Most people who are familiar with real estate investing are not familiar with tax liens. There are few books written on the subject and very few of the real estate guru’s espouse investing in them. Even so this is one strategy that should not be overlooked if you want to make a profit investing in real estate. Here are 5 ways to make a killer profit with tax liens.
High Rate of Return
Tax liens are sold by county governments as a way to raise money when property taxes are not paid. The state sets the maximum interest rate that can be charged on a lien. In my home state of Georgia this is 18%. If you purchase a lien, either the homeowner or the bank will pay you plus the guaranteed 18% interest rate. There are few investments that can guarantee such a high rate of return.
Safer Than the Government
Government bonds have a reputation as being a very safe investment because they are backed by the assurance of the United States Government. Tax liens may be even safer than the government bonds because you are guaranteed to either be paid back with interest or be given a brand new home.
Cheapest Way to Purchase a Property
The county government will sell a tax lien on a property when the property taxes have not been paid. This places a lien on the property that is senior to any mortgages. If the tax lien is not paid by the homeowner or the bank within a specified period of time, you can foreclose on the house. This is one way to purchase a property for the amount of the outstanding property taxes.
No Tenants
By investing in tax liens you can get a high rate of return on your investment without having to deal with tenants. Landlords rue the day that they purchased a rental property because of the late night calls to fix leaking toilets. The landlord is required to fix repairs in exchange for collecting rent. With tax liens there is no work involved after your initial purchase. You just sit back and wait for the homeowner or the bank to send you a check.
Low Capital Requirements
If you purchase a $100,000 home as a long-term rental property, you would be required to put 20% down or $20,000. On this same home the property tax could be only $2,000 per year. If you purchase the tax lien you would need to only put down $2,000. Tax liens have one of the lowest initial capital outlays of any form of real estate investing.
Tax liens are the unheralded swan song in real estate investing. It is a great way to make a quick profit while requiring very little cash to get started.