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 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 eBook, 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.
