Buying tax lien certificates can be a very profitable way to invest in real estate and with the
right knowledge can provide very healthy returns on your money. But it's not to be treated as a
"get-rich-quick" scheme, as the in-experienced can find it soon becomes a "lose-your-shirt-quick"
investment model. By way of a brief introduction, a tax lien is basically a means that guarantees
that a business or individual that lends money or provides a service will be repaid for that
investment, by securing a lien on the property of the person receiving the money or services.
A tax lien certificate is issued and is secured against the personal property of the person
receiving the loan. Of all the different types of liens, the most popular or common is the mortgage
lien. Every different type of lien is subject to its own set of rules and regulations.
When the debtor is unable to pay their property taxes, the state issues a tax lien certificate
against their property which also includes a time line by which the taxes must be repaid. This
grants the lien owner access to the equity within the property in order to claim the money they are
owed. If the property owner is then unable to repay the tax lien, it may be sold or auctioned off to
the highest bidder.
As a private investor, you are then able to buy tax lien certificates with the aim of profiting from
the liened property. You need to be aware, however, that you are not actually buying the property -
you are in effect lending the property owner the money they need to repay the lien certificate, but
at an agreed rate of interest that was set at the sale of the property lien, and a pre-determined
time period by which they must repay the money to you.. This rate of interest can vary anywhere
between 6% and 50% depending on the state and various other factors.
In many cases the property owner is able to repay the tax lein certificate within the allotted time
span, in which case the property deed ownership reverts back to them. In such an event, they save
their property from being repossessed and maintain their credit rating.
If the owner is unable to pay the loan, you take possession of the property as the owner of the tax
lien certificate secured against it. As the new owner you are able to manage the property as you see
fit - renovate it, rent it, sell it etc.
As a tax lien investment, the mechanism will make money whatever the outcome. If the original owner
repays the lien on time, your profit is the amount of interest that was set on the tax lien
certificate. Where the owner defaults, and you become the new owner of the property, the amount of
profit will be determined what you choose to do with your new real estate acquisition.
As with most investment opportunities, you need money to make money, but hopefully you can see that
investing in tax lien property certificates is a fairly safe way to profit from and acquire real
estate.
