Pros and Cons of Tax Lien Investing

By now, TAX LIEN SEMINARS, presumes that almost everybody has a good understanding of tax lien investment, considering the number of articles we have had published about it.  We know that the potential returns are enormous, and so are the risks. Any way, for new potential investors, we are giving yet, a few backgrounders on tax lien investing in the simplest language for everybody to understand:

• As a rule of thumb, the investor should, above all, be familiar with the laws or should understand the statutes of the locality where the lien property is located.
• Cities or Counties are highly dependent on property taxes to deliver the services that their constituents need.
• To maintain a decent income from delinquent properties, local governments sell these tax liens to investors. It’s up for the owner whether or not to redeem the property later from the investor.

Of course there is no question that as in any business venture, there are always some risks involve.  But compared to other investment, tax lien can actually have one of the lowest risk factors.   Understandably, any risks depend on the state or county that the property is in.  Redemption period for example, and the rate of interests vary in each state.

BENEFITS OF TAX LIEN INVESTING:

• Low capital requirements compared to other forms of investment. Sometimes $100 or a little bit more than that is enough to bid for a tax lien certificate.
• Higher returns than flip investment that requires more capital and more volatile.
• Return can be more solidly predictable unlike flipping where the market shifts or changes that you have to second-guess at times.
• Chance of becoming the new owner of a property whose value could be 100 times over than the amount you paid for the tax lien, should the owner fail to redeem the property within the redemption period.

RISKS OF TAX LIEN INVESTING:

• You have to pay for liens impose on the property after the initial liens that you bought. In other words, Subsequent liens should also be purchased or lose your grip on the property. Meaning, new capital needed to buy the new set of liens.
• The competition becomes stiffer by the day as more and more fellow investors learn of the possible huge returns with small exposure in lien investing.
• Since you were not given the chance to see the property, there is always a strong possibility that you are the new owner of a property whose value is not greater than your comfort room.

Having considered the pros and cons of tax lien investing, we wish to remind every potential investor on tax liens to prepare and do your homework first before sailing to unchartered territories.  Study the guidelines, rules and regulations of every state and possibly, attend an actual bidding or auction to get the pulse of the whole process.   Remember, “By failing to prepare, you’re preparing to fail!”