7 Things to Learn First (and Fast) to Become a Successful Tax Lien Certificate Investor

By  //  March 14, 2023

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Property tax lien certificate investing is one of the areas in the financial world where outlier success stories can happen.

However, you can’t expect to jump into the market and buy property tax lien certificates without doing your homework if you want to make a profit.

If you want to start investing in tax lien certificates, you will only need some knowledge of how tax lien certificates work and what the right investment would look like for your situation. The more education you have in this field, the better off you will be at earning profits from this venture.

Learn these six property tax lien certificate investing tips before you make your first investment. This could be the first step in your journey toward becoming a tax lien certificate investor.

What Is Tax Lien Certificate Investing?

Tax lien certificate investing is buying and selling tax lien certificates on properties that are owned by parties who have failed to pay their property taxes. Tax lien certificate investors buy these lien certificates for a fraction of the property’s worth. As the lien certificate holder, when the property owner pays their delinquent property tax bill, the county will process the payment and send you your original investment plus the penalties and interest ranging from 8% to 25% depending on the state you’re investing in.

Beginning investors may want to consider taking a course to learn more about this type of investment. The best tax lien certificate investing course is one that will teach you how to find opportunities in tax lien certificate auctions and where you will start. 

Look for a course that is taught by experts who have invested in this way for years and understand how to carve out a niche in their industry. They can navigate the complexity of the tax lien certificate industry and its constantly-changing regulations.

6 Things to Learn First (and Fast) to Become a Successful Tax Lien Certificate Investor

1: Learn what a tax lien certificate is 

A tax lien is a legal claim that is meant to secure the government’s interest in a property when the owner has failed to pay their property taxes. 

The county (or township if it’s New Jersey) sells a tax lien certificate to a buyer who then pays off the delinquent property taxes. The property owner is then liable to pay the back taxes, interest, and penalties to the county, and in turn the county pays the certificate holder. If they don’t pay it off within the “redemption period,” the certificate holder (you, as the investor) has the right to start a foreclosure process on the property. 

2: Learn how to invest in lien certificate real estate 

Investing in tax lien certificates is a lot like buying real estate — but with one key difference. When you’re picking properties to invest in via tax lien certificates, you’ve got to ensure you’re getting enough value for what you pay, even though you don’t own the property itself. 

Understanding which opportunities will pay off will involve understanding the market in the area where the lien property is located. On the off-chance that the property owner does not pay, you will end up with the property. This is when it becomes critical that you know the real estate market.

In order to make your investment profitable, as the property’s new owner, you will need to rent or sell to make a profit. That’s why you will not want to invest in property tax lien certificates on properties that are in a state of disrepair, are in an undesirable area, or have other conditions that will cause them to fail to sell.

3: Shop the market 

“Shopping the market” means looking around the state where you want to invest your lien certificate, getting to know the market conditions, and pricing out any properties of interest. Shopping your market is crucial when you go to purchase a lien certificate.

4: Know the value of your lien certificate property 

When you buy a tax lien certificate, it is possible to get this property at a fraction of its value if the owner doesn’t catch up on their taxes. It isn’t necessarily the same as the cost of paying off your debt — and that’s where determining the value of your property comes in handy. 

Knowing the value of your lien certificate property will give you an idea of how much the property may be worth in the (unlikely) event that you end up being the property owner in the future. 

5: Know the difference between the State and the County 

You will typically buy the property tax lien certificate from a county or township. Before you plunge into this type of financial endeavor, remember that only some states allow you to invest in tax lien certificates. Among those states, some offer better opportunities than others.

Another way the state will be involved in this process is through the laws that govern how much time the property owner has to pay the lien certificate off and the interest rate they will pay. These laws are set at the state level. 

6: Find a knowledgeable and experienced lawyer 

Hiring a tax lien attorney in the area where you want to invest to help you with your tax lien investing can be a good idea because these investments can be complex. A lawyer can help you obtain a certificate and file a lawsuit related to a lien certificate if it becomes necessary.  

Final Thoughts

There’s a lot to know about tax lien certificate investing, but once you’ve gotten the basics down, it’s a relatively straightforward process.

As long as you learn to shop the market and understand what you require for your investment, you should be able to continue moving forward in your tax lien certificate investing journey.