Hey there NuView Audience!
Today our IRA specialist, Alex Sylvia, has a quick tip for you. And this one is about tax liens, which is a very popular investment choice for a lot of NuView clients.
It’s got an arguably low barrier to entry, and it’s just a really interesting investment because – just like all things ‘alternatives’- it’s probably something that you just haven’t thought of yet.
What Is A Tax Lien?
A tax lien is essentially back taxes that are owed on a property – taxes that are owed to the state government.
A homeowner has a lot of different expenses while managing their property. There could be:
- HOA fees
- Mortgage payments
- Property taxes
… just to name a few.
But what happens when property taxes aren’t paid?
This is when a tax lien is created. Now, that homeowner owes back taxes to the government. And there will likely be additional penalty fees as well because those tax payments were not paid on time.
What Happens When The Homeowner Isn’t Able To Pay Off Their Tax Lien?
In that case, both the national and state governments want their money sooner rather than later, so they will often sell those tax liens to investors.
And this is where you come in with your NuView self-directed IRA.
How Do Tax Liens Work?
You can actually purchase these tax liens at auction, and you (your IRA) will now be the recipient of those payments on the back taxes.
Now, tax liens are relatively cool as well because they also come with built-in collateral. Meaning, if that homeowner does not pay off the property taxes in the allotted time – because there is an expiration date – you can foreclose on that property.
Property taxes might only be a month or two passed due. And in that case the due amount might only be $500 to $2,000 [prices may vary]. This allows you as the investor to purchase that tax lien with only a small amount of money.
In a worst-case-scenario, if that homeowner is not able to pay off those owed taxes in the allotted time, your IRA could foreclose on the property and now be an owner of that property as well. Just think of that trade-off.
Now, of course, we are not in the business of trying to take peoples’ homes or try to be any type of predatory investor!
But what’s cool about tax liens is – like we mentioned earlier – the US government wants their money. Some money now is always better than none.
So when they sell those tax liens at auction, they will often be sold at a discount. Remember, they will likely be other buyers, so don’t get caught off-guard by a bidding war!
Are Tax Liens A Safe Investment?
You can make money by purchasing tax liens the same as you would with real estate or any other alternative investment. That’s just the nature of how they’re sold at auction.
Even still, you’ve got a great opportunity to use a small amount of capital and possibly grow it into a much larger amount of capital should you or your IRA have to foreclose on that homeowner.
Now, we say that with a grain of salt, because tax liens are a relatively safe investment as people will generally pay off their property taxes first. This is because, unlike a mortgage owed to a bank, taxes are owed to the government, which is a larger priority for most people.
So while the payments to a tax lien investor are not guaranteed, they are still very likely.
Depending on the discount for a tax lien at auction, you could receive (ballpark number for example’s sake) 5 – 15% return on your money.
This makes tax liens a good opportunity for you to get your money (various investment funds including your small IRA, HSA, or ESA) working in a relatively safe investment.
Keep in mind that tax lien investments do have expiration dates. So if you do need to foreclose on that homeowner, you need to make sure that you’re ready to take action and start that process.
Start The Discussion About Tax Liens
All things considered in the world of alternative investments, investing in tax liens is just another method of diversification. It’s still tied to real estate, but tax liens are great because of that low barrier to entry.
If you want to learn more about tax liens, we’d be happy to speak with you further. Just note: we at NuView Trust Company are not investment experts and we don’t give financial, investment, or legal advice.
But we are happy to discuss tax liens and point you in the direction of other resources and options to invest your self-directed IRA.
At the end of the day, you are the self-directed investor.
At NuView, we provide the tax sheltered investment vehicles to you, and you as the entrepreneur are able to take your investments off of wall street and onto main street.
If you have any questions about tax liens or getting an account started at NuView, give us a call at (407) 708-1853, or you can shoot us an email at IRAspecialists@nuviewtrust.com.
And stay tuned to NuView Trust Company for more continuing education about self-directed IRAs.
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