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An Introduction To Tax Certificates

Aug 17, 2007
Are you tired of cd rates in the toilet and stocks that go all over the place?. Are you looking for a safe place to invest that is backed by the government, pays high returns and is secured by real estate? Then listen up because tax lien investing could be right up your alley!

A tax lien is simply a lien that is placed on real estate for the non payment of real estate taxes. In many states, the county government will sell the lien to the general public in order to balance their budget. The investor is issued a tax lien certificate that is backed by the property. The investor then collects any penalties that are owed by the taxpayer when they redeem the lien. The penalties in most states for tax certificates are high.

How high you ask? Is 24% a year high enough for you? Obviously, it varies by state, but that is the statute in Iowa. But what about risk? With a tax lien you either get a high rate of return on your investment or the property. That's a lot better than the bank cd's. By the way, guess who is one of the nation's largest investors in tax liens? Banks! So, why not cut them out of the loop and go straight to the source.

The best part about tax liens is the price. Nearly all are under $5000, with most being in the $200 to $1000 range, which is easily within reach of the average investor. Unlike many speciality investments, there are no special requirements or licenses required to invest in tax liens.

So, now that you know the basics, you need to find out how and where to get your hands on tax liens. Tax liens are sold one of three ways: at live auction, over the counter, or by internet auction.

Live auctions are generally held once a year in the county courthouse. You get a bidder number and the actual bidding process varies by state and local laws. Sometimes you bid down the rate, other times you bid up the price.

Another way to buy tax liens is over the counter, which is just a fancy way of saying mail in bidding. To buy over the counter, you simply call the county and get a list. Then just need to you pick out the property you want to bid on and send in a check. These are almost always at the full interest rate of the lien. In most jurisdictions, over the counter (or OTC) liens are the ones that did not sell at the auction. However, in some rural areas, counties have been known to sell tax liens exclusively over the counter.

The newest and most exciting trend in tax liens is internet bidding. The county holds an auction on its website (generally for about a week) or a third party website like Bid4Assets and the investor simply places a bid from the comfort of his home computer. How easy is that! No traveling or hassles required.

Now that you know the basics, what are you waiting for? Go learn your local regulations and buy some tax liens today!
About the Author
Carlos Scarpero is an experienced real estate investor who specializes in land. On his tax lien and tax deed blog at http://www.scarpero.com/real_estate , he discusses innovative and creative real estate strategies to make your real estate investing more profitable.
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