Is Tax Lien Certificates a Good Investment?
Property ownership is fairly common among US adults, with homeownership rates hovering around 65 percent overall. Of course, buying a home is just step one in the long-term reality of homeownership.
After you buy the house, you must do all the routine maintenance tasks. Most people must pay their mortgage. Plus, there are the annual property taxes to worry about.
Properties with outstanding taxes can end up with a tax lien. That opens up opportunities for tax lien certificate investments. Keep reading to learn more about tax liens, tax lien certificates, and the investment opportunity they offer.
What Is a Tax Lien?
A tax lien is essentially a legal action taken against someone who owes back taxes. In the case of the federal or state government, they may place a lien against your assets for back income taxes. Local governments, on the other hand, will place liens against your assets for unpaid property taxes.
Property owners can resolve a lien by paying the owed amount or setting up a payment plan agreement. If they don’t pay the owned amount, the government may then seize and sell the property.
What Is a Tax Lien Certificate?
A tax lien certificate is a way for the governments to recoup losses on those unpaid taxes. The government auctions off the lien to investors.
The investor agrees that they will pay the owed amount on the lien. In exchange, they get to collect on the principal and interest owned if and when the property owner finally pays the back taxes.
While some states offer tax lien certificates for any investor, states like Ohio only sell to institutional investors. These are investors who buy blocks of liens, rather than individual liens.
Most tax lien certificates come with a built-in time limit, such as one or three years.
Tax Lien Certificate Investment
So, how does all of that translate into an investment? The interest rates on tax liens are often quite high, sometimes over 20 percent. That means a tidy profit for whoever holds the certificate when the property owner does pay their overdue taxes.
Most property owners do eventually pay their overdue taxes. That makes it a lower-risk investment.
In cases where the property owner doesn’t pay their taxes, the government may seize the property. At that point, you can potentially buy the property outright for very little money. Although, that can prove to be a double-edged sword if the property needs significant renovation prior to the sale.
Is a Tax Lien Certificate Right for You?
A tax lien certificate can prove a profitable investment opportunity for you. In most cases, investors will look to options like tax liens after they do things like max out investments in IRAs or if they want more diversity in their portfolio.
If that sounds like your situation, then a tax lien certificate could work out as a good opportunity.
howtoprofitwithtaxliens.com provides information about tax lien certificates and state tax sales.
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