Tax Lien Investing is one of this country's best-kept secrets. I don't say that like a local boutique store does... "We're Freeport's best-kept secret..!" Institutional investors have literally been trying to keep this investing strategy a secret for centuries. Why? Because they buy as much as they possibly can and they don't want anymore competition.
The interest rates are unmatched.
The safety is unheard of.
The upside is astounding.
We met with a hedge fund manager whose sole responsibility is to manage the fund's tax lien portfolio. When we asked him what kind of certificates he pursues, he stated, "I buy EVERYTHING that I possibly can." Online auctions, live auctions, single-family residential, vacant land, improved lots, commercial, etc. He buys everything that he can. If you knew what he knew, then you would buy as much as you possibly could, too, so he is incentivized to keep it a secret to keep his competition down.
The returns attached to every tax lien certificate are state-mandated returns. What that means is that the state government establishes what the interest rate is inside that state. Florida, for instance, has mandated that the return is 18 percent each year and the interest accrues on a monthly basis. That does not mean that you get a check each month from the county, but it means that your investment grows in value by 1.5% each month that it is outstanding. The government does not guarantee the interest rate, because there are too many variables so there is no way that they could. For example, if you purchase at the auction, and you're competing against my hedge fund friend, then it's possible that you could bid down the interest rate from 18 percent to 13 percent (see the training video About Auctions). It's also possible that the property owner does not ever pay the delinquent taxes plus the accrued 18 percent that is owed to you, so you could then foreclose and take ownership of the property. Your return could end up at 200% instead!
As was mentioned on the home page, returns start at 8 percent in Oklahoma, and can be as high as 50 percent annually in Texas. See State Information to view statistics for each state.