Like millions of others you are probably wondering where you can attain the greatest and safest return for your money in the shortest period of time. Finding the right investment vehicle can be very difficult to say the least. The stock market can give you stable long term appreciation potential if you diversify and hold for a number years. Sadly, however one downturn in the market and years of gains can be wiped out overnight. Unfortunately, most Americans will stop looking for other ways to higher yields. They will leave their money in the stock market and must continually hope that when they are able to retire the market will stay strong and not suffer a downturn. In addition, when they are enjoying their retirement many will have the added burden of having to constantly watch the market to make sure their nest egg stays intact.
In my work as a financial consultant and in my formal study of Finance I formed the opinion that that the greatest obstacle to attaining wealth through the stock market is the efficient market hypothesis (EMH). This controversial theory is usually only discussed in academic circles but it affects each of us everyday. EMH states that it is impossible to beat the market because prices already incorporate and reflect all relevant information. Proponents of this theory state that it is pointless to search for undervalued stocks or try to predict trends in the market because the market (i.e., buyers) has already taken into account risk and growth factors, economic trends, and future income when stocks are traded. While I don’t completely agree with the theory it does present one of the unseen hurdles, when trying increase the value of a stock portfolio.
The end result is that there are millions and millions of investors with the incorrect notion that they can beat the market thereby finding a way to financial freedom. This is a very difficult task especially in the short term. What if there was a way to earn a guaranteed 10% to 50% per year on your investment? What if there was a way to purchase a high yield investment instrument which helped the community and put your dollars to good use? What if the investment vehicle was created and backed by state law and was designed to protect the investor? What if the investment vehicle allowed you to sleep easy at night because at worst you would get clear title to the valuable real estate acting as the security for your investment?
There Is Another Way: Tax Lien Certificates
There is a way to earn a guaranteed return on your investment which if consistently repeated over time would greatly improve your wealth position. The answer is investing in tax lien certificates. Tax lien certificates are a way for local government to collect the unpaid revenue from back taxes. The rates of return from tax lien certificates can range from 8% to as high as 50% within the second year.
Here’s how it works: local governments all across the United States are forced to sell the property tax liens created by property owners who do not pay their property taxes. The property tax lien will remain attached to the property and will not be removed unless the back taxes are paid. In many states even bankruptcy will not remove a property tax lien.
Even though local governments will hold a lien against the property the lien does not equal spendable revenue for the government entity unless it is sold. Remember local governments use property taxes to pay for many needed government services and running day-to-day operations (such as maintaining roadways, educating our children, providing law enforcement, etc.).
In order to get the revenue needed to fund many of these services local governments can generally do two things: 1) increase taxes, or 2) sell tax liens to private investors while issuing certificates for the lien amount. Since most politicians know that raising taxes can be very harmful for re-election efforts their first choice is typically to sell off the tax liens through tax certificates.
When the tax lien is paid off you are guaranteed the rate of interest on the certificate. Like a certificate of deposit or CD this amount is your agreed rate of interest. This rate of interest can range from as low as 8% to as high as 50% for redemptions occurring in the second year. Remember that your certificate is backed by the real estate behind it, so in the event that the lien is not paid off the real estate is yours! If you invest correctly there is no downside; you either make the agreed upon interest rate or you take over the real estate for a mere fraction of its market value.
What Effect Can Proper Investment in Tax Certificates Have?
Quite simply the effects are astounding. For example, let’s take a hypothetical investor, Investor A. Investor A places $3,000 in a retirement plan at age 30 with an average rate of return of 7% per year for the next 20 years. This investor’s money would double about once every 10 years. At the end of the investment term and at age 50 the investment would equal almost $12,000.
Now let’s take Investor B, who uses simply uses a strategy of investing in tax lien certificates with an average annual return of 20%. At age 30 Investor B starts with $3,000. Investor’s B’s money would double about once every 3.5 years. As a result by age 50 the initial $3,000 would have grown to over $115,000. If that investment was continued for just another 10 years that initial $3,000 would now have grown to well over $700,000! From such a small investment you can be on your way to becoming a millionaire. One scenario that is missing from this hypothetical is the effect to your return on investment if the property backing the certificate becomes yours. A single tax lien certificate could yield you a profit of $20,000, $40,000, or more if you sell the property backing the lien. This would exponentially increase your return!
Proper Information is the First Step!
As you can see investing in tax lien certificates allows you to safely use the laws of compounding to increase your investment. A well thought out and researched strategy will allow you to safely bypass the ‘yo-yo’ effect of the stock market because each certificate has an incorporated safety net. The safety net is quite simply the real estate which backs the certificate. Best of all the real estate usually equals a much greater return than the face value of the certificate itself. Do companies on the New York Stock Exchange provide a safety net like local governments provide? No they do not.
Remember there are many states which offer tax lien certificates and each state has different rules and regulations. I always recommend learning as much as you can from people who have proper experience and training. A lot of people ask me if investing in tax foreclosures is risky. The truth is that doing anything when you don’t have proper knowledge and training is risky. Seek out the experts who are willing to help you. Always continue to learn and don’t give in to negative people around you.
Keep in mind that everything you want in life takes up space. Many people fail to realize that when we want new things we have to get rid of the old things in order to make room for the new. Old thoughts, old ideas, unjustified fears all must make room for the new possibilities and limitless potential that each day has in store for us. Keep a positive attitude and learn from the experts and you will be on your way to fulfilling your dreams.