What Are Tax Lien Certificates And Are They A Wise Investment?

Feb 11
08:36

2011

Anna Woodward

Anna Woodward

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Tax lien certificates can be a great way to diversify your investment portfolio, but beware of some common mistakes that can be your downfall. Read on to learn more.

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In this tumultuous economy there are many unconventional methods of making a profit including investing in tax lien certificates. With so many foreclosures occurring all over the country,What Are Tax Lien Certificates And Are They A Wise Investment? Articles these are becoming increasingly lucrative and safe ways to make a profit. There are several reasons to consider branching out your investment portfolio with this method.

One of the allures of purchasing tax lien certificates is that there is generous collateral in the case of a default on payments. If the owner of the property fails to make the required payment (which includes the interest that can potentially increase after the initial year) the certificate holder may have the right to the property or to the profit made at an auction. Sometimes these foreclosures can happen quite suddenly and you might see a very large return on a small initial investment.

While a bit more of a risky endeavor, if you are seeking to buy your own home, tax lien certificates can be an inexpensive option. In the very least you will end up with some interest on your investment, but with so many foreclosures happening across the country, it is not all that unusual for property owners to simply walk away, leaving their property for the lien holder to collect. Yes, you can actually buy a house for the cost of any outstanding taxes. It isn’t the wisest reason to go into collecting these types of certificates, but it certainly has been done successfully before.

Great profits can be had through purchasing these types of certificates, but there are also some risks involved. Don’t rely on this method as your own only investment. While it is a great way to diversify and take a chance for some big returns, there are also some sluggish interest rates. When choosing tax lien certificates, you receive little information about the property itself and may be going by a few pictures or just a simple description. A crumbling shack in the middle of nowhere that isn’t worth the materials it took to build it is certainly not going to make a good financial investment. Probably the biggest mistake any first time investor makes is buying a lien on a property that is vacant and overall useless. In these cases, the government often can’t be bothered to foreclose and the owners don’t care enough to pay the tax, leaving you stuck with nothing.

To help you make better choices, learn a bit about the real estate and property market in the area that you are considering purchasing tax lien certificates. Check the foreclosure rates as well as how many homes are selling. If your ultimate goal is to get properties that are on their way to auction to turn a quick profit, it won’t be very helpful is no one is currently buying real estate in the area. Many states also have highly variable interest rates and regulations regarding what you are entitled to as the certificate holder, so a bit of research will be invaluable.