Can you make money investing in tax liens?

When you buy a tax lien, you’re responsible for paying the outstanding lien amount, plus interest or penalties due. Then, the state or municipality pays you principal and interest when the property owner makes their property tax payment—this is how you earn money with tax lien investing.

Investing in tax liens can diversify your portfolio while offering an average of 3-7% interest rates. Finding liens with above-market interest rates is definitely possible, but lots of competition or additional risk needs to be taken into account.

What do you need to know about tax lien investing?

Key Takeaways. Tax lien investing is the act of buying the delinquent tax lien on a property which is in the first lien position, or has first priority from any liquidation of the collateral which secures the loan. One of the biggest benefits of tax lien investing is the much-lower capital requirement than other forms of investing to get started.

How does a property tax lien certificate work?

When a lien is issued, a tax lien certificate is created by the municipality that reflects the amount that is owed on the property, plus any interest or penalties that are due. These certificates are then auctioned off and subsequently issued to the highest bidding investor.

What happens when you pay off a tax lien?

In most cases, you’ll get your money back. To avoid foreclosure, most property owners pay off tax lien certificates. When the property owner pays, you get paid. CNBC reported NTLA figures of around 6% of tax liens ending up in a foreclosure situation.

What’s the average interest rate on a tax lien?

Investing in tax liens can diversify your portfolio while offering an average of 3-7% interest rates. Finding liens with above-market interest rates is definitely possible, but lots of competition or additional risk needs to be taken into account. In most cases, you’ll get your money back.