Why Invest in Tax Lien Certificates?

Why Invest in Tax Lien Certificates?

As I always do at the end-of-the-year, I spend time reflecting on past events and more importantly set priorities and goals for the upcoming year.  I have a lot to be grateful for.  This tax lien website has started to gain a good following of devoted readers both online and thru my newsletter. I’m also grateful that I’ve been able to directly keep a number of readers out of trouble—away from bad investments or pricey scams. 

One underlying theme I do get from my reader’s emails and comments is the question about why they should invest in tax lien certificates over other investments?  We could place our hard-earned cash into stocks, mutual funds, bonds, annuities, or even other real estate investments.  But, why tax liens over these other alternatives?

I have five reasons for you.  I’ll open up the comments section on this post if you have other reasons why you think we should (or should not) invest in tax liens as an alternative to these other asset classes.

  1. High Interest Rates.  The reason all of us first raised an eyebrow about investing in tax liens were seeing the advertised statutory rates of 16%, 18% or even 24% on your investment. With banks paying 0% and stock market dividends averaging less than 3%, a yield even in the high single digits is appealing. 
  2. Safety of Investment.  I have to be careful here, as I don’t want to make it seem like there is no risk involved in tax lien certificates.  People do lose money.  It’s imperative that you understand what you’re getting into before buying your first lien.  That’s why I created my website.  If you do your homework, follow the advice found here, and buy high quality liens, then this investment can be extremely safe with little or no risk of loss.
  3. It’s in Your Neighborhood.  Like most real estate investments, you can see the properties first-hand before you buy the tax lien on it.  It could be a house down the road or an office building a short drive away.  Even if it’s a bit further than a day’s drive, the research is easy and you can rely on brokers and online resources to help you out.
  4. Most Tax Lien Certificates Redeem. Look, tax liens are not the best way to gain ownership of properties.  The majority—I mean like 99% of the good properties—will payoff before you even get close to getting deed to the property.  This is a good thing.  It means you earned your interest and you get your principal back.  Nothing wrong with that.
  5. It’s Enjoyable. The reason I get so excited about tax liens is that it’s fun to invest in.  We can see the properties we’re going to bid on.  We get to see our competition (if the auction is not online) and know that there are others just like you and I bidding on these liens. And, finally, we’re involved in the process—we don’t have to go thru a brokerage or be at the whims of a corporate board.

I wish you the best of luck in 2012 with your family, friends, life and (of course) your investments!

Don’t LOSE YOUR SHIRT in an Overbid Tax Lien Auction

Don’t LOSE YOUR SHIRT in an Overbid Tax Lien Auction

Have you been hesitant to invest in states with an overbid auction?  Has the thought of bidding up to 30%, 40% or even more of the assessed real estate value kept you away from certain state tax lien auctions?  I’ll discuss several tips and strategies that will minimize your risk of loss and maximize gains in these states.

Not familiar with an overbid auction?  In a nutshell, bidders are allowed to bid up the price of the tax lien over and above the initial opening price (usually this opening bid is the amount of delinquent taxes).  This amount over the opening bid is called the overbid and may or may not earn interest depending on the state.

Buying South Carolina Tax Liens

Buying South Carolina Tax Liens

Want to Know More about South Carolina tax lien auctions?

Beginning the first week of October and continuing thru December, each of the counties in South Carolina host delinquent tax lien auctions.  These are primarily held the first week of each month.  You can also checkout my Kindle e-book about the South Carolina tax auction entitled: A Beginner’s Guide to Investing in South Carolina Tax Liens


Lock in your PROFITS — Sell your Tax Lien Certificates!

Lock in your PROFITS — Sell your Tax Lien Certificates!

For many, tax lien investing is simply means to a safe return on their investment.  They do not want to deal with foreclosures nor take tax deed to properties that will require many hours of work.  I usually see three categories of investors that fall into this category.

  1. You are out-of-state.
  2. You are not experienced with foreclosures, rehabs, evictions, etc
  3. You just want to minimize your risks and lock in a profit

The good news is – there is a secondary market to sell your tax liens! 

Really, it’s out there; you just need to put in a little work to find it.  You’ll also need to keep a keen eye for low-ball offers on your tax certificates from speculators looking to take advantage of an unknowing seller.

INVESTORS –The obvious buyer is another tax lien investor.  How to find one willing to give you a serious offer? 

Networking with others at auctions, online forums and real estate investment clubs.  Find out if there are any other lien holders—these can include tax lien investors who hold positions before or after you – or, an alternative would be a mortgage holder.  You may find that they want to buy your position from you because it may be quicker to foreclose on your tax lien than their mortgage.

If you invest in tax liens in a judicial foreclosure state—call around to different tax lien attorneys. Attorneys that specialize in foreclosing on tax certificates and filing quiet title suits. The unspoken rule in these states is that the attorneys make all of the money. Why? They can charge legal fees that are well in excess of their actual costs and they get paid when the lien redeems. In states like Maryland, DC and New Jersey, a good percentage of the investors who show up at the tax lien auction are lawyers to invest in their own portfolios.


I’ve had success advertising my liens on (more…)

Could your Tax Lien Certificate be a SALE IN ERROR?

Could your Tax Lien Certificate be a SALE IN ERROR?

Like most real estate investments, tax liens and tax lien certificates are sold “caveat emptor”, that is, there are no warranties, representations or guaranties of the value of your investment. This is especially true with tax liens as the courts have held time-and-time again that the investor bears all of the risks of the investment.  Additionally, the county tax collector or treasurer has no stake in purchase—they don’t care if you make or lose money—all they want is your cash so they can pay their county bills.

However, there are times when mistakes are made and will entitle you to a refund. These mistakes are called “sales-in-error”.

The chances that you receive a refund vary by state as does the amount of interest you will receive (if any). For example in South Carolina, if a “sale-in-error” is declared on your lien during the redemption period, you will only receive your investment plus the county’s cost of funds—generally the money market rate that the county receives on its own cash.  (more…)

Newbie to a Tax Lien Auction?

Newbie to a Tax Lien Auction?

If you haven’t been to an auction before, you should absolutely attend one to get a feel for its action and pacing—a dry run before you actually start putting your own hard earned cash out.  It doesn’t necessarily have to be a tax lien auction, just a well-attended public auction. 

It’s just an auction, why worry?

Auctions are purposely designed to get the best price possible for the seller (not the buyer).  Although tax certificate auctions are not quite as high-pressured as other types of auctions (REO, automobiles, etc) they still have many things going for them:

  • A high, overall excitement level
  • Your competitors sitting in the same room as you
  • The marketing concept of ‘scarcity’ – limited time and availability of a product

I remember my first auction.  It was years ago when I was attending a certificate exam.  During the break, I happened to walk by a large real estate auction.  I took a seat and immediately felt the adrenaline rush—ready to buy anything—the properties just looked so good and with everyone else bidding, it was hard to jump into the fray.  Luckily, I didn’t have a certified check with me or I would be the proud owner of a couple REO properties.

Live, open-outcry tax lien auctions are normally very well attended.  Those bidding fall into three categories:

  • Large, corporate tax lien buyers looking to buy as much as they can
  • Local, experienced investors looking for bargains not bought by the corporate buyers
  • Newbies looking for one or two properties but largely shutout by the two characters above

If you fall into the last category as a newbie—don’t worry!  Preparation for the auction goes a long way as long as you do your homework on what to expect.  

Here are the steps I recommend to make your auction a success:

  1. Get the latest copy of the entire list of delinquent tax lien properties. You can find these lists with the county tax collector or subscribe to a listing service such as Tax Sale Resources (http://taxsaleresources.com) (You can even use my discount code for 10% savings: 1833520034FL3cef207f )
  2. Bring the list with you and highlight the liens you are interested in and have done your due diligence on.
  3. Make sure the list is very legible and bring a couple pens to cross out liens that were removed just prior to the sale so you don’t lose your place when the auction starts.
  4. Read the rules of the auction carefully—know when you must register, what type of funds to they take, how the auction is handled, what order will the sale go?
  5. Attend the practice auction—most auctioneers will spend twenty minutes or so at the very beginning to show how he plans to go thru the properties.