18 Jan Tax Lien investing… are there Any Disadvantages?
Tax liens are an excellent way to make a high interest rate on your money and if you apply some advanced logic to your investing strategy you can quite often hit the jack pot and become the owner of the actual property.
However like everything, there are some issues with this. I have mentioned a few of them in my article “Disadvantages of Tax Deed and Tax Lien Investments” but today I want to talk about a different and mostly forgotten one.
What I am talking about is that as an investor waiting for a property owner to redeem the property tax lien, you never know when that will happen.
Many people think that as a tax lien owner you will receive monthly interest payments from the owner but that is far from how it works.
The truth is, that the property owner does not pay any interest until he completely redeems the tax lien. At this point and only at this point will the investor receive his investment back plus the interest pro-rated to the day of the redemption. So from a Cash flow point of view Tax liens are not a very good investments.
However if you have spare money left over and don’t mind waiting anything between 1 month and 3 years for your money back (of course plus a high interest rate) than this is a great investment tool for you. You just never know when this will happen or even IF it will be happen. Because if it never happens, you will have to foreclose on the property, take ownership and possession of the property and then sell it. Quite a lot to do to get your money back. But the good news is that if you get to the point of actually getting the property ownership of a property, you usually have hit a major financial Home-run and can not only recover your money but also make a high multiple of your investment back.
I have done and seen property deals where the Investor bought tax liens on a property for a total of approx. $15,000 and then was forced to foreclose on the lien. The property he foreclosed on and ended up with was worth over $500,000.00 all of which went to him. That is a return on investment of over 3,200% or a profit of $485,000 over the 3 years it took to get this done.
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