Profitability is an important factor when you’re considering where to put your money today. Nobody wants to put their money into an investment that can lose value, but in order to make high interest rates you have to take risks, right? That may be what you have been told, and you were probably also informed that if you want safe returns you’ll have to settle for less interest. Your local government, however, manages to get high returns on their money, without putting it at risk. How do they do it?
What happens if you don’t pay your property taxes?
If you live in the United States, the county or municipality that collects your property taxes is going to charge you dearly for not paying your taxes on time. You’ll have to pay hefty interest charges on the money you owe and in some states additional penalties as well. If the taxes remain unpaid than the taxing district will do one of 2 things; either they will sell your property to satisfy your debt, or they will sell your tax bill to an investor who will pay the taxes in order to receive the interest and penalties. If they sell your tax bill to an investor that gives you some extra time to come up with the tax money before your property is foreclosed on to satisfy the back taxes, penalties and interest that you owe. This is how it works in states that sell tax liens.
Tax liens have a guaranteed rate of return. That rate is the same rate that the taxing jurisdiction (county or municipality) charges property owners that are delinquent in paying their taxes. Some tax lien investing and real estate experts claim that tax liens are “government guaranteed.” People assume that means that if they purchase a tax lien they are guaranteed to get paid. But that is not what is meant here. They are talking about the fact that the interest rate received for a tax lien is guaranteed by the local government, not that the investor is guaranteed to get paid.
Tax liens are also “real estate” guaranteed – that is they are guaranteed by the real estate that the tax lien is placed on. If you purchase a tax lien on a property and the owner of the property does not redeem the lien within the redemption period, then you can foreclose on the property in order to satisfy your lien. So the return you get on your tax lien is guaranteed by the government and your lien is guaranteed by the property. Tax lien investing is a safe alternative to investing in high risk investments that do not have any underlying guarantees at all – like the stock market, currencies, options, commodities, futures, etc. It’s also a great investment for your retirement account and you can purchase tax liens inside your self-directed IRA or 401K.
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