Tax Lien Certificates

[Nephi]

I recently came across the concept of investing in tax lien certficates, and from the research I have done so far it looks like it could be a great form of investing for financial independence/early retirement. I did a search for "tax lien" in the forum but didn't come up with anything. My understanding is that it is a guaranteed investment (you either get a high interest payment, or the right to the property itself) with high interest that just requires becoming familiar with the laws regarding it. A couple of tips from a book I read were to invest only in liens for urban (or suburban) houses and to diversify in many low cost certificates as one would when investing in p2p loans. Is there something more to this that I am overlooking or is this a viable method for early retirement?

[Lady Mustache]

I am looking for information on this as well. I read a few books and it sounds like a great investment opportunity. I understand the general concept. However, the research process is a little intimidating. I would love a mentor to help me get started!

[jpo]

The rules vary by state.

For example, in NC, they just auction off the properties themselves instead of selling the tax leins.

[nealashley]

TLC's can be lucrative if you know what you're doing.

My advice would be to learn everything you can about your own state first. It's much easier to be successful in your own backyard (most of the time) than in other areas.

The biggest risk IMO is paying more in taxes than the property is worth. At first glance, this would seem impossible but I've seen it happen at our local auction. People will buy the liens without researching the property and end up with a property that isn't marketable or useful to anyone. All one needs to do is research the properties they plan on investing in before hand. This seems obvious but when you have a list of 3,000 potential properties, some people cut corners. I narrow my list down based on a few factors then I personally drive by and check them out. This way I don't have as much time into looking at properties that don't meet my criteria.

For example, last year I bought the tax lien on 9.2 acres in the country for 6,000. The property had similar parcels selling in the 40-60K range. This piece ended up being redeemed in the 4th quarter and I earned 12% on my money.

Good luck and let me know if you have any other questions.

By the way,  I would shy away from all those get rich quick courses on tax liens. They are not the answer.

[NestEggChick (formerly PFgal)]

I just heard of tax lien certificates for the first time yesterday and I started researching online. I'd like to revive this topic and ask if anyone has any reliable, reputable resources they can recommend for information. Also, what kind of criteria do you use when narrowing down a huge list of liens? What's the drawback to doing this? It seems too good to be true, aside from having to put in a little work for research.

[iliketocode]

TLC's can be lucrative if you know what you're doing.

My advice would be to learn everything you can about your own state first. It's much easier to be successful in your own backyard (most of the time) than in other areas.

The biggest risk IMO is paying more in taxes than the property is worth. At first glance, this would seem impossible but I've seen it happen at our local auction. People will buy the liens without researching the property and end up with a property that isn't marketable or useful to anyone. All one needs to do is research the properties they plan on investing in before hand. This seems obvious but when you have a list of 3,000 potential properties, some people cut corners. I narrow my list down based on a few factors then I personally drive by and check them out. This way I don't have as much time into looking at properties that don't meet my criteria.

For example, last year I bought the tax lien on 9.2 acres in the country for 6,000. The property had similar parcels selling in the 40-60K range. This piece ended up being redeemed in the 4th quarter and I earned 12% on my money.

Good luck and let me know if you have any other questions.

By the way,  I would shy away from all those get rich quick courses on tax liens. They are not the answer.

12% on the $6,000 that you invested?

[iliketocode]

I recently came across the concept of investing in tax lien certficates, and from the research I have done so far it looks like it could be a great form of investing for financial independence/early retirement. I did a search for "tax lien" in the forum but didn't come up with anything. My understanding is that it is a guaranteed investment (you either get a high interest payment, or the right to the property itself) with high interest that just requires becoming familiar with the laws regarding it. A couple of tips from a book I read were to invest only in liens for urban (or suburban) houses and to diversify in many low cost certificates as one would when investing in p2p loans. Is there something more to this that I am overlooking or is this a viable method for early retirement?

What books did you read?

[tralfamadorian]

[iliketocode]

Was it something I said?

[tralfamadorian]

Was it something I said?

It's a six year old thread by people who haven't been active in 4-5 years. Ergo, a zombie thread.

[rulesforrebels]

I attended a course on this. Their strategy was to wait until after the auctions, contact the county and try to find the gems in the scraps that didn't sell. I looked into doing this in my state of Illinois but my state is a hybrid lien/deed state so anything not sold gets kept by the county and then later sold for fullprice if the people don't pay their back taxes so it kind of kills their whole strategy at least by me.

I looked into doing it in my state but it seems most properties are getting the interest bid down to about 4% as opposed to the 18% allowed by law. Once I heard that it kind of turned me off. It's a lot of research to get up to speed on how these things work and 4% wasn't enough to get me interested in doing all the research. Maybe in other states it's more lucrative, I hear a lot of people doing it in Arizona.

Lastly I wouldn't say there's no risk, the risk is you wind up with a property that has no access to it and is essentially worthless.

[WranglerBowman]

I just starting getting into Tax Lien Certificates this past March, but had wanted to for some time prior.  While it has the potential to work out pretty well, I think it rarely does, and you also should have some real estate background or experience in title searches.  You have to look at the laws for the state and then each County or local jurisdiction sets it's own interest rates, I think the average I've seen in Maryland is 6%.  I bid on and ended up with 6 tax certificates, 4 in the County I live in (County A), and 2 in the County next to mine (County B).  I spent 10+ hours researching properties I was interested in for each of the 2 counties, so a decent amount of time spent up front for little return unless I can foreclose on a valuable property.

County B had no fees to register for the live auction (in person), the full tax amount owed at the time of auction had to be paid then and there if you were the winning bidder, and it had 1% interest per month the seller has to pay to the tax lien certificate holder for up to 2 years to get their property back.  Could start foreclosure after 6 months.

County A was a $150 fee to register and all bidding was conducted online with hundreds of properties all closing at the same time in 3 successive waves.  Interest was 8% per year for up to 2 years.  Could start foreclosure after 6 months.

Of the 6 Certificates I got 2 were paid within the first 5 days, 2 made it to 6 months and were paid, and 2 I'm going through the legal means to foreclose on right now.  After talking with people who buy tax liens pretty regularly less than 10% of the properties end up getting foreclosed on.  Right now I put up about $15k and have made about $220, with 2 properties left.

I can't stress the title search capabilities enough.  In Maryland you get reimbursed for all fees associated with title search and foreclosure after 6 months of you owning the Tax Lien Certificate but if you have a piece of crap property you may end up owning a piece of crap that literally has no value and now you have to pay taxes on it, on top of all the fees, back taxes, and your bid price from the auction and foreclosure process.

There is the potential to do really well though if you do your research up front and that property happens to get foreclosed on, and has value.  A property I was interested in in 2017 sold at the tax sale for $22k, which went through foreclosure, and the guy that got it now has a property valued at $475k!  But I think that is a VERY rare event.