A couple of years ago I picked up a very interesting book from a garage sale called “Lies My Teacher Told Me”. I forgot the author’s name, but he was a history teacher 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 show our founding fathers in their best light. Due to all the misinformation circulating about tax lien investing, that book inspired me to write this article, to expose what you might have heard from your tax lien guru, that is not exactly the truth. So let’s take a look at some of the myths that circulate about investing in tax bonds.
You can do this anywhere in the US.
In real estate and wealth-building seminars around the world, foreigners are taught that they can earn double-digit returns on their money by investing in US tax liens, and are somehow led to believe they can do it anywhere. part of the US country doing everything online. This is simply not true. The fact is that not all states sell tax liens, and less than half of the states that sell liens have online tax sales. Last time I checked, 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 (bid by percentage of property ownership). Judging by past tax sales results, 2 of the remaining 6 states are unlikely to get more than a 5% return. And in the other states you are lucky to get a return of 10%.
It is “government guaranteed”
Some “experts” who invest in tax liens like to imply that tax liens are “guaranteed by the government.” The problem with this is that people hear that term and think that they are guaranteed to get their tax lien paid. 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 this is guaranteed by the government, as these state statutes can be changed by state, not federal, mandates. And the fact that the interest rate is determined by state law does not mean that the investor is guaranteed to receive payment. The only guarantee is the property. Therefore, tax liens are secured real estate, not guaranteed by the government. This is why it is so important to do your due diligence on the property you are buying a lien on.
there is always a lot available
Another misconception about tax liens and tax deeds is that there are more liens and deeds available than the competition. 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 to worthless properties that no one wants. Half of the good ones will be paid for and taken out of the tax sale. And vying for the other half of the good liens or deeds are not just the investors, but also the big banks and fund companies that are bidding on thousands of liens. Therefore, the supply of good stocks and bonds is not inexhaustible, and there is stiff competition for the good stuff.
Leftover deeds and liens are good deals
So what some “gurus” who invest in tax liens recommend is that you forgo the tax sale and instead buy the leftover (or over-the-counter) liens or deeds from the county. They say tax sales are so competitive that you probably won’t get the best returns on the deal; instead, get the maximum interest rate by buying leftover liens or deeds from the county.
There are 2 problems with this strategy. First, not all counties sell surplus 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 keep the property. The other problem is that if tax sales are so competitive, what makes you think there’s anything good left after tax sales? Keep in mind that at many online tax sales, there will be an initial tax sale and anything not sold at that sale will be offered at a second tax sale. Only if a property survives both sales is it sold “over the counter”.