Should You Invest in Tax Liens?

Real estate can be a potentially profitable investment, but owning a rental property can consume a significant amount of time and energy.

Investing in tax lien certificates is an alternative way to add real estate to your portfolio without having to use the maximum owner limit.

However, investing in tax liens can be more complicated than owning mutual funds or stocks, and may be more suitable for some investors than others.

Weighing the risks and rewards of investing in tax liens can help you decide if this real estate investment option belongs in your portfolio.

How Investing in Tax Liens Works

A tax lien investment is a real estate investment without actual ownership of the property. Instead, you are investing in debt related to that property through a lien.

If you are interested in investing in tax liens, the first step is to find tax liens to auction. Your local tax agency can provide information on when tax lien auctions take place, according to the National Tax Lien Association (NTLA). Once you know when a tax lien auction is scheduled, you can plan your participation.

Generally, tax liens are sold to bidders in two ways:

For the lowest interest rate offer
The largest cash offer
When purchasing a tax lien, you are responsible for paying the outstanding amount of the lien, plus any interest or penalties owed. Then the state or county pays you the principal and interest when the property owner pays the property tax; This is how you make money from investing the tax lien.

Not all states list tax liens for sale at public auction.

In most cases, tax liens have redemption terms and certificate expiration dates. The salvage period is the amount of time the property owner has to pay the tax debt.

The expiration date of the certificate is the amount of time you have to file a foreclosure action if the owner does not pay.

For example, in Baltimore, homeowners have six months to trade in their property before the security holder can take a foreclosure action.

However, this right of execution expires two years from the date of purchase of the certificate, at which time the holder of the guarantee would have to sell the tax guarantee in the same way that he bought it: through public sale or auction.

Invest in tax guarantee funds

A potential way to invest in tax guarantee certificates with less risk and effort is through special investment funds.

Some investment firms have created private placement funds that invest in tax lien certificates. In that case, you may be pooling your money with other investors and an investment firm or fund manager is making decisions about which tax liens to buy.

For example, Kite Capital Partners is a company that has invested in tax liens through a fund since 2009. Its first tax guarantee fund was liquidated in 2011 and provided investors with an annualized rate of return of 14.1%, according to the company.

Benefits and risks of investing in tax guarantee certificates


It may only take a few hundred dollars to purchase the tax lien certificate.

You can diversify by purchasing certificates for a variety of properties and locations

constant rate of return


Homeowners can choose not to pay if the property's market value is worth less than the taxes owed.

The owner cannot trade in the property, regardless of its value.

If the warranty expires, he will not be able to collect unpaid taxes and the rights of the warranty holder will expire.


We hope you enjoy watching this video about Tax Lien

Source: Phil Pustejovsky


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