Some real estate gurus make tax lien investing sound like it’s
a sure thing. That you’re guaranteed to make huge interest rates
and that’s it’s “government guaranteed.” Unfortunately for You,
they leave out a few facts and are stretching the truth quite a bit.
First you have to understand that tax sales are auctions and
in most state those extremely high interest rates are bid down to
extremely low rates. Why would investors do that? It’s simple,
sometimes there are other penalties that they will get should the
lien redeem. In New Jersey for instance the penalty is between
2-6% depending on the amount of the lien. In Florida there is a
penalty of 4%. Also once you own the lien, you can pay the
subsequent taxes and get the maximum interest on that.
Secondly, you must understand that there is no guarantee that
you will get paid on your lien. Of course if you don’t get paid,
you can foreclose once the redemption period is over. But no
one guarantees that you will be paid! What these gurus mean
when they say that tax liens are “government guaranteed” is that
the laws are on your side. If you don’t get paid you can
eventually foreclose on the property. The only thing guaranteeing
your investment is the property! That’s why I don’t recommend
investing in tax liens through the mail or online. Would you buy
property that you didn’t see first!
When you buy a tax lien certificate, even though you are not
purchasing the property, there is always the chance that the lien
will not redeem and you will have to foreclose on the property.
What if the property is worthless? What if it is an unbuildable
piece of land? Then you are stuck with a worthless piece of
property that no one will want to buy from you and if you don’t
continue to pay the taxes on it, it will eventually revert back to
the county that sold it to you.
Yes, there are risks involved in tax lien investing and no, it is not
a sure thing. It is however an excellent way to invest your money
if you know what you are doing. If you are contemplating buying
a program to learn how to invest in tax lien certificates or tax
deeds, beware! Don’t buy an e-book, coaching program, or a
course from someone who candy coats the business of investing
in tax lien certificates and tax deeds and makes it sound like you
can’t fail and there are no risks. The truth is that you can fail and
there are risks to avoid. Instead buy one of these products from
someone who tells you what the risks are and how to avoid them.
This will give you a better chance for success in buying profitable
tax lien certificates and tax deeds.