Mitch Goldstein | Coach Mitch | December 19th, 2007Tax lien returns not worth the hassle
The Oklahoman December 17, 2007 Dave Ramsey
DEAR DAVE • My father owns a lot in town and recently received a notice that there is a property tax lien against it. Are any of the penalties associated with this lien negotiable?
Also, someone was telling me that people can actually invest in tax liens. Is this true?
Louis
DEAR LOUIS • I’ve never heard of a municipality negotiating those liens, so I’d have to say probably not. If you think about it, it really has no reason to do that. Sooner or later someone will be willing to come and pay that amount when the municipality seizes that land and auctions it off.
With regard to investing in tax liens, it’s true that in some states you can invest in them. Certificates are issued that investors can buy, and if your father had a tax lien on a lot, the municipality would issue a certificate on the tax lien instead of selling the property. An investor can buy the tax certificate and will become the owner of the property in a year or two if the tax debtor doesn’t pay off the certificate holder.
Now, if the tax debtor wants to keep the property, he has to pay the certificate holder the amount owed plus interest – which is where the investing part comes into play. In some states, the interest can be as high as 10 to 12 percent.
I don’t fuss with that type of investment because the return is just not worth the hassles associated with them. Trying to make sure you have a clean title to a property and finding one you really want is like searching for a needle in a haystack. Plus, lots of the interest and questions regarding the subject of investing in real estate tax liens are generated by those questionable late-night real estate guys selling tapes.
Can it be done? Sure, but to me it’s just way too much trouble for such marginal returns.
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Coach Mitch’s REFLECTIONS
I should be used to it by now but…
I am always amazed that supposedly well informed persons will inject their prejudices into an issue and come to the totally wrong conclusion.
The TRUTH: In the investing world, the only worthwhile investments are those that will pay a big commission to the financial counselor.
In a past life, I was a full time, licensed, financial consultant, selling securities, mortgages and insurance. The only products that my brokers entertained were those that offered high commissions and the higher the better.
Here, Dave ridicules tax lien certificates as not worthy investments because he cannot make any profit from selling them. I know that sounds harsh, however he is simply representing the view of financial counselors.
I stopped selling securities and insurance and gave up my licenses because of the scamming that I saw.
Dave should get his facts straight
Interest rates on TLC’s are high- often in the 18 – 36% range. Michigan used to be 50%.
Oklahoma pays 9% annualized.
While at ¾% per month, Oklahoma is near the bottom of the list, it is still better than most equity investments.
How many stocks or mutual funds can say that they will pay you a 9% dividend, every single year? Not very many. Oops – we don’t want to ask that question and embarrass Dave, now do we?
How many stocks or mutual funds will back up your investment with hard assets that you can claim if you are not paid back, on time and in full? NONE!!! This is the salient point.
TLC’s are better than any bond
A Tax Lien Certificate acts much like a bond. It is a promise to pay, with interest, backed up by collateral.
No AAA rated company needs to pay 9% interest. You need to go to a much more risky company to earn 9% on a bond. The collateral is also very questionable. Check it out sometime.
Further, try to sue for collection and see what happens. Ask your financial counselor about that when next you speak. Since he doesn’t know the full answer he will say, “Don’t worry, it never happens.” Don’t you believe him? Ask any of those pensioners holding Enron bonds about safety.
Get property for pennies on the dollar
Post #60 showed that, in a particular county, typically, 21% of the TLC holders successfully have the property transferred to them. They had probably paid no more than 40% of the market price. How many stocks or bonds can you buy and only pay 40¢ on the dollar?
Show me a bond that gives you that level of potential return. So Dave is completely wrong about the insufficient level of return that is gained
Silly rational
Dave’s big reason for not investing in TLC’s is that it is “way too much trouble.”
In the financial counseling industry, anything that requires more than a phone call to your broker is too much work. Just buy what they say and look in the daily newspaper for your earnings.
The real world
Using Coach Mitch’s “Ridiculously Simple System…” it takes some work (hours) to locate good potential investments, but the rewards are infinitely greater and safer.
The best and most important part is that the investment is entirely in your control.
You choose the properties that you wish to invest in. You choose the people, e.g. the delinquent tax payers, who you think will best meet your financial goals. You decide if you will procure the property via foreclosure or if you will continue to build up interest.
See Coach Mitch’s “Ridiculously Simple System…” ™ for details.
Choose wisely,
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