Do you fall for these myths about tax lien investing?
There are many myths out there about tax lien investing and it’s difficult to know fact from fiction, and it’s even more difficult to know who to listen to any more. Here’s what I’ve come to know and discount about tax lien investing after investing and teaching others how to invest in tax lien certificates for the past 8 years.
Myth # 1: You can buy a house for as little as $200
The truth is that you can purchase a tax lien for as little as $200, but in my experience 99% of all tax liens will redeem and you do not get to foreclose on them. Not only that but most tax liens on decent properties are more than $200. Think about it. How much do you pay for the taxes on your house? If all that is owed in taxes is $200 what kind of property do you think that is? And even if it did turn out to be a good property with a house on it and it wasn’t redeemed and you got to foreclose on it, you would still have to pay all of the taxes from the time that you purchased the lien to the time that you got to foreclose on it, plus any attorney fees for the foreclosure. That still would be a great deal, but it’s not going to cost you only $200.
Myth #2: You’re guaranteed to get paid
No one guarantees that you will be paid on a tax lien. There are laws to protect the lien holder, and you are first in line to get paid, but that does not mean that you will get paid! Your guarantee is the property that you hold a lien against. If the owner doesn’t pay you, you can foreclose on the property in order to satisfy your lien. That’s why it’s so important to do your due diligence on tax sale properties!
Myth #3: You can start investing with less than $500
While you can certainly purchase your first tax lien certificate for less than $500, consider that you will need to pay recording fees, and in some states you will need to pay the subsequent taxes each year until the lien redeems. And why would you only want to invest $500 anyway? Even you are making an 18% return on your money, with only $500 invested, that’s only $60 a year. Wouldn’t you rather invest at least $5000 and make $600 a year? And then keep reinvesting that $600 until the lien redeems?
Some real estate “gurus” are giving people the wrong idea about tax lien investing. It is not a get rich quick scheme. It is a safe way to invest your money for high returns if you know what you’re doing. The key word here is “invest.” You have to have money in order to invest money. The problem that many people are having today is how to invest the money that they have in order to keep it and grow it and not lose it. Unfortunately there are many risky investments where you can lose all your money and I’ve heard from too many individuals who have had their nest egg invested in the stock market and now are starting all over. They want to know how fast they can make their money back with tax lien investing. My answer to that is, the more money they have to invest the faster it will grow and if they had their money invested in tax liens instead of the stock market to begin with they wouldn’t have lost it all, (assuming that they took the time to do the proper due diligence).
?2010 Tax Lien Consulting LLC. All Rights Reserved. Any use of this article without the express permission of the author is a violation of copyright law.
By Jeff Garrett November 27, 2010 - 9:03 pm
I always liked the myth that you can earn 20%, 30% even 50% or more in tax liens. If you annualized your return, then that would be true. However, you would have to assume you could reinvest your redemption right away rather than wait for the next tax auction.
By Joanne November 29, 2010 - 3:37 pm
Hi Jeff,
I do think that it is quite possible to get double digit returns with tax liens. Most of my portfolio is at 18% with many liens being held longer than a year. And 20% – 30% is possible in some states, like Illinois, Georgia, and Texas. In fact PIP West, a tax lien investing agent that I recommend, who specializes in these states, averages over 30% for clients (before fees). But 50% is a little unrealistic for tax liens. And in other states like NJ, Florida, Arizona, and Colorado I think that from 7-10% is the norm.
By ok-kum charles November 24, 2010 - 12:07 pm
Dear Joanne
I’m not afraid that you are the real person who know how to talk real facts w/honest and real(not sugar coating word),true words.
I felt that some-so called-gurus-saying a loudly that making “Tax-Lien”investment will bring a big profits in a short period time. I do not think that is not all true. They even charge a lot of coaching program fee.
As far as i know, you are the only person that make my eyes open and teach me how to see and how to learn about “Tax-lien”investment. Thank million to you, Joanne.
By Joanne November 27, 2010 - 3:31 pm
Hi Ok-kum,
I’m glad that you like my blog and appreciate my content. I don’t always tell people what they want to hear about tax lien investing, but I do try to do 2 things. One is to tell the truth and the other is to give my subscribers as many good options as I can.
Happy and Prosperous Investing,
Joanne