Real Estate Notes | Tax Lien Certificate Investing – 16 percent return on your money or more

In order to understand what exactly are tax lien certificates and how investing in them can help you earn money, it is first necessary for you to understand the basics of our taxation system. Every person who owns some land, real estate or property, is liable to pay tax on it to the government and if he fails to do so, he automatically comes under a tax lien i.e. the government has the authority to auction the total amount of tax debt he owes on his property to another investor. The investor pays the total debt liability and gets a tax lien certificate in return; in this way, the government gets the money it requires for funding activities and the investor become the new creditor.

The tax lien certificate has a specific date and period mentioned on it in which the debtor is supposed to pay the principle sum of money along with the pre-decided interest rate. This interest rate is generally very high from the market interest rate, normally ranging from 15% to 50%.

It is a win-win condition for both the government and the investor. Once the debtor gets enough money to pay the tax debt, the tax lien certificates are sent to the government agency and are placed in closed accounts. However, in case, the debtor is not able to repay the total sum of money, the investor has the legal authority to take over his property at a very small amount of total market price.

Hence, the investment in tax lien certificates will definitely result in some return to the investor. Nevertheless, it is not as simple as it sounds. In the real world, you have to look at a number of factors before you invest in tax lien certificates. The primary thing you have to understand includes the rules and regulations for tax lien certificates that differ from one state to another i.e. California tax lien certificates are different from tax lien certificates in New York.

You will need to study the laws related to your particular state before you go out to invest in any of the tax lien certificates. In addition to this, the auction of these certificates takes place only once a year and no observers are allowed into the auction. So if you plan to buy some tax liens, you will have to be at the auction to buy only and ready to make payment on the spot. Otherwise, if you miss the window, you can either wait for a year or invest in some other state.

Before making the investment, make sure you have verified the details about the property in question and check to make sure it has a good market value and does not have any pending dues that you might have to clear once you get a hold of the land. Choose places in posh areas since they will definitely provide you with a better return. Intelligently investing in tax lien certificates can result in very high returns, so you should definitely consider making it a part of your portfolio especially if you do not like to take high risks on your investment.