The Plan For Investing in Lien Certificates
The investment plan for lien certificates that I always made to the Rich Man when I was the Poor Man:
I offered to research the lien certificates, which was a significant expenditure of my time. It involved driving past every property I was considering, and then looking up aerials of each one.
I’d get my short list together and then I gave Rich Man two options. He could either send me to the sale with a check, or he could come along and buy the lien certificates directly into his name.
Rich Man usually had something better to do, than sit in a stinky auditorium with 500 other people fighting for lien certificates.
I would just buy the lien certificates in Rich Man’s name, or assign them to Rich Man immediately after the sale.
That way when the lien certificates began paying off, the he would get the check directly. Receiving and depositing the payoff checks was one active part of the investment Rich Man never seem to mind handling.
Checks steadily came in from redemptions, with the 10-15% return. My share of the profits? NOTHING! I offered to let Rich Man keep every penny of the return that came in from payoffs.
In effect, Rich Man was getting a specialist (me) to manage this labor-intensive investment for him, at no charge.
It’s hard for Rich Man to say ‘no’ to this arrangement if you build trust with him and he understands what you’re investing his money in.
How did I get started with an investor, and earn his trust?
I found that, while Rich Man was concerned about the safety of his investment, he just couldn’t stop thinking about how nice it would be to get 15% returns with no work.
This usually led to a “test investment” of $5,000 – $10,000 in which I was likely not to make any money.
But once Rich Man got comfortable with the process, watch out!
I could call him and say “hey I want to invest about $50,000 in a tax lien sale coming up at the end of the month, are we good to go?” I was usually informed to go ahead and buy the liens and then he’d wire the money to the county.
What Do Lien Certificates Have to Offer to the Poor Man?
Simple. For my effort, I received all properties that come about from the lien certificates I bought, which were exactly what Rich Man didn’t want to deal with.
I paid only cost for them – whatever Rich Man would have gotten if the certificate had paid off. I didn’t even have to pay that, until I resold the property.
It became a numbers game. Each time I bought lien certificates for an investor, I’d build my chances of a property coming along at 10-20% of value that would be mine.
Over time, I even developed a method to increase the percentage of lien certificates that became properties, without buying lower quality liens. You can see how I did that in this previous post.
Lien Certificates – A “Hybrid” Investment
Lien certificates are a bit of a dichotomy. During some parts of the investment cycle, a lot of work has to be done. While the redemption period wears on, the investment becomes quite passive and returns are predictable.
Then, if some lien certificates remain unpaid, the investment then becomes EXTREMELY active.
This is what makes collaboration such a great opportunity.
There are investors who are willing and able to perform one part of the task, the investment, and only want boring returns each year.
Then there are ambitious entrepreneurs who are willing and able to do WHATEVER it takes for an opportunity.
Put them together and you have a tax lien certificates buying machine!