Lies About Investing Tax Liens

A couple of years ago I bought a very interesting book from a yard sale called “Lies My Teacher Told Me.” I forgot the author’s name, but he was a professor of history and in this book he exposed how history has been practically rewritten in textbooks to suit the government institution that teaches it. The book exposed some of the truths about history that are covered up because it doesn’t portray our founding fathers in the best light. Because of all the misinformation out there about investing in tax liens, that book inspired me for this article, to expose what you might have heard from your tax lien guru, that’s not exactly the truth. So let’s take a look at some of the myths circulating about investing in tax liens.

You can do this anywhere in the US.

In real estate and wealth building seminars around the world, foreigners are taught that they can get double-digit returns on their money by investing in tax liens in the US by doing everything online. This is simply not true. The fact is, not all states sell tax links, and less than half of the states that sell links have online tax sales. Last time I checked that only 9 states had online tax sales. Among those 9 states, one has only one county with an online tax sale. That state and 2 others have bidding methods that are not favorable to investors (lower the percentage of property ownership). Judging from past tax sales results, 2 of the 6 remaining states are unlikely to make a profitability of more than 5%. And in the other states you are lucky to get a 10% return.

It is “guaranteed by the government”

Some “experts” on tax lien investments like to imply that tax ties are “guaranteed by the government.” The problem with this is that people hear that term and think that they are guaranteed to get paid on their tax liaison. But that is not what is meant here. The term refers to the fact that the interest rate is set by state law, but it is incorrect to imply that it is guaranteed by the government, since these state statutes can be modified by state, not federal, mandates. And just because the interest rate is determined by state law does not mean that the investor is guaranteed to be paid. The only guarantee is ownership. So tax bonds are actually guaranteed real estate, not guaranteed by the government. This is why it is so important to do your due diligence on the property you are purchasing a lien on.

There is always a lot available

Another misconception about tax ties and tax deeds is that there are more ties and deeds available than competition. Yes, it is true that in some tax sales there are tens of thousands of links available. But consider that a percentage of those links are for worthless properties that no one wants. Half of the good ones will be paid and withdrawn from the tax sale. And vying for the other half of good ties or stocks is not just investors, but big banks and fund companies that are competing for thousands of ties. Therefore, the supply of good links and shares is not inexhaustible and there is stiff competition for good things.

Leftover deeds and liens are good business

So, what some tax lien investment “gurus” recommend is that you forgo tax sales and buy the county’s leftover (or over-the-counter) bonds or deeds instead. They say that tax sales are so competitive that you are not likely to make the best profit by bidding, instead get the maximum interest rate by buying the leftover bonds or deeds from the county.

There are 2 problems with this strategy. First, not all counties sell leftover bonds or deeds. Some counties will simply continue to offer them at tax auctions until the lien or deed is sold or until the redemption period ends, in which case the county will take the property. The other problem is that if tax sales are so competitive, what makes you think there is something good left after tax sales? Keep in mind that in many online tax sales, there will be an initial tax sale and anything not sold in that sale will be offered in a second tax sale. Only if a property survives both sales is it sold “without a prescription.”