A tax lien is the levy placed on a piece of property when the owner on record fails to pay the annual taxes due on that property. There is a remote possibility that an investor could become the property owner after a pre-determined passage of time. However, the myths about this type of investment are many and tend to scare away potential investors from this money-maker.
Myth #1: Tax Lien Sales are Very Easy to Transact
This is one way to make good money in real estate. Investing in tax lien sales has made some savvy individuals quite rich. There would be more wealthy people around if they would stop listening to the voices that lack authority. With a few adjustments, this can become reality.
Reality is that most investors in tax liens never become owners of the property. Tax deed investments are a better investment strategy than tax lien investing. However, investors who are looking to make money from the interest would do fine with liens.
Myth #2: Investing is not Worth the Time or Effort
Rules surrounding the redemption of a tax lien vary from one locality to another. Many certificates are subject to early redemption. Some state rulings are such that an early cash out could allow returns ranging from 50% to 200% or higher.
Laws protect the lien holders and make certain that these investors are first ones paid in case of bankruptcy or foreclosure. If you are not paid by the property owner of record, you can still foreclose to obtain the money and satisfy the lien you hold.
Myth #3: It is too Risky to Invest in Tax Liens
The fact is that any investment is riddled with risks. It is important to conduct in-depth research on the property, the neighborhood and the locality. Your investment means nothing if you buy a tax lien on property that cannot be sold or you hold a tax lien certificate that could have been sold.
Tax lien certificates are the best way to invest in real estate. They are also the safest investment anyone could make. Many of these investments are government-backed and – in most cases – the interest returns on this investment are a guarantee.
Myth #4: It Will Cost Less than $500 to Start Investing
It is possible to purchase a tax lien certificate with less than $500. However, there are other extenuating costs to pay: recording fees and payment of annual taxes due until redemption. Assuming an 18% return on investment, $500 will only give you $60 a year. This would not cover the annual taxes until a certificate redeems.
This is not a get-rich-quick scheme. Rather, it is a safe investment with high returns – if you know what you are doing. Since you are talking about investing, it is reasonable to guess that you must have money in order to invest money. It is quite unfortunate that many potential investors lost money in the stock market and are now beginning at the starting point again.
They want to know how fast they can make money with tax lien investing. This attitude comes from listening to the television advertorials touting these investments as the fast path to riches. This attracts people to the tax lien investments and they come with no research background.
Conclusion
Many myths about tax liens exist and the people most likely to listen are the same folks who are new to investing. There is a fine line between fact and fiction and sometimes it is hard to tell the difference. Research, ask questions and listen to experts who are actually buying into tax lien investing.
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