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by: MikeFairweather
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Investing in property tax liens can be very profitable, but if you're new to the tax lien arena, some background information is the best place to start. In its simplest form, a tax lien is a mechanism that guarantees that a lender will be paid for a debt by allotting a tax commitment on the debtors' property. This then effectively prevents the property owner from raising further capital or financing secured against that property.

A tax lien certificate is issued and is secured against the personal property of the person receiving the loan. Of all the different types of liens, the most popular or common is the mortgage lien. Every different type of lien is subject to its own set of rules and regulations.

Of the property liens we are considering here, there are two types - namely the general lien and the particular lien. The particular lien comes into play when an investor claims the right of access to a property in return for services or money which they invested in the particular property. Most liens can also be divided into two main groups - namely legal and federal liens (which can be enforced in a court of law) and equity liens which are valid only in courts dealing with equity.

When buying a tax lien certificate, rather than buying the property, you are actually only lending the property owner the money they need to repay their back taxes. Initially, you are not buying the property. In return however, the property owner is legally agreeing to repay a predetermined amount of interest on your loan - which can be anywhere from 6% to 50% depending on the agreement and the state where you are buying the lien. The property owner is also agreeing to repay your money within a predetermined time period, which will be stated as part of the tax lien certificate.

You've probably already realised there are two main ways you make your money from buying property tax lien certificates in this way. If the debtor (the property owner in this case) is able to repay the loan in full within the allotted time period, your profit is the interest he has to pay on that loan.

If the property owner fails to repay the lien in time, ownership of the property is transferred to the holder of the tax lien certificate - in this case you, as the recent purchaser of the lien - and you are free to manage that property as you see fit as the new legal owner.

So as a quick recap, s an owner of a tax lien certificate, you will either make a profit by way of the interest repaid on your loan to the property owner, or of the owner is unable to make the repayment, you take ownership of the property and make your profit from how you then manage that property.

There is a lot more information you need to be aware of, and a lot more knowledge required before you go off a buy your first property tax lien certificate, but in simple terms, it is a very realistic model to make money and invest in real estate.

About the Author

Author and realtor Mike Fairweather covers how to invest in real estate without losing your shirt. Tax lien certificates can be a very profitable road to building a real estate portfolio. Buying Tax Liens Get a totally unique version of this article from our article submission service

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