Why Invest in Tax Lien Certificates?

Why Invest in Tax Lien Certificates?
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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!

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