Some real estate gurus make making a tax lien sound safe. To guarantee you high interest rates and that it is “guaranteed by the state”. Unfortunately for you, they omit a few facts and spread the truth quite a bit.
You must first understand that tax sales are auctions and that in most states these extremely high interest rates are auctioned at extremely low rates. Why would investors do that? It’s simple, sometimes there are other penalties they will get if the lien is redeemed. For example, in New Jersey, the fine is between 2-6%, depending on the amount of the lien. There is a 5% penalty in Florida. Also once you gain a lien, you can pay subsequent taxes and get maximum interest on it.
Second, you must understand that there is no guarantee that you will receive a lien. Of course, if you don’t get paid, you can enforce it after the redemption period ends. But no one guarantees that you will be paid! What these gurus mean when they say that a lien is “guaranteed by the state” is that the laws are on your side. If you do not receive a salary, you can eventually enforce the property. The only thing that guarantees your investment is real estate! That is why I do not recommend investing in a lien by mail or online. Would you buy a property you didn’t see first!
When you buy a tax certificate, even though you are not buying the property, there is always the possibility that the lien will not be redeemed and you will have to enforce the property. What if the property is worthless? What if it’s an unbreakable piece of land? Then you get stuck in a worthless piece of property that no one will want to buy from you and if you don’t continue to pay taxes on it, it will eventually go back to the county that sold it to you.
Yes, there are investments in liens and no, that is not certain. However, it’s a great way to invest money if you know what you’re doing. If you are considering purchasing a program to learn how to invest in liens or tax returns, beware! Don’t buy e-books, teaching programs, or courses from someone who brings sweets the job of investing in liens and tax returns and makes it sound like you can’t succeed and there’s no risk. The truth is that you can fail and there are risks to be avoided. Instead, buy one of these products from someone who tells you what the risks are and how to avoid them. This will give you a better chance of success in purchasing cost-effective tax lien certificates and tax bills.