What if I told you about an investment vehicle that is almost risk free? Could I interest you in an untapped real estate niche; where your initial investment has a guaranteed rate of return? Be thankful you have found this article because it may change the way you invest. Those who are a bit savvy and have even a small nest-egg have found an excellent way to beat those downturn blues.
The investment I’m talking about is Tax Lien Certificates. Now, unlike house flipping which requires the investor to front an initial down payment and pay out of pocket remodeling costs (not to mention the headaches of dealing with contractors and market fluctuations), this one can be as hands free and user friendly as you want it to be. With rates of return anywhere from 16 all the way up to 40% annually this is a high yield, low risk way to grow your dollars.
Tax Liens are judgments placed on your property for not paying your due taxes to the county. After so many months of delinquency your local government will put a lien on your property (meaning the owner may not sell said property and gives the taxing authority the right to repossess or sell the property to recoup losses). Here’s where you come in! The county now has hundreds to thousands of these liens that they are just sitting on, all they are waiting for is you to come along and assume that debt.
You now have given someone an opportunity to repay their debt to you, plus the interest per annum (set by each county), plus any extra fees incurred through acquiring the lien, within a given time frame (usually between 6 months and 2 years). The average rate at which Tax Lien Certificates are redeemed is roughly around 1 in 10 meaning that on average every 1 in 10 certificates that you buy will not be redeemed by the property owner. This is where it gets really sweet. Let’s say you’ve decided this is the right vehicle for you and you have decided to invest, you go down to one of your favorite tax lien county auctions and purchase your first certificate. This county’s guideline is; 18% interest with a redemption period of one year. You have paid $6,000 for the certificate at 62 Montrose St., and let’s say the value is $125,000. Bob Homeowner owner has two options he can either pay up or face foreclosure. You’ve decided enough is enough, you have been in contact with the guy trying to help him out but he’s just not paying. After filing for foreclosure you then assume the property free and clear of any and all encumbrances including any mortgage liens or loans (still on Bob’s tab).
If the owner is able to pay the debt back, the investor can derive some satisfaction in knowing that he helped a home owner keep their property out of hock while making a more than decent return by any investor’s standards.
There are a few things you must do to safeguard yourself because like I said earlier nothing is 100% risk free but this is about as close as you will get.
-Understand the rules of Tax Lien sales in your area or wherever you may want to invest. While the fundamentals are the same, each county and state have their own regulations regarding the sale and acquisition, do your homework in researching and choosing the area that best suits your investment needs.
– Make sure the property you are bidding on is worth more than the taxes (I know it sounds unlikely to make this mistake, but people have in the past) .
-And last but not least; have cash in hand, auctions whether they be live or in person require an initial deposit (which is returned if you decide not to buy), and payment to be made in full within a reasonable amount of time.
Good luck and happy investing!