We made some pretend lien certificates today - this is one of them.
Lien Certificates – Yielding Two Forms of Return That Couldn’t Be More Different!
Recently, in my post “Tax Liens: What Camp Are You In?“, I showed you how lien certificates produce one of two very different results.
Most of the time, quality liens will redeem. A much smaller percentage of the time a quality property is obtained.
In this 3-post series we’ll meet ‘Rich Man’ and ‘Poor Man’.
Rich Man may not be fabulously wealthy, but he has several hundred thousand dollars that he won’t need to use for several years.
He’s looking for a better return on it than he’s getting in the bank. However, he doesn’t want to have to spend a lot of his time dealing with the investment.
‘Poor Man’ isn’t really “poor” in the usual sense of the word. He may even own some properties and be building wealth at a fast pace. He just doesn’t have a lot of idle cash that he can tie up in a large investment.
Poor Man wants bargain properties, and would like to get them by purchasing lien certificates.
However, he’d only be able to only buy a few with the small bankroll he currently has. Those few lien certificates would probably not result in a property being acquired.
Why? The fact is, large numbers of lien certificates must be purchased before one can expect to get occasional properties as a result of their investment. 95% of these lien certificates will pay off.
Rich Man loves this aspect of lien certificates, however. He’s just looking for high interest on his money, and “hitting the jackpot” with a bargain property is really not part of his gameplan.
He would actually love it if 100% of lien certificates paid off.
All he wants is a payoff so he can invest again. He would buy dozens of liens if it weren’t such an active investment. He’d love to just earn 10%-15% on autopilot.
It’s a simple fact. Most people want to either earn passive interest on their money, or they want to take an active role in the investment for potentially huge returns.
It’s rare that someone wants to be a “wheeler dealer” AND tie their money up in something that usually just pays interest at the same time.
The “Poor Man’s” Lien Certificate Quandry
We have someone here with smarts, energy, and ambition. The only problem is, he doesn’t have the kind of cash needed to really profit from lien certificates.
Even 15% return from lien certificates isn’t going to be appealing to him. He wouldn’t be able to invest enough money to earn more than a few thousand dollars from the liens he would buy.
That would represent the interest earned on his lien certificates when they inevitably paid off.
Lien certificates interest him highly nevertheless. He’d love to be on the receiving end of one of those tax sale deals you sometimes see on TV! While rare, they really do occasionally happen.
Maybe there is a way for him to improve his odds.
In my next post, we’ll see what Rich Man’s goals are, and how he and Poor Man might strike up a fabulous partnership. It turns out each has something to offer the other, and cannot make the investment without the other.
{ 4 comments… read them below or add one }
I’ve also worked with tax lien certs in the past in Nevada and Arizona (Nevada is a tax lien certificate and tax deed state) but it but the auctions are very time consuming, especially in Arizona where the interest rate gets bid down by large insurance companies (from the starting rate of 16% to 9% or lower). There is an after market inventory but one needs to complete some sort of due diligence on the properties. Looking forward to seeing your future comments.
Great observation. This is why the investment is really unsuitable for people who just want to park their money. It’s time-consuming and specialized knowledge is required.
This is why teaming up with a hungry investor and letting them do the work in exchange for the chance to buy any properties received, is the perfect solution.
hi, thanx for the education, it seems like the bank has walked away from the property in order to get the deed auctioned, so how to close a deal with the owner in these situation( a morgage exist but the deed is being auctioned)
You’re assuming there’s a bank involved – usually there isn’t.
If you do run across a deal with a bank involved, see what the mortgage balance is. If it’s not very low, move on!