Click Partners

Buying tax lien certificates can be a very profitable way to invest in real estate and with the right knowledge can provide very healthy returns on your money. But it’s not to be treated as a “get-rich-quick” scheme, as the in-experienced can find it soon becomes a “lose-your-shirt-quick” investment model. By way of a brief introduction, a tax lien is basically a means that guarantees that a business or individual that lends money or provides a service will be repaid for that investment, by securing a lien on the property of the person receiving the money or services.

A tax lien certificate is issued and is secured against the personal property of the person receiving the loan. Of all the different types of liens, the most popular or common is the mortgage lien. Every different type of lien is subject to its own set of rules and regulations.

Here we are talking about property tax liens specifically, of which there are two main types; the particular lien and the general lien. A particular lien allows the investor (the person lending the money or providing the services to the owner) to claim access to the property (or the equity held within it). Liens are either legal (or federal) in nature - which means they are enforceable in a court of law - or equity liens which are bound by equity courts.

When buying a tax lien certificate, rather than buying the property, you are actually only lending the property owner the money they need to repay their back taxes. Initially, you are not buying the property. In return however, the property owner is legally agreeing to repay a predetermined amount of interest on your loan - which can be anywhere from 6% to 50% depending on the agreement and the state where you are buying the lien. The property owner is also agreeing to repay your money within a predetermined time period, which will be stated as part of the tax lien certificate.

You’ve probably already realised there are two main ways you make your money from buying property tax lien certificates in this way. If the debtor (the property owner in this case) is able to repay the loan in full within the allotted time period, your profit is the interest he has to pay on that loan.

In the event where the property owner is not able to repay the tax lien back to you, in full, ownership of the property is transferred to you as the purchaser of the tax lien certificate. The property is now yours for you to do with as you wish.

So as a quick recap, s an owner of a tax lien certificate, you will either make a profit by way of the interest repaid on your loan to the property owner, or of the owner is unable to make the repayment, you take ownership of the property and make your profit from how you then manage that property.

The bottom line is that investing in tax lien certificates is relatively safe (providing you understand in detail how the process works, and where any potential risks lie), and is a profit focused way to invest in real estate.

This entry was posted on Tuesday, August 26th, 2008 at 12:58 pm and is filed under Real Estate.You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.