Benefits of Investing in Tax Lien Certificates and Deeds

VIII. Benefits of Investing in Tax Lien Certificates and Deeds

1. Benefits of Investing in Tax Lien Certificates and Deeds
   • Tax Lien Certificates can be an excellent method for generating passive income and taking advantage of the benefits of compound interest if the funds are continuously reinvested. While the redemption period varies in each state anywhere from 6 months in states like Texas and Massachusetts to 4 years in places like Wyoming, investors can generally expect to make up to 18% interest annually on tax lien certificates held by the investor. In states like Iowa and Illinois, an investor can make 24% or 36% interest on the investment in tax lien certificates.
   • A neat bonus that usually isn’t promoted is that no matter how soon a certificate is redeemed, the investor will get a minimum 5% return. If you end up buying a certificate that does not redeem after 2 years, you can still hold it for another 5 before it expires. The interest will keep accumulating the same and hopefully someone after you will file for the deed and pay off your balance.
   • One of the biggest benefits of tax lien investing is the much-lower capital requirement than other forms of investing to get started.
   • While there is a significant amount of research and due diligence that goes into an investor making the most sound investment, tax lien certificates in general are very secure investments for the amount of return that can be realized.
   • The security of the investment comes from the fact that an investor is satisfying another property owner’s outstanding tax obligation to the local government. The county in which the subject real estate lies depends upon the property tax revenue to fund and operate the local government.
   • There is a strong likelihood that local counties will remain operational and in business and an even stronger chance that investors will continue to invest in real estate. As a result, there are only limited circumstances where investors would not be willing to purchase a property outright for the value of the outstanding tax obligations.
   • Annual tax obligations are usually less than 4% of the overall property value. As a result an investor would be gladly willing to pay 3 years of back taxes (approximately 12% of the overall value of the property) in order to take title to the property through tax deed.
   • As long as an investor purchases the property at tax deed auction ( assuming a certificate holder motions the court to sell the property to satisfy the outstanding tax certificate), then the investor is paid back his principal along with whatever the appropriate amount of interest associated with that particular tax certificate.
   • Profit With Your Tax Liens & Tax Deeds
   • Profiting from tax lien certificates and tax deeds will generally fall into one or more of 3 categories: earning interest, earning penalty income, and possibly acquiring property for the amount of back taxes.
   • Here’s how you can profit with tax liens and tax deeds:
   • Interest – with tax lien certificates, the goal is to earn a healthy interest rate on the amount of your purchase. Interest rates run as high as 12%-16% depending on the state. Your return comes with very little risk because the liens are backed by the municipality, and there is no market fluctuation.
   • Penalties – many states impose penalties in addition to interest on the tax-delinquent property owner. Those penalties flow to the certificate purchaser. Penalty income can raise your returns as high as 40% in some locations, and depending on the situation.
   • Acquiring Below-Market Property – the goal of tax deed investing is to acquire property below market value. While only about 1% of tax liens lead to foreclosure, it’s still possible. In some states, foreclosing is a simple process involving a tax deed or sheriff’s deed. In other states, it’s a complex process requiring a law
   • Platforms Conducting Tax Certificate and/or Tax Deed Auctions
     • Grant Street Group
     • Real Auction
     • ZeusAuction
     • Bid4Assets
     • Title Check (www.tax-sale.info)
     • Real Estate Investment Trust open and available to the public
     • Streetwise
     • List of States and their terms
     • Top 5 States for Tax Lien Certificates