Risks Involved In Tax Lien Purchasing
Most of the people think that government tax lien certificates are a safe vehicle for investment. While this is true in no small degree, there are some risks involved in tax lien purchasing. You can land into some severe trouble if you do not take these risks into account while buying tax lien information.
The period allowed is anywhere between 24 to 72 hours. In some cases, even immediate payments may be made mandatory. Moreover, failure to make payments can mean that all your tax lien certificates can get canceled. In the worst case, the bidder may even be debarred from participation in any future auction.
The second thing that you must be aware of is that investment in tax lien certificates is a game dominated by the big players. Big institutional investors have enough resources that they can mobilize to efficiently collect information about the functional properties and place high bids on them. The result is that small investor who wants to bid on a single or a couple of features is only left to choose from the leftover properties which do not carry enough market value to be considered a decent investment.
Another significant risk is that in case of auctions where it is required that an institutional investor bids the bidder bids down the interest, the minimum amount of legal interest above 0%. While they can quickly make up for the gaps because they invest in some properties, the low-interest rates do not turn out to be acceptable returns on investment for the typical investor bidding only for one or two features.
Similarly in ‘bid up the premium’ mode the institutional investors can place bids that are too high for an average investor to outbid with his limited resources.
The fourth risk is that in most cases the tax certificates cannot be liquidated. If you enter in the tax lien purchasing as a short-term investment, then you have come to the wrong place. While some states allow the certificate holder to transfer his certificate to someone else, the process is not universal. It is very complicated as well. Tax lien purchasing means that you have locked the money in the property and there are not many ways to recover it unless the owner of the property pays back his dues.
Tax lien purchasing without proper tax lien information is like locking your money in a safe and throwing the key in Lake Michigan. You get into a condition where you have all but lost control over your investment. Think carefully before you do any tax lien purchasing with your hard earned money.