An Attractive Alternative To Traditional Real Estate Investments
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Most investors do not realize they can earn interest of 15% or more annually with a highly secure investment opportunity. These profitable investments are available throughout the US and they are fully secured by real estate (commercial, residential, industrial). Investments can be completed online from the comfort of your home or office.
What is this little known investment opportunity?
Tax lien certificates are investments offered by local counties in many US states. When a property owner fails to pay their real estate tax on time the local county government will issue a tax lien certificate. The tax lien certificate is available to be purchased by investors when it is issued. State laws provide for a guaranteed interest rate on these delinquent property taxes which is passed through to each tax lien certificate investor. In some states the guaranteed interest rates can exceed, 15%, 18% or even 20% annually.
Tax lien certificates become available as a result of the following process:
#1 - The property owner becomes delinquent on their real estate tax to the local county government.
#2 - The local county government issues a tax lien certificate that can be purchased by investors at ‘face’ value. Face value is normally the amount of delinquent property taxes.
#3 - After the investor purchases the tax lien certificate funds are transferred from the investor to the local county tax agency. At this point the tax lien certificate is owned by the investor.
#4 - The local county will continue to bill the delinquent property taxes to the property owner. Usually the property owner will pay the delinquent property taxes and accrued interest/penalties within one or two years.
#5 - Once the delinquent property taxes, interest and penalties are paid the local county government will remit the full amount due to the tax lien certificate owner. This includes the original investment principal and all accrued interest at the statutory interest rate within that state.
#6 - If the delinquent property taxes remain unpaid the tax lien certificate owner can legally foreclose and claim full ownership of the underlying real estate. This can be initiated after a statutory redemption period of 2, 3, 4 or more years which will depend on the exact laws in each state. If this step is necessary it will generally wipe out or eliminate 99% of all other liens and mortgages that are attached to the property.
When the property taxes remain delinquent the investor can acquire the underlying real estate and sell or lease it for ongoing income. The investment return can increase substantially in this situation compensating the investor for the additional time required to foreclose. The result can be a real estate portfolio that was purchased far below true market value and an outstanding overall return on investment.
Some additional steps are required to complete the foreclosure process in the rare cases that require it. Many counties offer a streamlined online system that will expedite the foreclosure process for delinquent real estate taxes. In those cases the investor is only required to submit an online form and payment of any processing fees for the court case. In situations where online foreclosure processing is not available the investor should contact the local county for filing procedures. Usually they will provide the appropriate paperwork and instructions for foreclosing on the tax lien.
Foreclosing on a tax lien is much more efficient than a traditional foreclosure. It is an automatic procedure that is protected by state law. There are very few defenses available to the property owner in these types of foreclosures. The timeline for delinquent real estate tax foreclosure is quite short once the statutory redemption period has expired.
Investing in real estate tax lien certificates is not without risk. In rare circumstances you may lose your investment principal. This is usually limited to situations when the property owner files for bankruptcy however there can be other circumstances that may lead to a loss of principal. The risk of loss is very minimal. This risk can be reduced by diversifying tax lien investments among multiple properties spanning a long-term period.
Investors should conduct due diligence on the underlying property for any tax lien certificate investment. This includes checking comparable real estate sales in the same area to determine an approximate value for the property secured by the tax lien certificate. Checking public records for existing mortgages and liens is also essential. This will minimize your risk exposure as a tax lien investor.
Tax lien investments offer an excellent opportunity for anyone willing to wait 1, 2, 3 or more years for a return of principal and profit. The main downside is the lack of liquidity. Investors are usually forced into an uncertain waiting period with each tax lien certificate.
Tax lien investors can improve the liquidity issue by diversifying their total tax lien investment portfolio. A pool or multiple pools of tax lien investments should be built with small, medium and large tax liens from multiple counties and states when possible. This will create ongoing cash flow as each tax lien is paid by the property owner. A portfolio with tax liens issued over a 3, 5 or 10 year period will generally receive ongoing payments every 30-60 days. This strategy should be used by anyone that wants to build significant cash flow. Building a diversified, multi-year tax lien portfolio can be a very effective strategy for building income and wealth.
Tax lien certificates are an excellent long term alternative to traditional savings accounts, CDs, Mutual Funds and other investment offerings. The overall return on investment will usually exceed traditional investment options like stocks, bonds, etc. Investor risk is minimized and protected by state law; most tax lien certificates are as safe or safer than stock or bond market investments.
Now is a great time to consider tax lien investments if you have not already included them in your investment portfolio. The recession has created a large number of opportunities in most states. Tax liens are offered throughout the year by different counties. Check with each county that you may be considering to get their exact schedule.
© Copyright www.InvestorMillionaire.com 2012 All Rights Reserved