What Are Tax Certificates?

Of all the ways to invest, one that is always overlooked by every investment broker is tax lien certificates. This is one way to make money off of the tax system and possibly gain land. This is also one of those methods that few people get into because there is some risk not associated with other forms of investing.

What are they?

When homeowners are delinquent on paying taxes, some states allow the counties to sell a certificate in the amount owed. If the homeowner is able to come up with the money, then they pay the amount back with a 15 to 50 percent interest attached. The county then pays this to the certificate holder. If the homeowner is unable to come up with the back taxes, then the person who owns the first certificate on the property becomes the owner and are given a tax deed. The only drawback to this is if the property needs quite a bit of work or is on a piece of property that has issues, such as flooding. For the most part, the owner of the certificates can make a tidy profit.

How to acquire

Most of the certificates for sell by counties are sold via auction, with enough time to inspect and research the properties beforehand. The main downside of them being sold this way is that they are sold in blind lots, meaning that people are not aware of the exact property in which they are bidding. This can mean that the person may have to keep bidding for particular properties they want. This will mean they may get a few bad properties before the good. Another downside is if the property has a federal lien on it. The person that holds such a certificate gets the property, as if they had the first county tax lien certificate.

Uses and advantages

People who want to acquire lots of land or houses for any number of reasons can use this way to help keep the costs down during the process. These folks may want the land for rental properties or to build businesses. This is also an expedient way to help someone build personal wealth. This isn’t a get rich quick method, though. It takes patience and there can be some missteps, but it can be productive on several levels.

{ 9 comments… read them below or add one }

John February 7, 2014 at 3:54 am

If a purchase a tax lien cert on the property with no house on it and the owner doesn't pay the taxes in the prescribed period of time do I have the right to foreclose and take possesion of the property? At that time all I would owe is the yearly taxes and would have no mortgage correct?

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Rick Dawson February 7, 2014 at 9:13 am

Yes you have the right to do this whether there's a house on it or not. You have to make sure you notice all the parties correctly in some states about the tax sale in order to have the mortgage and other liens drop off, this is why it's important to understand the system in the state you're working in.

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Rigas Kyriakopoulos April 20, 2015 at 2:40 pm

In the section :"how to acquire" you mentioned: "The main downside of them being sold this way is that they are sold in blind lots, meaning that people are not aware of the exact property in which they are bidding. This can mean that the person may have to keep bidding for particular properties they want. This will mean they may get a few bad properties before the good. Another downside is if the property has a federal lien on it. " So if that is the case can you avoid that? Is this the same with states with redemption period and states with out?

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Rick Dawson April 28, 2015 at 5:31 am

It all just depends on the particular state's system.

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Der. West May 6, 2015 at 4:39 am

Keep. Up. the good. work. May. God. be with. You .

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Rose June 4, 2015 at 3:46 pm

This has always seemed to be a fascinating way to make money. At this point, I am interested more in buying the certificates themselves. That way even if I do not end up with the property I will end up with a very healthy investment.

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Rick Dawson June 4, 2015 at 4:33 pm

That's a good way to think about it. Make sure you set aside quite a bit more than the certificate investment for legal fees and foreclosure costs if you have to do that (you'll be reimbursed) but it's an excellent investment to earn interest income

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Ms.Allen July 8, 2015 at 8:13 pm

Is it possible to start investing with no income

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Rick Dawson July 9, 2015 at 12:34 pm

Certainly possible if you have the determination. Many deals we do not put money out of pocket (or less than $200) to get into.

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