The Bottom Line. Property tax liens can be a viable investment alternative for experienced investors familiar with the real estate market. Those who know what they are doing and take the time to research the properties upon which they buy liens can generate substantial profits over time.

Why would someone buy a tax certificate?

A tax lien certificate is a legal document that allows the holder to collect outstanding property taxes owed for a piece of real estate. Tax lien certificates can accrue interest, which make them an attractive investment tool for individuals who choose to purchase them.

What does buying a tax certificate mean?

When you purchase a tax lien certificate, you assume responsibility for paying the outstanding lien amount along with interest or penalties due. Then, when the property owner pays their property taxes, the state or municipality that issued the tax lien certificate pays you principal and interest amounts.

What happens when you buy a tax certificate?

A tax certificate is an enforceable first lien against the property for unpaid real estate taxes. The sale allows investors to purchase certificates by paying the tax debt. The certificate is awarded to the bidder who will pay the taxes, interest and costs and accept the lowest rate of interest.

What to do before buying a tax lien certificate?

Before buying a tax lien certificate, decide where you want to invest in a tax lien, then research the laws regarding liens in that specific county, since they vary from area to area. Once you’ve done your research, get a list of properties for sale from the county treasurer, investigate potential properties, and make a list of the ones you want.

How does a tax lien certificate affect earnings?

From an earnings perspective, returns are based on the interest rate the property owner pays you, and they can be consistent.

How do you get a return on investment on a tax lien?

There are two ways to get a return on investment from a tax lien. The first is through interest payments. The second is through potential ownership of the property. When you purchase a lien the property owner is required to pay back the entire value of the lien plus interest.

Can a tax lien be placed on a commercial property?

Tax liens can be placed on residential or commercial properties, so focusing on one or the other could narrow down your list. Investigate the properties ahead of time. Remember that once you buy a lien certificate, you assume the risk if the occupants don’t pay back their debt.