Some real estate gurus make investing in tax bonds seem like a sure thing. That you are guaranteed to get huge interest rates and that is “government guaranteed”. Unfortunately for you, they are leaving out some facts and stretching the truth quite a bit.
First, you need to understand that tax sales are auctions, and in most states those extremely high interest rates are reduced to extremely low rates. Why would investors do that? It’s simple, sometimes there are other penalties you will receive if the bonus is redeemed. In New Jersey, for example, the penalty is 2-6%, depending on the amount of the bond. In Florida there is a 5% penalty. Also, once you own the bond, you can pay the subsequent taxes and get maximum interest on it.
Second, you need to understand that there is no guarantee that you will get paid for your link. Of course, if you don’t get paid, you can foreclose once the redemption period is over. But no one guarantees that you will get paid! What these gurus mean when they say liens are “government guaranteed” is that the law is on their side. If you don’t get paid, you can eventually foreclose on the property. The only thing that guarantees your investment is the property! That’s why I don’t recommend investing in links through the mail or online. Would you buy a property that you did not see first?
When you buy a tax certificate, even though you are not buying the property, there is always a chance that the bond will not redeem and you will have to foreclose on the property. What if the property has no value? What if it is non-buildable land? So you’re left with worthless property that no one will want to buy from you, and if you don’t continue to pay taxes on it, it will eventually return to the county that sold it to you.
Yes, there are risks involved in investing in bonds and no, it is not a sure thing. However, it is a great way to invest your money if you know what you are doing. If you are thinking of buying a program to learn how to invest in bond certificates or tax deeds, beware! Don’t buy an e-book, training program or course from someone who cloaks the business of investing in bond certificates and tax deeds and makes it look like it can’t fail and there’s no risk. The truth is that you can fail and there are risks to avoid. Instead, buy one of these products from someone who can tell you what the risks are and how to avoid them. This will give you a better chance of success in purchasing profitable tax lien certificates and tax deeds.