For the most part, serious investors buy real estate tax liens to make money! Real estate liens are a really unique investment because of their low risk nature and high returns. But here are 9 reasons to invest in real estate liens.
1. Sky-high Returns. The best reason to invest in real estate tax liens is the potential for a sky-high return on your investment dollar. Louisiana sets a 17% annual yield, depending on the time of redemption. The investor is offered 12% simple interest annually plus 5% paid to the investor as a penalty to the delinquent taxpayer.
2. Low Risk Investment. Tax Lien Investments are administered by the government and protected by real estate. Think about that for a second.
When you invest in a tax lien, you are GUARANTEED to receive either the repayment of your investment plus interest (12%) and penalties (5%) or a deed to the property. In most cases, you will receive penalties and interest. But sometimes, you will receive the property, which could be valued 20 times what you invested!
3. Secured Investment. If you have ever dealt with a mortgage lender, you know the power of securing an investment with real estate. Mortgage lenders have been known to risk up to 80-85% of the value of a real estate parcel when lending. A Tax Lien Investor would likely only risk 3-4%!! That means up to 97% of the value of the real estate is protecting your investment!
4. Earn a Return without the Risk of Ownership. Amazing! A real estate tax lien investment is secured by real estate without the risks that come along with owning real estate that landlords typically encounter. No worries about repairing damage, property maintenance, or chasing tenants for rent! No mortgage payment! No tenant background checks! Just a sky-high return on your investment without the headaches of owning and renting.
5. Little Upfront Cash. Some smaller real estate tax liens can be purchased for $1000 - $5000. Use the smaller deals to get comfortable with the process, work out your system, and grow capital for even bigger deals.
6. Lien Priority. Worried that the real estate securing your lien is also encumbered by other mortgages? Stop worrying. It probably won’t matter. Tax liens generally take priority over other mortgages and liens on the property. So, if you need to sell the property to protect your investment, the lower liens will be wiped out! The good news there is that you have more people standing in line to redeem the lien. If ABC Bank’s s lien will be wiped out if you sell, guess who will be standing in line to protect its investment – ABC Bank!
7. It’s Easy. The process may seem a little intimidating at first. The laws governing tax lien investments in Louisiana involve revised statutes, the civil code, and even the Louisiana State Constitution. There are multiple organizations involved, including the tax assessor, the clerk of court, and the sheriff. Whew!
And this is where we provide a shameless plug. Dassau & Coleman (DassauColeman.com) is here to help you through the process. We can advise and guide you through each step to make it simple and painless. Visit our Real Estate Investment page to sign up for a FREE Consultation on how we can help.
Now that the plug is over, let me reassure you that, despite the multiple steps in the process, you will likely find this easier than stock investing or landlording. Once you establish your team and your system, you can repeat the process over and over again and acquire those sky-high returns.
8. Less Competition. My bet is that, because tax lien investment seems complicated on the surface, many smaller investors assume they cannot afford it or understand it. Consequently, they stick with traditional higher risk investment approaches, such as property rehab and foreclosures. The good news is you will probably see less competition for the top investments than you would see if it was a rehab or foreclosure. Lower demand equals a better deal!
9. Diversification. Most investment experts will advise you to diversify your investment portfolio. Tax lien investment offers a great option for a return on capital that is buffered from the stock market and easier to monetize that buy-and-hold real estate strategies.