Investment of Wealthy Insiders
Now Available to Average Investors
What if I told you there’s an investment that provides the interest rate of an annuity… the safety of a CD… and is backed by real estate as collateral?
This may sound too good to be true, but I can assure you it’s not an urban myth or legend. It’s for real, and savvy investors have banked above-average profits from this investment for decades.
Big banks, insurance companies, wealthy insiders – and even Wall Street firms – monopolized
the profits for themselves until fairly recently. When you discover how it works, you’ll understand why they wanted to keep this rock-solid investment a closely guarded secret.
What is this little-known yet valuable investment? It’s called a tax lien certificate.
Here’s the Story of How Tax Liens Work
Municipal governments around the U.S. collect property taxes to fund schools, public works, fire
and police departments, and other services. When a property owner can’t (or won’t) pay his taxes on time, that leaves a deficit the county has to make up. The municipal Treasurer will hold a periodic auction to sell liens against these delinquent properties. In order to attract investors, counties offer a much higher interest rate than you can get from a bond, CD, or savings account.
These interest rates are fixed by state statute, and aren’t at the whim of a central banker or broker. How much can an investor make from a tax lien? In Oklahoma, the annual rate is 8%, Wyoming pays 14% a year, and Texas pays 25% in only six months – that’s a 50% annual rate. In most states, interest usually accrues on the tax lien every month after the lien is purchased.
Statistics show that about 95% of all tax liens are redeemed (paid off by the owner) with the county; then the county pays the lien holder his principal and accrued interest.
Tax Lien Auctions: A Shockingly Effective
Way to Get Value for Your Money
What happens if the property owner doesn’t pay back the tax lien? After a certain period of time (usually one to four years) the lien holder can foreclose on the property and own it for a fraction of the market value. The chances of buying a property this way are very low – usually less than 5%.
If you want to get an above-average rate of interest on your money, then you’ll want to focus on tax lien auctions. If you want to buy actual properties to flip quickly or hold for longer-term rentals, you’ll want to focus on tax deed auctions.
You should research the properties you want to bid on prior to the auction. It’s not as critical for tax liens, as most of the time you’ll get your money back plus interest. However, doing sufficient research is critical if you bid at a tax deed auction, since you’re buying the actual property.
7 Things to Bear in Mind before Buying
While tax liens have less risk and volatility than stocks and mutual funds, are there any downsides you should know about? Yes, and here’s a list of them:
- Tax lien auctions are usually held in a municipality (city, town, township, village, county, etc.) just once a year. It’s not as convenient as buying a stock on your computer anytime you want. It used to be that you had to attend in person in order to bid on a lien. That’s still true in some places, but more urban andsuburban counties are holding online auctions where you can bid via the Internet.
- Your money will be tied up for an unknown period of time. It depends on when (or if) the property owner redeems the lien with the county. If you want or need access to your money over the next few months to a year, tax liens may not be the right investment for you.
- You can lose money on a tax lien if you end up with a property that you couldn’t sell or rent out. So be absolutely sure that the property is actually worth something on the open market.
- Understand the bidding rules. Different states and counties have different bidding procedures. If you bid too much for a lien and it redeems quickly, your winning bid could be more than the principal and accrued interest you receive in the end.
- Some tax liens could have other liens and obligations – such as past-due state and federal taxes – which can reduce the profit you make on a property.
- Not all tax liens are bought at every auction. You may be able to buy unsold liens by contacting your county Treasurer.
- As with all investment decisions, do plenty of research before you buy any government held lien.
All that being said, there’s a reason that banks and savvy private investors love to snap up tax liens and deeds: in many cases, the financial upside is very significant. Tax liens can offer more safety and reliability than the Wall Street casino with a better chance to outpace the rate of inflation.