Are Tax Liens a Safe Investment Option

As with any kind of investment option, it is important to do extensive research so you understand what you are investing in and if there are any risks to be aware of. Tax lien certificates are a type of investment to be informed about.

When property taxes are delinquent for one year, the county government holds a sale and offers tax lien certificates for sale on all of the delinquent properties in their county. If there are tax lien certificates that do not get purchased they get taken back by the county and are placed in their excess inventory.

Tax lien certificates are sold in cities and counties in 28 states and the District of Columbia. The certificates are usually regulated by the state the property is located in. Each state will have their own regulations on interest rates, terms and other items. Some states may seem more attractive if they don’t have any state sales tax and other incentives for investors.

Sometimes the returns on these certificates can be as high as 16 to 36 percent, or higher if the investor forecloses on the property. By selling the tax lien certificates, the counties and cities receive the money they need for operating costs by receiving the amount of taxes that are overdue on certain properties.  There is usually a statutory waiting period of 2 to 5 years before the investor can sell the property. If the homeowner can repay the amount of the certificate before the auction they can retain their property.

The first step in the tax lien certificate process is to contact the county or counties you have an interest in via mail, email or telephone. Check out the county’s website to see if there is information available on the process for that county or cities in the county in regards to purchasing tax liens. Some basic questions to ask to get started are:

• Do they allow investors to acquire tax lien certificates that were not purchased at the tax lien certificate sale?

• What their interest rates are and what is the redemption period?

• How you can get a copy of their catalog or list of tax lien certificates that are available in their inventory?

Once you have had a chance to peruse the list of available tax lien certificates and completed due diligence, then you are prepared to complete the transaction.  Depending on the county that you are purchasing the tax lien certificates, you may be able to finish the transaction either online, through the mail or by physically going into their office.

Purchasing tax lien certificates is an investment vehicle some individuals use to invest their funds in. It is important to do research so you are aware of the pros and cons before investing in this type of investment.