Property tax lien certificates can be a very profitable means of getting into real estate investment, so I thought I’d share some background information to explain what property tax liens are and why they offer such profitable returns. When a property owner is unable to pay their taxes for example, they can be issued with a tax lien certificate which simply provides a means to guarantee the creditor (in this case the tax collector) will receive the money they are owed.
A tax lien certificate is issued and is secured against the personal property of the person receiving the loan. Of all the different types of liens, the most popular or common is the mortgage lien. Every different type of lien is subject to its own set of rules and regulations.
Of the property liens we are considering here, there are two types – namely the general lien and the particular lien. The particular lien comes into play when an investor claims the right of access to a property in return for services or money which they invested in the particular property. Most liens can also be divided into two main groups – namely legal and federal liens (which can be enforced in a court of law) and equity liens which are valid only in courts dealing with equity.
As a private investor, you are then able to buy tax lien certificates with the aim of profiting from the liened property. You need to be aware, however, that you are not actually buying the property – you are in effect lending the property owner the money they need to repay the lien certificate, but at an agreed rate of interest that was set at the sale of the property lien, and a pre-determined time period by which they must repay the money to you.. This rate of interest can vary anywhere between 6% and 50% depending on the state and various other factors.
You’ve probably already realised there are two main ways you make your money from buying property tax lien certificates in this way. If the debtor (the property owner in this case) is able to repay the loan in full within the allotted time period, your profit is the interest he has to pay on that loan.
In the event where the property owner is not able to repay the tax lien back to you, in full, ownership of the property is transferred to you as the purchaser of the tax lien certificate. The property is now yours for you to do with as you wish.
Tax lien investments are pretty much guaranteed to make money whatever the outcome. Where the property owner is able to repay the lien on time, your profit is the amount of interest that was due from the lien certificate. If the property owner is not able to repay the certificate, you become the new owner of the property with nothing more to pay other than your original investment in the tax lien certificate.
There is a lot more information you need to be aware of, and a lot more knowledge required before you go off a buy your first property tax lien certificate, but in simple terms, it is a very realistic model to make money and invest in real estate.
