This was an article written back in 2012 by CNN. Its a good example of the current state of tax lien investing and how some of the big boys are starting to get into it.
— Jean Norton’s first foray into tax lien investing was hands-down a lucrative one.
Norton, who was a marketing director at a tech firm at the time, had bought and sold real estate for years. She had heard about investors who were making nice profits buying liens on homes with overdue property taxes. So in 2009, she attended a seminar to learn how to put her own skin in the game.
Soon afterward, she bought more than $20,000 in liens at auctions in foreclosure-riddled Florida that were promising to pay 17% to 18% in interest. Within two years, she got her entire investment back, plus double-digit returns.
“It was always a nice surprise to get a check in the mail,” said Norton, now 55.
Now big institutional investors have joined individual investors. But like any investment offering tempting yields, the potential pitfalls of tax lien investing are pretty huge: Those who lose out could either end up saddled with a worthless property or with nothing at all.
Between $7 billion and $10 billion in property taxes go delinquent each year, according to Brad Westover, executive director for the National Tax Lien Association. For many state, county and local governments, the failure to collect on these debts weighs heavily on their already-overburdened budgets. In 29 states, plus the District of Columbia, they turn to investors for help.
In these states, investors buy tax lien certificates at auctions, effectively owning a claim against the property until the homeowner pays the county or municipality back or until they default on the debt entirely. In return, the county gets the money it needs to fund schools, pave roads and pay for other infrastructure and services.
Homeowners who pay back what they owe, pay the county, which then repays the investor the principal, plus whatever interest rate was set at auction.
The interest is where the real money can be made. 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. In one of the most common methods, the winning bidder is the one who will accept the lowest interest rate. That can lower the rate to far below what state laws allow, but it can still be much higher than other investments.
“I just [invested] $1 million last week and most of the liens I won were at 7%, with a handful at 8%, a few at 9%, two at 10%, and one at 11%,” said Loftis.
Read more at: http://money.cnn.com/2012/03/05/real_estate/tax-liens/