Why Tax Lien Certificates Are The Ideal Investment
Dear Friend-
Chances are, you first learned of tax liens and tax deeds while attending a workshop, watching a cheesy late night infomercial or reading an investment book. Regardless of how you were first introduced to them, I’m guessing you would like to learn more.
Unlike what you may have heard, there are some downsides to investing in tax liens and tax deeds. Most of the time, the producers of seminars and infomercials are only interested in making a sale and collecting a profit. More often than not, they paint a distorted picture that only emphasizes the upsides and neglects the downside, leaving the individual with an inaccurate and incomplete understanding of tax liens and tax deeds.
My purpose in providing this information is to paint an accurate picture of this investment field. Proper education will enable you to make informed, intelligent investment decisions with regard to tax liens and tax deeds.
I’m often asked what it is that makes government-issued tax liens and tax deeds the ideal investment. There are several, but I will only touch on a few of the more prominent ones.
Entry Level. Unlike other investments, when you invest in tax liens and tax deeds it doesn’t take a lot of money to begin making a profit. Regardless of your current financial situation, you can find tax liens and deeds ranging from a couple hundred dollars to several million in cost.
In addition, it usually requires excellent credit to get started as a real estate investor. Credit checks are not required to buy tax liens and tax deeds. Typically, a small deposit, a bidder’s information card and a W-9 is all it takes to get involved.
Usually, to generate serious profits, you have to be in the right place at the right time. Regardless of your location or timing, you can still profit as a tax lien and/or tax deed investor. In fact, the Internet is making it possible for investors to purchase tax liens and tax deeds from the comfort of home.
Finally, unlike the stock market, you don’t need any fancy software to get started. Investing in tax liens and tax deeds is low-tech. Usually, a telephone, an Internet connection and a camera are the main tools you’ll need.
Yields. First and foremost, tax liens and tax deeds are high-yielding. Exactly how high? Depending on state laws and competition, annual yields can range from 10% to 50%. In Arizona, annual returns can be as high as 16% (Sec. 42-18053). In Florida they can be as high as 18% (Sec. 197.172). In Texas, which sells a hybrid tax deed, penalties are as high as 25% every six months for an annualized return of 50% (Sec. 34.21 e 2).
Maybe you’re thinking, “What difference can a few extra percentage points make?” Figure 1.0 demonstrates how long it would take various amounts of money at different interest rates to grow into $1,000,000.
Figure 1.0 demonstrates how long it would take various amounts of money at different interest rates to grow into $1,000,000.
As you can see, a few percentage points can make a dramatic difference in your financial future. Albert Einstein made a very smart observation when he stated, “The most powerful invention of man is compound interest.” With a little discipline, you can have compound interest working for you rather than against you.
Volatility. From September of 2000 the NASDAQ dropped 45.9% to 2,291.86 by January 2, 2001. In October of 2002, the NASDAQ dropped as low as 1,108.49 which is a 78.4% drop from its all-time high of 5,132.52 in March of 2000. Over 8 trillion dollars of wealth were lost during that “down-turn.” As of this writing, many investors, you included, are looking for a relatively safe, yet high-yielding, place to invest. Unlike the stock market, tax liens and tax deeds are free from market risk.
For example, if you were to buy $5,000 of stock it could either rise or fall in value. You simply have no idea what your return will be. On the other hand, if you were to buy a $5,000 tax lien certificate at 18%, your rate is fixed by law.
Security. Another distinguishing characteristic of tax liens is that they are secured by real estate. So, if you do not receive what you paid to purchase the tax lien plus interest and/or penalties, you can take the property. Usually, the foreclosure of a real estate tax lien will extinguish all junior liens including mortgages and deeds of trust. Ultimately, this gives you free and clear ownership of the property.
Commission free. It’s no secret that on Wall Street the highest commissions are paid on products that are hardest to sell and those products are often complex and quite risky. For example, some variable annuities may pay commissions of 10 percent or more, while simple money market funds typically pay .25 percent.
High-commissioned investments can give brokers a strong incentive to persuade investors to buy complex and high-risk products. Yet most investors don’t want to take much risk, if any.
Result: Brokers get higher commissions for selling what their customers want and/or need least. Unfortunately, most investors don’t understand this. Far too often, investors behave as if their broker were their friend instead of a salesperson.
The great thing about tax liens and tax deeds is that you don’t have to worry about brokers misleading, manipulating or taking advantage of you. Since the big financial firms do not get a commission to sell you this investment, they don’t get involved. With tax liens and tax deeds, you are in complete control, ensuring your best interest is at the forefront of every investment choice.
Finally, investors can take comfort in knowing that the government administers tax liens and tax deeds. For the most part, they are impartial and have the best interest of all parties guiding the process. Unlike other more risky investments, investors need not worry about fraud and insider trading.
Massive Success,
Steven E. Waters
Creating Wealth Without Risk™
http://www.taxlienuniversity.com/
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