Tax lien investing is not immune to risk.
Though tax lien certificates are not correlated to the markets, making them very stable and predictable, in a rising interest rate market there is more competition, Gale says. Homeowners are also able to sell quickly in hot real estate markets if things get tough: “Whenever real estate is hot, tax liens are very cold,” he says. But in a down real estate market, tax lien investing can be a good counter-market measure. But be careful: if you purchase a tax lien certificate on a property with little value, you could lose your principal and receive no interest because no one wants to redeem it, Westover says.