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The “Little Known” Government-Backed Tax Lien Strategy That’s Guaranteed To Produce 12-50% ROI

May 31, 2016

Guest post by Mario Michael:

Recently, I was on the phone with a client who was asking how to increase the ROI of his self-directed IRA. He mentioned that he was getting hammered in the stock market, with losses piling up into the tens of thousands of dollars for the year.

To make matters worse, if all the market shock was to “turn around”, he said to he’d be lucky to squeak out with a whopping 2% gain for the year.

Most investors would drop their bags and run if they knew of a guaranteed, low-risk investment that would pay even 10% annually. Lucky for you and I, many wouldn’t believe that existed, even if it slapped them in the face!

There is a method that I’ve been using for years, quietly keeping it between myself and my immediate colleagues, that dwarfs those returns.

I Wasn’t Going To Share This

…but with so many investors losing their shirts, I finally decided that enough was enough. The strategy that I am about to share with you regularly pays 12-50% ROI annually, and is completely government backed.

The fact is that the world is changing, and quickly. There are more deals out there now than ever before. If you’re looking to turn things around in the second half of 2016, then this may be the most important thing you read all year.

Introducing The Tax Lien Certificate

Meet the filet mignon of investment vehicles – the tax lien certificate. 100% secured and government backed, buying tax lien certificates is the savviest and simplest of ways to double or triple the ROI you’re getting with your self-directed IRA.

Here’s How They Work

First and foremost, you have to understand where these certificates originate from. If you’ve owned a home for any length of time, you’re aware that your county government requires you to pay a property tax on your home. And there is no way around it.

However, in many cases, the homeowner fails to pay their property taxes. And that’s a problem.

Why?

Because the money raised through property taxes funds countless public services. Services like the police force, the fire departments, local road construction, and education (just to name a few!) would not function without the money raised through the local property tax.

So, in the instance that a homeowner goes delinquent on their property taxes for 1 year, the county will issue a tax lien on the property.

These Liens Serve A Specific Purpose

  1. With a tax lien against the property, the property cannot be sold.
  2. The lien becomes security for the delinquent amount.

Let’s expound point #2. Pay attention, because this is where you as the investor come in.

The Annual Tax Sale

Every year, counties hold an annual tax auction with MILLIONS of dollars in tax liens for sale.

At these auctions, investors have the opportunity to buy the liens for the amount of the delinquent property taxes in exchange for a high interest rate and a redemption period.

When an investor buys a lien, the county gets their money, and the investor locks in a guaranteed ROI, backed by the property as security.

We call that a win-win where I’m from.

When You Buy A Tax Lien

Every tax lien comes with two things:

An interest rate — The interest rates typically vary between 12 and 36% depending on the county. I regularly get interest rates as high as 50%.

A redemption period — The “redemption period” is the time allotted for the homeowner to pay the full amount due (which usually runs between 2 and 5 years).

Instance #1: When The Owner Pays

If the homeowner pays all the delinquent taxes, penalties, and fees associated with the lien, then the county must then cut the investor a check within 5-10 business days for his/her initial investment plus a high interest rate.

At that point, the investor has recouped his entire investment with interest, the lien is expunged, and the homeowner keeps the home.

Instance #2: The Owner Doesn’t Pay

If the homeowner doesn’t pay the full amount due within the redemption period, then the investor has the legal right to go to the county and foreclose on the property. Often, the county will do this on the investor’s behalf once they’ve been notified.

Tax Lien Strategy In Florida

Let’s use Florida as an example. I’ve lived in and bought property in Florida for years, and they give an 18% per year interest rate, with a 2-year redemption period.

So in other words, you’re either going to make 18% on your money each year, or you get the property. Plain and simple.

A Favor For The Community

If ever there was a investment strategy that not only made investors a great ROI, but gave back to the community, this is it. Without these funds, the county would go into a budget deficit on services they’ve already agreed to provide.

By having an investor pay the delinquent taxes on the homeowner’s behalf, the county is able to continue funding the services that keep the community well.

Common Questions

Now a common question everyone asks me to expand on is, “What happens if the homeowner doesn’t pay?” That’s a great question.

If at the end of the redemption period, let’s say 2 years, the homeowner still hasn’t paid, the investor can foreclose. In many instances when this happens, investors get the property for pennies on the dollar, which is why this model is so attractive.

Another question I get asked a lot is, “What happens if there are any other liens on the property?” The answer is the key to understanding why this niche is such a powerful strategy.

County Taxes Always Take First Position.

Everything else becomes junior to a tax lien. If you hold the tax lien certificate on a property, rest assured; it becomes first priority.

So What’s The Catch? Know The Risks Involved.

Buying tax lien certificates can be a breath of fresh air for most investors. The tax lien strategy is simple. The returns are great, and they’re guaranteed with real assets! However (and this is an important “however”), many investors have lost their shirts buying tax liens for one single reason: Poor research!

The worst thing you could do is to go out and make a purchase without knowing what you’re buying, just to find out 2 years down the road when you have to foreclose, the property is actually worthless!

Lack of due diligence and poor research cost many tax lien investors a fortune. Don’t be one of those investors.

Mario Michael has been investing in real estate for over 9 years in Florida and the surrounding states, and he spent many years refining the research of tax deeds to streamline the process. To that end, he has created an “Auction Prep Checklist” which you can download free here.