Property tax lien certificates can be a very profitable means of getting into real estate investment, so I thought I'd share some background information to explain what property tax liens are and why they offer such profitable returns. When a property owner is unable to pay their taxes for example, they can be issued with a tax lien certificate which simply provides a means to guarantee the creditor (in this case the tax collector) will receive the money they are owed.
A tax lien certificate is issued and is secured against the personal property of the person receiving the loan. Of all the different types of liens, the most popular or common is the mortgage lien. Every different type of lien is subject to its own set of rules and regulations.
Here we are talking about property tax liens specifically, of which there are two main types; the particular lien and the general lien. A particular lien allows the investor (the person lending the money or providing the services to the owner) to claim access to the property (or the equity held within it). Liens are either legal (or federal) in nature - which means they are enforceable in a court of law - or equity liens which are bound by equity courts.
When buying a tax lien certificate, rather than buying the property, you are actually only lending the property owner the money they need to repay their back taxes. Initially, you are not buying the property. In return however, the property owner is legally agreeing to repay a predetermined amount of interest on your loan - which can be anywhere from 6% to 50% depending on the agreement and the state where you are buying the lien. The property owner is also agreeing to repay your money within a predetermined time period, which will be stated as part of the tax lien certificate.
So here's how we make our profits. If the property owner is able to repay the value of the tax lien certificate back to you within the allotted schedule, including all interest owed to you, he retains ownership of the property, and his credit rating remains intact.
If the property owner fails to repay the lien in time, ownership of the property is transferred to the holder of the tax lien certificate - in this case you, as the recent purchaser of the lien - and you are free to manage that property as you see fit as the new legal owner.
As a tax lien investment, the mechanism will make money whatever the outcome. If the original owner repays the lien on time, your profit is the amount of interest that was set on the tax lien certificate. Where the owner defaults, and you become the new owner of the property, the amount of profit will be determined what you choose to do with your new real estate acquisition.
There is a lot more information you need to be aware of, and a lot more knowledge required before you go off a buy your first property tax lien certificate, but in simple terms, it is a very realistic model to make money and invest in real estate.
About the Author:
Real estate investor Mike Fairweather explains how to invest in property without losing your shirt. Tax lien certificates can be a very profitable road to building a real estate portfolio. Tax Lien Properties Grab a totally unique version of this article from the Uber Article Directory
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