Recently I sent an e-mail out to my subscribers asking them some questions. I wanted to find out what it is that most people want to know about tax lien investing. I got a lot of good questions.  I won’t be able to answer them all here, but I want to try to answer some tax lien investing FAQs for you in this article.

I especially like to answer questions that start out with the words “How do I” or “How can I…” This type of question shows me that someone is really interested and is ready to take action. So here are the answers to some of these tax lien investing FAQs…

Q: How can I buy tax liens or tax deeds without going to the auction?

A: In most states you have to attend the auction in order to bid, or have a representative there to bid on your behalf. But there are 2 ways that you can purchase a tax lien or deed without physically going to the sale. A few states do have online auctions, but not all counties in these states conduct their auctions online. Usually just the larger counties do. Many counties in Florida, California, and Arizona have online tax sales. And I know that some counties in Colorado and Illinois have online tax sales as well. Another way that investors have bought tax lien and tax deeds without going to the sale is to bid on left-over liens, this can usually be done through the mail. The only problem is that as tax lien and tax deed investing become more popular, there are less and less good properties left-over after the tax sale.

Q: I don’t live in the US; can I still invest in Tax Liens or Tax Deeds?

A: Yes, in most states you can invest in tax liens and tax deeds even if you are not a US citizen and do not live in the US. There are a couple of states that you have to be a resident of the state to invest, but these are not the most popular tax lien states and they don’t have online sales. All you have to do in order to purchase a tax lien is to fill out a tax form called a W-8BEN form. In order to complete this form you will also need to apply for an Individual Tax Identification Number (ITIN) if you are bidding in your own name. If you are bidding using a business name, you must apply for an Employer Identification Number (EIN). This is only for tax liens. You do not have to do this to participate in a tax deed sale.

Q: So how much money do you need to get started with tax lien investing?

A: The beauty of tax lien investing as opposed to tax deed investing and other types of real estate investing, you can start with a very small investment. The first very profitable tax lien that I purchased started with an initial investment of only a couple of hundred dollars, on a small sewer lien. Then I was able to pay the subsequent sewer taxes the next couple of years and instead of trying to foreclose I just kept paying the subsequent taxes. After a couple of years, the homeowner moved out of state and stopped paying the taxes on the property, so then I got to pay even bigger payments $5000 over the next couple of years. The lien finally redeemed and I collected 18% per annum on most of my investment plus penalties.

Q: How often do you acquire the property with tax liens?

A: In the state of NJ where I’ve done most of my investing, very, very seldom do you get to foreclose on the property. If you are interested in owning property than tax deed investing or redeemable tax deed investing is the way to go. Only about 1% of tax liens will not redeem and of those properties, once you start the foreclosure process about 80% will redeem sometime during the foreclosure process.

Q: Are there risks involved in this type of investing? What are they?

A: Yes, there are risks involved and that’s what the gurus leave out, they make it sound so easy. They like to use the term “Government Guaranteed” to make people think that they can’t go wrong with tax lien investing, that the government guarantees that they’ll get paid on a tax lien. That’s really not true, what they mean by “government Guaranteed” is that there are laws that protect the investor but you not guaranteed to get paid. The guarantee is the property. Tax Liens are guaranteed by the property that you have a lien on, so if you buy a tax lien on a worthless piece of property, then you made a poor investment and it is possible that you could lose your money. Yes, there is risk involved, but that risk is minimized by doing your due diligence on the property before you purchase the lien, just like you would do due diligence on property before giving someone a loan against it. If you do your due diligence properly than tax lien investing is a very safe investment because it’s secured by something tangible, not just a piece of paper.

One of the things that I do in my courses, is teach people how to do due diligence for tax sale properties so that they can totally reduce the risk involved with tax lien investing.

Q: Can you invest in tax liens and tax deeds in your IRA?

A: We all want to keep more of those profits for ourselves and not give half of it away to Uncle Sam. The good news is that you can use money in your IRA or Roth IRA to invest in tax lien certificates or tax deeds, but only if it’s a true self-directed IRA. With a self-directed IRA, your profits can grow tax-differed, and with a Roth IRA, your profits can be totally tax-free. In my courses I have 2 audios from different experts from 2 different self-directed IRA companies that explain how to do this.

Sometimes I’m asked, “Why invest in tax lien certificates?” I have a one word answer to this question, SAFETY. There is no other investment I know of, that gives me such a high rate of return with the degree of security that I have with tax liens. Tax Lien Investing offers other advantages that I like as well. Like the following…

1. Consistent Return. Regardless of what the stock market does or what the housing market does, you get the same high return on your investment. Your interest rate does not go up and down with the market.
2. Low Initial Investment. Unlike other real estate investments, you don’t need tens of thousands of dollars to get started. You can purchase your first tax lien for under $1000.
3. No Liability. Unlike other types of real estate investing, there is no liability with a tax lien. When you purchase a tax lien, you are not purchasing the property and you don’t have any liability for it. You don’t need property insurance.
4. No Brokerage Fees. Unlike investing in the stock market or other types of securities, you don’t need a broker to purchase a tax lien. There are other costs, like recording the lien with the county clerk, but this is paid back to you when the lien redeems.
5. Higher Interest Rates. Rates on tax lien certificates are higher than you can get with other safe investments, like a money market account at a bank or a CD.
6.  Tax Free Investing. You can legally avoid paying taxes if you invest through a self-directed IRA. If you use a self-directed Roth IRA, your profits can be totally tax free.
7. First Position. In most states a tax lien takes first position over other liens. That means that if the lien doesn’t get redeemed and it goes to foreclosure (which doesn’t happen very often), you are first to get paid.

Why invest in tax lien certificates? Because we have a better place to put our hard earned money, to make it work harder for us. The stock market does not have a very good track record. And right now the real estate market in a lot of states is taking a licking. But if you have a tax lien on a property, it doesn’t matter if the value of the property goes down, the tax lien still makes the same interest rate that you got at the tax sale.

As long as I buy tax liens on good properties, in good areas, and get great interest rates, the return on my investment will help me live a very comfortable life and meet my financial goals.

I am frequently asked the question “How much money do I need to get started in tax lien investing?” How much money you need to have to start investing in tax liens depends upon your goals and the state that you are investing in. Listen to this podcast episode to find out how much money you need to get started and to get an idea of what kind of return you can expect from investing in tax lien certificates or redeemable tax deeds.

Click the blue link below to download the MP3 to your computer.

How Much Money do you Need for Tax Lien Investing?

By Joanne Musa, The Tax Lien Lady

I am frequently asked, “How much money do I need to start investing in tax liens.” Well, that all depends on what your goal for investing is. If you’re using tax lien investing as a way to invest for the future, then you can get started with a couple of thousand dollars. But if you want to create an income from tax lien investing than you need to invest much more.

One thing that you have to remember is that tax lien investing is not a get rich quick scheme. It’s not like other types of real estate investing like buying and flipping properties, or owning rental properties. With foreclosure properties, you have an idea of when you’re going to cash out of your deal, and with rental properties you have a steady income. With tax liens, you don’t get paid until the delinquent taxpayer decides to redeem the lien or redeemable deed. This may not be until the redemption period is over and foreclosure notices are delivered.

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