When investing in Tax Liens you need to first STOP and think about what you want to accomplish. Too many people just run to a Tax Lien Sale intrigued by the prospect of a very high interest rate (which they will get) only to realize after they bought some good tax liens, that
- The interest payments are not monthly or yearly but only when and IF the property owner redeems the Tax Lien on the property.
- There is no way of knowing when and if the redemption will happen, and therefore there is not way of knowing when the investor will get his initial capital plus interest will be paid back.
- It is possible to want to just get a high interest rate and then end up with the actual property (usually though that is a good thing and I call it “hitting the jack pot”)
Whether these possibilities laid out above are an advantage or disadvantage to your investment heavily depends on what you set out to do in the first place.
If your investing goal is to get the actual property, then ending up with a high interest rate but without the property is not what you set out to do.
If your investing goal is not property ownership but instead a secure, safe and high interest rate then you don’t want to invest in a Tax Lien Certificate on a property that has a high likelihood of not being redeemed. Chances are you would not get your interest payments ever and would be forced to foreclose on your Tax Lien, and then you would still have to go through the effort of selling that property to get your money back. (but the good news is that once you do that chances are you got a multiple of your initial investment back)
Although you never will know in advance whether or not a property will be redeemed or not you can massively increase your chances of betting on the right kind of property by applying some rules to the list of available properties coming up for Tax Lien or Tax Deed sale.
In any case the bottom line is, when investing in Tax Liens make sure you know what the rules are and don’t invest money into Tax Liens which you might need for other purposes in the near future. Because it might take several years for the owner of a Tax delinquent property to pay up, or it might be only weeks. One never knows.
And get in with the exit in mind. It will decide which properties you invest in.
What do you think is more likely to be redeemed down the road, a Tax Lien on a 1,000,000 custom home in a gated community, or a 100,000 boarded up junker with man high weeds in the front yard? The answer is clear. So depending on what your investment goal is, a high Interest rate or Property ownership you know which Tax Lien you should go after.