When a lien is issued, a tax lien certificate is created by the municipality that reflects the amount owed on the property, plus any interest or penalties due. These certificates are then auctioned off to the highest bidding investor. Investors can purchase tax liens for as little as a few hundred dollars if it is a very small property.

What are the disadvantages of investing in a tax lien?

Disadvantages of Investing in Property Tax Liens. Although property tax liens can yield substantial rates of interest, investors need to do their homework before wading into this arena. Tax liens are generally inappropriate for novice investors or those with little experience in or knowledge of real estate.

What’s the interest rate on a tax lien?

States set rates that the counties can charge delinquent taxpayers on overdue taxes and they can range anywhere from 12% to 24%, according to Larry Loftis, an attorney, tax lien investor, and author of “Profit by Investing in Real Estate Tax Liens.” There are several different kinds of tax lien auctions.

How are tax liens sold to the highest bidder?

This takes the form of a public auction, or tax sale, in which the rights to purchase tax liens are sold off to the highest bidder. The winning investor can also be assigned the rights to collect back taxes owed by delinquent homeowners as well.

When to invest in a tax lien certificate?

When property owners do not pay their property tax bills, tax lien certificates can be a safe, collateralized complement to a balanced portfolio – but only if you have time, knowledge and the ability to reinvest your money when short-term certificates are redeemed early.

Can a property be sold with a lien on it?

Property with a lien attached to it cannot be sold or refinanced until the taxes are paid and the lien is removed. When a lien is issued, a tax lien certificate is created by the municipality that reflects the amount owed on the property, plus any interest or penalties due. These certificates are then auctioned off to the highest bidding investor.