Through tax lien certificates, you can invest in people who have not paid their property taxes. By purchasing a tax lien certificate, you are providing a local government with money they would have lost, and you may receive interest if the property owner pays the taxes. However, as with all investments, there are risks involved.
How do tax lien certificates work?
When you buy a government tax lien certificate, you might be able to collect on the outstanding property taxes, plus interest. Then, in the ideal scenario, if the taxpayer comes up with the money, then you will receive the interest and your original payment. Sometimes, the interest can be as high as 15 percent, but there are risks involved. Keep in mind that the owner is already behind in taxes, and you can't be sure he will pay.
Who benefits from this deal?
This helps the county owed the property taxes because you have paid those property taxes by purchasing the tax lien certificate, and the county has money coming in for services. In the long-term, you may receive interest on your investment.
What happens if the property owner cannot pay the taxes?
If the owner does not come up with the money within a specified amount of time, you can foreclose on the property. Unfortunately, you may wind up losing out on the deal if you don't like the property or the house is less than what you paid for the certificate.
Also, you have to be able to handle the fact that you might be forcing someone out of her home. While the individual is behind on her taxes, and that is not your concern, you need to prepare for potentially emotional situations. You will also inherit any of the problems on the property, so you might need to pay for repairs.
Where can I get tax lien certificates?
The process of buying a tax lien certificate will depend on the laws of your area. You can purchase these tax lien certificates at a county auction, which happens once a year. Look for tax sales advertised in your local paper, or contact your city or county's tax department. Keep in mind that not all states have tax lien sales.
 | A lien gives a creditor a stake in a debtor's property if the debtor cannot or will not pay. When the property is sold, then the lien holder will receive a share of the proceeds. |
 | A notice of intent to lien is an announcement that someone to whom you owe money is about to declare that they have a claim against your property. This is one document that you want to take seriously. |
A lien waiver protects you from contractors sending you the bill and placing a lien on your house if a builder, developer or contractor did not pay for the work. |
Tax lien investing may sound lucrative, but it is risky and it is not for novices. You need to understand real estate auctions and the specific laws of your county before you dive in. |
Federal tax liens are often placed on homes if homeowners cannot pay Uncle Sam. If this describes your situation, you may be able to subordinate the lien so you can get a loan that will help you pay your bill. |
