How to Earn 18% Interest From the Government
Interest-Rates / US Bonds Jul 10, 2009 - 01:14 AMBy: DailyWealth
Dr. Steve Sjuggerud writes:
Here in Florida, counties are desperate for money...
Where I live on the Florida Coast, the main source of county government revenue is property taxes. The problem is, more people than ever are not paying their property taxes.
So right now, you can be handsomely rewarded with limited risk for helping out... Take Flagler County, for example, on Florida's East Coast... This is a relatively small county. It hardly has a town that anyone can name. But as I write, Flagler County has over 1,800 "tax lien certificates" up for sale at 18% annual interest.
Here's how they work...
The Flagler County needs its tax revenue immediately. So if John Smith doesn't pay his property taxes, the county gets so desperate, it's willing to give you 18% interest if you pay John Smith's property taxes for him.
The county then badgers John Smith with notices and such to pay his taxes. (You are not involved in badgering him!) And John is ringing up penalties for being late, so he has a big incentive to pay ASAP.
Let's say John owes $5,000 in taxes. You give Flagler County $5,000 to cover him. If John pays a year later, then the county pays you $5,900. If it takes John two years to pay his taxes, then you get $6,800 on your $5,000 "investment." It's 18%, simple interest – 1.5% per month.
That's how it works in theory. In practice, either John pays his tax bill pretty quickly (so the late fees don't ring up) or the bank that holds John's mortgage forecloses on him, and the house is sold at auction. You are guaranteed 5% interest – worst case – by Florida Law. Literally, if John pays a day after you buy the tax lien certificate, your $5,000 turns into $5,250.
Here's the most important point: The bank is actually SECOND in line to receive the money from the house sale. The county gets its back taxes out of the deal first – you get paid first.
Now, John's house might be worth $250,000. At auction in this market, it might sell for $200,000 or so. So you have $200,000 of collateral backing up your $5,000 tax lien certificate... you are covered!
Yesterday, I bought up a handful of tax lien certificates here in Florida. I stuck with desirable properties... properties that people (or the bank) could sell for good money right now, for way more than what's owed in taxes.
To further reduce my risk, I bought tax lien certificates on properties owned by individuals instead of property development companies... I don't know when I'd get paid if a property developer went bankrupt.
I could go on. But the basic idea here is simple and safe...
Someone hasn't paid his taxes. The county chases down that delinquent payer AND rewards you handsomely for paying the taxes on his behalf. Once the person pays the taxes or is foreclosed on, you get your money with 18% interest. The investment is incredibly secure. Your tax lien certificate is first in line in a foreclosure.
There are more details to consider, of course. Every state is different, with different interest rates and time periods. So you do have to roll up your sleeves here and do a good deal of homework. But that's also part of the beauty of it... You have literally thousands of these tax lien certificates available (remember, tiny Flagler County has nearly 2,000 available right now), and not many people willing to figure them out.
There are risks too... Bdankruptcy is one big question mark. And you have to make sure the lot exists, is accessible, and is worth significantly more than the back taxes to ensure you'll get your money back with full interest.
In Florida, the foreclosure process can start after two years of delinquent property taxes. But you can't be sure when you'll get paid.
Still, the rewards here often outweigh your risks. This is a lot more secure and a lot less risky than the stock market... and 18% is hard to come by.
When I first heard about tax lien certificates, I thought they sounded like something you'd see on a late-night infomercial. And some of the websites out there with information seem pretty "huckster-y" to me.
But these are the real thing and can be an exceptionally good investment – particularly now, when there are way more people delinquent on their taxes than there are people aware of these tax lien certificates.
I suggest buying a few of the highly rated books on Amazon on tax liens. That's what I did, and they were generally pretty good.
Investing in these tax lien certificates does take some real time. But compared to the return, the time invested could be more than worth it...
Good investing,
Steve
P.S. I used Flagler County as an example here because its website (www.flaglertaxsale.com) is pretty good... You can click on "Training" to see a summary of Florida's rules. And you can "preview" the thousands of properties available.
Good investing,
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