Tax Liens are Not “Guaranteed!” Post 4

Mitch Goldstein | Coach Mitch | April 26th, 2007

Coach Mitch’s REFLECTIONS™

Where’s the guarantee? (just like “Where’s the beef?”)

Many gurus are saying that tax liens are “guaranteed” by the government. Beware! This is not the case.

Real estate marketers are using clever words to convey an impression to an unwary public. This incorrect impression has caught hold and most folks that I speak with about tax liens believe that they are a “guaranteed” investment. I repeat, this is not true.

Yes, a state government does set an interest rate that is the upper limit which can be charged a tax delinquent in that state. The mandated rate of interest is what these gurus are mislabeling as a “guarantee.”

Some of the state interest rates are fairly high, 12% to 18%, and some tax lien interest rates are very high, 24% to 36%. However, even the lower tax lien rates of 8% to 10% are still much higher than the typical yields on government bonds and CDs, which are currently in the 4% to 6% range; and you will recall that CD rates were at 2% until recently. Therefore, tax liens are correctly viewed as a high interest rate investment.

Tax liens are also viewed as a safe investment – because the interest rate is “guaranteed.” Yes, tax liens can be very safe and highly profitable, however for an interest rate to be guaranteed, it must be recoverable.The only thing that is guaranteed is that the state allows you to try to recover the legally mandated tax lien interest rate for that state or the interest rate that you bid. ” Try” is the operative word because there is a significant likelihood that you will not get your interest rate. Worse, there is no guarantee that you will get any of your money back.

Your investment in a tax lien certificate can be a real crap shoot, and unless you do significant due diligence, crap is all you may get.

I will disclose how to safeguard your investment next time.

See Coach Mitch’s “Ridiculously Simple System…” ™ for details.

Until then,