Have you ever had your future planned, but events come along to change those plans drastically? Of course, we all have. And much about what we discuss here is focused on preparing for such changes. Regardless of the changes in the financial climate around us, any precious metals in our possession retain value. It’s because of this that we are absolutely convinced that precious metals must be in the front lines of our investment arsenal. But what about other investments?
Today, though it’s nothing monumental, there’s a change in plans for our discussion. Rather than discuss sovereign debt, a very important topic that I’ve repeatedly said would be forthcoming, we’re going to take a look tax liens and how they fit into the investor's portfolio.
What is a tax lien? Simply put, it’s a lien placed on property due to taxes owed. Property ownership in the U.S. is at the sufferance of local governing authorities. Thus, the privilege of owning property in their jurisdiction comes with a cost in the form of property taxes. This tax usually covers costs associated with road maintenance, street lights, sidewalks, city employees, street sweeping and such, with many variations.
If the property owner fails to pay the tax then they face possible foreclosure by the state in order to make up for the difference. Often the state really doesn’t want to deal with these issues, so they've found a way to pass on the debt to investors that provides them with the tax money while removing their need to collect from the homeowner.
This transfer is called a tax lien. The investor pays the state whatever taxes are due. In return, the investor is first in line to receive restitution from the property owner, plus interest. The interest rate varies from state to state, and even county to county. According to some sources, these rates can be high in some jurisdictions, though they're often quite low. Obviously the high end represents a very attractive rate for the investor.
In the event that the property owner cannot pay the investor within the contract time (which varies as well, from a few months to several years) the investor can foreclose on the property. This process can take a while as well, varies in policy among jurisdictions and has its own associated costs. But it can result in the investor receiving the property for a small percentage of the actual value. The investor must be aware that there can still be some debt owed by the property, so due diligence, as always, is advised.
One must be very careful in approaching this kind of investment. It is not a get rich quick or with little effort enterprise. And it’s certainly not anything like investing in stocks or precious metals. With stocks we get what we see, in a sense. At least you know you’re receiving partial ownership of a business. Of course, we can get burned easily enough by those who promote the company or lie on balance sheets. But we do understand the nature of stocks. With precious metals you gain ownership of something with intrinsic, lasting and endurable value.
With tax liens, the first hurdle is getting past all the advertisements for how to go about it. Various services are offered through different sources, often promising instant wealth if you’ll just subscribe to their service. As with almost every investment opportunity that is presented, if it’s too good to be true then it probably isn’t true.
If you would like to investigate it further, there are many reviews and a great deal of commentary on line. I found this review particularly helpful in considering the challenges involved.
One thing to consider whenever investigating any investment service is whether or not they offer sober warnings. Infomercials are designed to hook you, reel you in and then land you. Some offer legitimate services that will benefit you. Others offer a lot of hot air and endless upsales that, in the end, simply waste your time and resources.
Ask yourself a few questions in attempting to discern whether a given financial opportunity is legitimate. Do they caution due diligence? Do they warn of possible pitfalls? Do they expose the amount of work necessary in order to succeed? If they promise the moon for almost nothing, then the best advice is to run away. These are almost inevitably scams that amount to nothing more than a tax on greed.
Tomorrow we’ll look into this further, and consider how tax liens stack up against more typical investment vehicles.
For your prosperity,
The Gold Informant