You’ve probably seen more and more real estate investors switching to investing in tax liens rather than just directly into brick and mortar property. Why is that? What role should it play in a portfolio? What are the cons of this strategy?
Many investors are looking for new strategies. Some are looking to get ahead of the next curve and make the most of the changing market. Others are looking to graduate to the next level. They have learned some serious lessons over the past year. They are looking to diversify, streamline and automate management of their portfolios, and restructure. Many are looking for better value ways to acquire assets with solid returns.
Property tax liens answer a lot of these wants and needs. When property owners don’t pay their annual taxes, then a lien for that debt is placed against their property. Investors bid to win these liens. When the owner or their mortgage lender pays the taxes, the lien is redeemed and investors make a nice return. Often strong double digits. If they don’t pay within this second chance window, it creates a path for tax lien holders to take the property. Often for just pennies on the dollar. This offers incredible gains, and can be used to feed other strategies, such as fixing and flipping and buy and hold rentals.
Property tax lien investing can be a great way to augment what’s working right now, make up for soft spots in your portfolio, and drive consistency.
This has become especially interesting to investors now as they seek lower acquisition prices and more value in a hot retail market. As well as a blizzard of new incoming taxes and tax hikes in some states. There are already sizable amounts of delinquencies, and that is expected to become a much, much larger pool in the near future. More supply can mean even better returns for buyers.
Tax lien investing hasn’t been as big news as flipping houses, but it isn’t a complete secret either. There are two reasons that more haven’t been doing it. Firstly, because they just don’t understand all of the mechanics of it. Secondly, because to do it well you really want to do it at scale, and you need to be able to out maneuver a lot of competition to get the best deals. Thankfully, with hybrid funds that do it all for you, this sector is opening up for those who want to benefit from it.
Find out more about investing in secured debt and real estate, go to NNG Capital Fund