Tax lien investing is a type of real estate investing where individuals purchase tax lien certificates created when local governments place liens on people’s property due to unpaid taxes. Tax lien investing is an indirect way of investing in real estate by purchasing tax lien certificates for unpaid property taxes. There are 28 states that currently allow for the sale of tax lien certificates. Since there are approximately $21 billion of delinquent property taxes each year, it’s a booming business.
Investing in tax liens gives investors the chance to profit when a property owner fails to pay their taxes. A tax lien is a legal claim that a local or municipal government places on an individual’s property when the owner has failed to pay a property tax debt. A tax lien makes a legal claim against assets in the event of a significantly delinquent tax obligation. If the obligation is not satisfied, the creditor may proceed to seize the assets. But these claims on collateral can also be exchanged and traded among private investors seeking this type of alternative avenue in order to generate above-average returns.
Before diving into tax lien investing, it’s important to understand the downsides. This type of investment has a large amount of risk, and it’s recommended that only professional or experienced investors take on this kind of investment. Experts recommend thinking carefully about the risks involved before jumping into tax lien investing. While some investors can be rewarded, others might be caught in the crossfire of complicated rules and loopholes, which in the worst of circumstances can lead to hefty losses.
To invest in tax liens, you must purchase the tax lien certificate at auction. Your goal as an investor in tax liens is to find auctions where you could purchase these certificates. You make money because the government gives the owner a specified amount of time to pay the taxes owed, and if they dont, you can foreclose on the property.
