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Is Tax Lien Investing For You? Posted By: Alfred Ardis

You may have heard that tax lien investing is a great way to make money. There are some risks involved but some people swear by the method as a way of earning a high return on their cash. Banks pay very little interest so a savings account will grow slower than an old snail. Individuals looking for way to make money might want to give this method a try.

Liens are legal claims that someone puts on property owned by someone else in order to secure a debt. For example, if you are having a house built on a piece of property, the contractor may put liens on your land in order to ensure that he or she won’t be left holding a bag of debts. If you don’t pay your contractor’s bills, he or she will have a claim to your land. Once the building is finished and the owner has paid the contractor, the liens are released. If a person has financed their Honda Fit through the American Honda Financial Corporation, Honda Financial holds the title till the automobile is paid off and the lien’s released.

With tax lien investing, someone’s debt for delinquent taxes along with interests and costs are auctioned off to the public. These auctions may be held on the courthouse steps or over the Internet. Having online auctions opens the bidding to individuals outside the geographic area. Investors can participate from all over the country and even internationally. Often, more than one interested party will seek the debt and will have to compete for it. They can do this by bidding down interest, offering a premium, being randomly selected by the auction house, or for offering to bid down the amount owed by the debtor.

The way that an investor makes money is that he or she collects the interest on the debt at a higher rate than other methods of investing. The interest rate will vary by state but can range from a couple of percent to nearly twenty. Rates may pertain to monthly and annual returns. Another aspect of tax lien investing is a redemption period. This is the timeframe given to the debtor to repay the debt. The lienholder must allow the individual the time to make good and not threaten him or her in any way. If the lienholder does harass the debtor, he can be ousted from the deal. After the redemption time period, the lienholder can foreclose. After a foreclosure, a quitclaim deed or tax deed will be initiated.

Tax lien investing can be lucrative but it can also be risky, which is why it yields a high return. Low risk investments such as savings accounts yield low returns because there’s no risk. Savings accounts are insured by the government and are extremely safe. High-risk ventures such as some stock market investments or this method involving taxes and liens stand to make substantial cash if the person is willing to take the risk. If so, it will be an exciting proposition. If not, there are other ways to secure bargain properties such as buying from tax sales or purchasing foreclosures that are also fixer-uppers.

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