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People invest in tax liens for myriad reasons, but a primary reason for investment in others’ delinquent property taxes is the fact that a tax certificate or lien can be purchased for an average of several hundred dollars. Compared to the several thousand dollars needed to get into most investments related to real estate and the reason for the attraction becomes obvious. Should the lien be carried to full term, investors have the opportunity to foreclose on the property itself—potentially quadrupling the initial investment.
What is a tax lien?
A tax lien, or tax certificate, is a taxing unit sold by a governmental agency—usually a county—when a property owner is delinquent on property taxes. If the county needs money immediately to maintain its budget and avoid going through the foreclosure process, it can sell these notes to the public at auction. In this way, the county gets its cash and the lien buyer walks away with a potentially excellent investment.
When purchased, tax liens give the purchaser the right to collect interest, serve notice to foreclose and obtain possession of the property when applicable.
Using self-directed IRA funds for investments
Many proponents of tax lien investing do not know that these certificates can be purchased as a part of an IRA’s investment portfolio. IRS code dictates that the only investments unavailable to an IRA are life insurance and collectibles (e.g., rugs, paintings). This means that tax liens, deeds, private loans and real estate are all possible investments for an IRA holder.
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Author: David Nilssen
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