Are tax liens worth it if you only have a small amount to spend?

Question

Ned Carey · Answer

Yes you can start with modest amounts of money. I started with two liens for about $5k total. I wound up foreclosing on both of them and made about $50K on them.  That is not at all typical but it can happen.

Sometimes a tax lien may redeem in a month or two and while the interest rate is high, it doesn't add up to much if it is only for a month or two. My first check I got this year was $4.52 in interest.  But if it was in my bank I would have earned perhaps $0.50 in interest. As long as your expectation are realistic it can be a good investment.

Wayne Brooks · Answer

Without a lot of research, you can easily lose your money in Fl tax certificates.  I checked a small vacant lot next to a property I have: lot is "worth" maybe $4-5k, there are 5 different tax certificates out on it now, totaling about $8k.  If you bought this year's certificate, for about $600, you wait 2 years, then to collect you have to pay off all the other certificates along with a few hundred in fees, then the clerk sends it to auction.  No one will buy it for the approx. $9-10k in taxes (you've shelled out) and fees.  So, you get $4k lot for the bargain basement price of $9k.  Results vary of course, but it takes a bunch of research to verify  safe certificates, which will usually get bid down to less than 2% interest (5% over all minimum though, if ever redeemed).  I know @Jerry K. makes it work with larger amounts of money, and good systems.  But for me personally, it's just not attractive.  Be advised, it's not risk free.

Jerry K. · Answer

@Paul Spangler  Tax lien investing has a few strategies for an investor. Most people use it for parking money and earning an above average interest rate. If you have little time or skills to be a landlord, a rehabber, or a deal maker - then tax liens could be good.

You will need time to do the research to make sure the property is worth the amount taxes you will pay if it somehow comes to a foreclosure action.  Except in Florida where the foreclosure just puts the property up for auction.

There is a lot to learn and tax liens are local in nature.  You need to become an expert in the local laws on tax liens and on the real estate values in the area too.

I started with less than $5,000 and now invest in tax liens in an i401k that I rolled over and use regular savings. I have a full time job outside of real estate and I have two small companies too.  Tax liens work great for my personal time and risk constraints.

William Sackett · Answer

Paul

Tax lien investing is like any other type of real estate investing in that it requires time, training, due diligence and action.  After that, management of your porfoilo.  Tax liens can be very profitable if you take the time to learn the business.  I have bought a few in Iowa and they have all redeemed with a profit.  Iowa pays 2% per mo.  It is true that the ownership interest in the property can be bid down in this state, but the interest rate remains the same.  Again, due diligence is the key.  No matter what avenue you chose be sure that it excites you enough that it keeps you up at night trying to learn all you can about it.  Just remember that all the studying and training without action results in zero profit.

Darron Stewart · Answer

@Paul Spangler

Having started with 3k myself, it turned into an average 33k/yr income and should be getting close to having just tax lien interest invested soon...so they are paying me interest for loaning their interest back to them!  No skin in the game, only profits!

Tom Yung · Answer

@Wayne Brooks

I will say tax lien investing at today's market is just like you prescribes the way @Jerry K.  does,

You got to have "larger amount of money & good systems".

I myself do not see any investors with limited cash can get a good living out of it. Unless he/she get a good property out from the lien each time.

Jay Hinrichs · Answer

@Wayne Brooks

I consider myself fairly versed at many RE investments.  And my experience was in TAx Deed. and that is like foreclosure auctions very structured you know what your bidding on and once you own it you can sell it.. ( we got title to insure day we got the deed) not all title companies will do that.. Like FATCO at the time in CA would not insure until you owned it 5 years..

any way so I thought I would do the certs but like I said it was controlled mayhem. And I forgot to say.. in Rankin county this guy gets up and makes an announcement to the crowd and say I am going to bid every Cert down. and sure enough the hour or so I sat there he bid every cert and bid them all down to 5 to 6%  I did not stay long as I said.. but I bet he had a few mil with him and spent it.

there was an article in Forbes a few years ago  well maybe more than a few.. But it was about a company ( Hedge fund type) that moved into FLA  tax certs and bid everything down to 5% or lower.. gist of article was  is this a smart investment?

Jay Hinrichs · Answer

@Jerry K.

the sales I attended   ( hinds county MS and RAnkin  MS) moved so fast that you really would need a team to track and understand what was coming up.. the certs were gone I a matter of seconds ... the locals all were up front they got 80% of them in kind of a hand out routine.. only occasionally did one go to the rest of the room say 50 people. I had brought 50k with me to bid and only spent 5k buying ( well not really knowing what I bought probably junk) and packed it in and went and had some BBQ and soul food   :)  In your market is the sale a little more organized and at a pace that you can identify the cert for sale with the property that is associated with it... in those counties in MS they sold oh probably 10 to 20 thousand certs in 3 days... it was a mad house..   I would think outlier little counties could be a nice place to do this were you don't have all the competition and there are not thousands of properties to check out.

Jay Hinrichs · Answer

@Paul Spangler

tax liens are a good ave for those with limited cash... Although remember there is the flip side not all tax liens redeem and the property may not be worth anything.

so its not a guaranteed thing.. but with work and knowledge up front you can mitigate that.

also depending on where your at  locals can and will bid the return down into single digit.

Jay Hinrichs · Answer

@Jerry K.

well I guess Mississippi is not up to speed on online bidding although this was 07 when I did this they may have graduated.. I know when CA counties when to Bid or Assets that took a lot of the fun out of TAx deed sales here..

Are tax liens worth it if you only have a small amount to spend?

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