Tax Lien Certificates Can Be a Good Investment

If you have a lump sum of money and wish to make an investment, tax lien certificates are available to buy. This is a good way to either make some interest off your investment, or end up owning a house after the initial owner is foreclosed on. Learn a little about the process before you invest so you can see whether it is the right step for you. 

Property owners are saddled with liens against their house when they fail to pay their property taxes. This means that they cannot sell the home and make a profit until they pay the back taxes, as the government will take the amount owed from the proceeds of the sale. Some property owners do nothing to remedy the situation, at which point the county may let local investors pay the funds instead. Thus, an auction is held and the winning bidder gets a certificate for any liens they paid. The benefit for the county is that they get their money from the property taxes. 

There are a few benefits for the investor, too. For example, if you decide to purchase tax lien certificates, know that the homeowner may decide to pay off the taxes in the future, at which point they will be charged interest. Once this happens, you will need to give them the certificate, and then the county will write you a check for the amount of it, plus interest. This way, you are guaranteed to make back at least what you paid if the homeowner eventually makes a payment. The longer it takes them, the more cash you make from this simple investment. 

Another possibility of tax lien certificates is that the homeowner never pays, which leads to a foreclosure on the home. Once the foreclosure is complete, you own the deed, which means you get property for a low price simply through buying the certificate when the owner defaults on their mortgage loan. You can then live in it, sell it right away, or wait for it to appreciate a bit before putting it on the market when you need cash. Of course, you should know that not all properties are in great shape, and you will not usually get a chance to check it out before making the purchase. You also should not depend on the possibility of getting a house this way since the owner could always pay before it is foreclosed on, but you will still get you money back, plus interest. 

Tax lien certificates are a great option when you have some extra money and want to invest in something. However, you need to be flexible because you never know what the homeowner will decide to do, and you have no say in it. You need to be okay with the idea of ending up with cash, as well as the chance of ending up with a house. Have a plan for both situations, and you will likely be happy with your decision to invest in this type of option.