Buying Tax Lien Certificates

Buying Tax Lien Certificates

An investment trend that has gained momentum in recent years is buying tax lien certificates. Many high-profile people, including Robert Kiyosaki of “Rich Dad” fame, have endorsed this investment technique, and touted it as a relatively safe way to earn returns on your money that significantly exceed the dismal money market rates that are so prevalent nowadays. Some people have reported returns of 16% or even more from buying tax lien certificates, but before I even get into the types of returns people are seeing, it would obviously be helpful for me to tell you exactly what they are. The best way to do this is to give you a scenario: Let’s say that a homeowner has a property tax bill that’s past due. The government obviously wants to collect on that money, so if the homeowner fails to pay after a period of time, the government will file a lien against the homeowner for the amount of property tax owed. This lien accrues interest the longer the homeowner does not pay on it. If the situation worsens, and the homeowner does not pay his/her tax bill after a period of time (it varies by state), the homeowner could actually lose their house, and the house could be sold off for nothing more than the taxes owed on it. This is where you hear of those stories of people buying houses for “pennies on the dollar”. So how are investors able to do this? Well, the government really needs the tax money—as you know, that’s pretty much all they care about—so they actually open up the door for investors to come in and, in effect, “buy” the tax lien certificate. In other words, the investor pays the property tax bill on the homeowner’s behalf, the money goes to the government, and the investor is issued a tax lien certificate by that particular government. Again, the details of these transactions will be different based on which state you live in; I’m just giving a general overview of the concept.

Image courtesy of Microsoft Office Clip Art
Image courtesy of Microsoft Office Clip Art

Investing in Tax Lien Certificates

Once the investor receives the tax lien certificate, it’s basically a promissory note that guarantees that the homeowner will pay the tax bill back, PLUS interest, which is where the return on the investment comes from. Let’s say that a homeowner has a $1,000.00 property tax bill, and they basically fail to pay the bill in a reasonable time frame (before the due date). The state government ends up filing a lien against the homeowner, and the homeowner is now obligated to pay the tax lien within a specified time frame. This time frame will vary based on which state the tax lien is filed in. A common time frame is between 12 months and 24 months. The homeowner is obligated to pay the tax bill within that 12-month time frame, but now he/she has to pay interest on top of the regular bill. It’s not uncommon for the interest to be within the 16% - 36% range, so you can automatically see where the appeal is for the average investor. These tax lien certificates are a very low-risk investment, mainly because homeowners are highly motivated to pay their tax bills, especially when the alternative is that they will lose their home. There have been countless cases of investors being able to secure ownership of a house, paying nothing more than the back taxes owed on the property. I don’t know about you, but that sounds like a serious bargain. There are a lot of nuances to tax lien certificate investing, and the particulars vary from state to state, so if you are interested in learning how to invest in tax lien certificates, it is imperative that you gain an understanding of the details of tax sale locations and dates, and of course the laws that govern the issuance of tax lien certificates. A quick Google search can provide you with most of this information; my main objective for this hub was just to get your gears turning as far as considering buying tax lien certificates as an alternative investing endeavor.

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websclubs 5 years ago

Hi SteadyHubs,

Alternative Investing, are you considering buying tax lien certificates? "vary from state to state" investors being able to secure ownership of a house, paying nothing more than the back taxes owed on the property... interested in learning how to invest in tax lien certificates? it's a very low-risk investment, mainly because homeowners are highly motivated to pay their tax bills, especially when the alternative is that they will lose their home. Again, the details of these transactions will be different based on which state you live in.

Most interesting idea Thanks.

-Buying Tax Lien Certificates-

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SteadyHubs 5 years ago from Georgia, USA Author

I appreciate you for stopping by, websclubs.


wolf40901 profile image

wolf40901 5 years ago from South Carolina

webs let me tell you what we discussed in my business law class. an actual lawyer teaches it, so his words not mine. you may or may not "own" the property. what may happen..IF the property gets auctioned..you will get a return of that money with the proceeds. or..you may be given first preference to buy it when it does come around. if it does not come onto an auction block, you CAN become the owner outright by default. depends on if the state sees any value in it and wants to bother.

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