second year of their repayment period.
Benefits of Tax Lien Certificates
One of the great things about investing in tax lien certificates is that, once you initially buy it, you do absolutely nothing else. Over a period of time, you get either an annualized return from their payments, or you get the property itself, which you can use however you see fit. It's an easy investment to manage - you sit back and do nothing.
Another benefit of tax lien certificates is that it's a secure investment. The collateral is their property, which is transferred to you if they cannot pay. These are also great because there are so many of them just waiting to be purchased. This is an investment strategy that very few people know about, which means that there's an abundance of profitable certificates just waiting there.
The Risks
Although it's a secure investment, there are a few risks that you should know about before you start buying them up. First of all, these certificates are issued by the government, meaning that they carry a very low risk. However, if the property owner declares bankruptcy, it could be transferred to the IRS or a creditor. This would then take it out of your hands.
Another risk is that, if they default, you may become the proud owner of a lousy piece of property. You then have to manage it, maintain it, pay taxes on it and try to sell it to someone else. This involves quite a bit of hassle, so it's a good idea to make sure you know that the property is alright before you invest.
If you're thinking about investing in tax lien certificates, talk to a professional about what you can do. There is money just waiting to be made with this little-known investment strategy.
