Tax lien investing is a great way to invest safely for high
returns without putting your money at risk, as in the stock market, or
other speculative investments. I use lien investing as a way to invest
my money both for the near future - a few months to 2 years down the
road, and for retirement. There are plenty of reasons that I see for
investing in liens in today's market like:
• Where else can you get an 8- 36% return on your money without a lot of risk?
• A tax lien is in first position and comes before all other liens except for other government liens
• There are no brokerage fees - you can buy tax lien certificates directly from the government
• Unlike other real estate investments, you don't need a small fortune to invest, you can start with only a few hundred dollars
• You don't need good credit
• You don't even have to live in the US or be a US citizen to invest in most counties tax sales
• You can do it from your computer
• You can do it with money from you self-directed IRA and avoid paying taxes on your profit
• Thanks to our slow economy there are more liens available now than in years past
But
still, some people who try it just aren't successful, and I don't want
you to be one of them, so here are some reasons why people fail at tax
lien investing and how you can avoid these mistakes:
Reason 1: Not investing in the right place
Not
all states have laws that are favorable to investors. And even in the
same state different counties may have different rules and procedures;
one county may not be as good as another. Most liens will redeem so it's
very unlikely that you will be able to foreclose on a property from a
tax lien, and even if you do get that rare opportunity it could take you
years to get the property. So tax lien investing is not a way to get
property. If you want to own or flip real estate, than you need to look
at the states that have tax deed sales or redeemable deed sales - not
tax liens. And you will need more money for this than for tax lien
investing.
It's important that you pick the right place to invest,
not just the state that has the highest interest rate. Also some states
just don't have much available and the competition for few liens they
do have is intense. As you'll see it's important to know the rules in
the state and county or counties that you're investing in before you
purchase a tax lien.
Reason 2: Not researching the tax sale properties
Some
people are under the impression that you are guaranteed to get paid on a
lien, so you can just go out and buy any old tax lien and get paid.
That's not how it works. The interest rate on your lien is "government
guaranteed," but you're not guaranteed to get paid. You're guarantee is
the property, so you better make sure that the property is valuable
before you purchase a lien on it. Otherwise you might be able to
foreclose on the property, but if you can't do anything with it and you
can't sell it how will you profit?
Reason 3: Not knowing the rules
The
terms of the tax sale are very important. They indicate how and when
you need to register for the tax sale, what the bidding procedure is,
and how and when you need to pay for any successful bids. If you don't
have the proper information, you won't be allowed to register for the
tax sale. And if you don't register by the deadline you won't be allowed
to bid. You also need the correct method of payment. Many tax
collectors will only accept a bank check (or ACH debit if it's an online
tax sale) and payment usually has to made immediately after the tax
sale. If you don't pay on time with the correct form of payment you
could be fined, lose any successful bids, and be barred from
participating in any future tax sales.
Reason 4: Not understanding the bidding process
I
have seen this work both ways - people losing out on bids because they
bid 2 high an interest rate or would not bid a high enough premium - and
people not making any profit because they bid too high a premium or to
low an interest rate. There are so many different bidding procedures
that you really need to know what you are bidding at any particular tax
sale. You need to know what is being bid, is it the interest rate,
ownership interest in the property, or premium. And what happens to the
premium if premium is bid at the sale. Do you get interest on your
premium? Do you even get your premium back if the lien redeems? This
could make a big difference in your profit.
Reason 5: Not having someone to help you avoid the traps
I
made quite a few mistakes when I started tax lien investing back in
2002, fortunately they were small ones and I didn't lose a lot of money.
There was not much available back then for me to learn from and nobody
was talking about tax liens back then. So I learned by going to tax
sales and purchasing liens, and yes, making mistakes. I wish I had a
mentor to take me under his or her wing and show me the ropes. It would
have saved me a lot of time and money!
Joanne Musa works with people who want to build an extremely
profitable portfolio of tax lien certificates or tax deeds FAST. She is
the author of Tax Lien Investing Secrets II, a complete system for
learning how to invest in tax lien certificates and tax deeds for
maximum profit, and founder of Tax Lien Consulting LLC, a consulting
company specializing in tax lien investing coaching and education. To
find out more about the steps involved in building your profitable tax
lien or tax deed portfolio, go to.http://www.taxlienlady.com
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