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

The basic concept of investing is: the higher the risk an investor is willing to take; the higher the return on his investment. Nevertheless, tax lien certificate investing defies this idea. It is considered one of the safest investments these days with high rates of return and very few chances of defaulting. So what are tax liens and how does this form of certificate investing work?

The notion behind this is very straightforward; nowadays, with the increasing economic instability within the United States and the pressure on people to save something for a secure future has resulted in a number of people defaulting on their property and real estate tax debt. When you are not able to pay your property tax debt for a long period of time, the government is forced to put it under a tax lien. As a result, tax lien certificates are issued on the amount you owe the government and are auctioned to interested investors. In this way, the government is able to recover the debt amount and you become a debtor to another investor.

Now why would any investor be interested in paying off your tax debt? The main reason for this is, these certificates offer very high rates of return, generally ranging from 20% to 50%. Through tax lien certificate investing, investors will be able to earn at least twice as much return on their investment as compared to the marketplace. Once the government issues tax lien certificates, the investor is liable to make the payment at once. The certificate has all the details of a settled interest rate and the payment schedule for the debtors’ repayments. If the defaulter fails to comply by the dates mentioned on the tax lien certificates, you as an investor have the legal right to take over his property/land etc. at a very small fraction of the market price. Thus, tax lien certificate investing results in some sort of return at all costs, either in the form of interest rates or by gaining new real estate.

Tax lien certificate investing does not mean that it is completely risk free as the laws in this regard varies from one state to another. For example tax lien certificates in New York do not apply to Californian tax lien certificates. Therefore, the investor needs to be well aware of the laws of his state before buying.

The investor also can face risk if he buys certificates from a poor property, which has a lot of un-cleared dues and payments. Since the investor becomes the new owner of the real estate once the debtor defaults completely, he is liable to pay all fees and payment due on the property. So choosing the location of your tax lien is very important for a successful investment in tax lien certificates. They can be a very good way of diversifying your portfolio and hedging it against economic instability and market fluctuations.