Real estate investment has many options for you to capitalize on as an investor. It is never limited to buying property the traditional way. You don't have to limit yourself to buying regular properties and making money through the traditional avenues. While rent and appreciation are great benefits to real estate investment, you can make a profit in many other ways. One area that is very often overlooked is in the area of tax lien certificates.

What is a tax lien? Every year, the owner of a property must pay what is referred to as real property taxes. Since it only happens once per year, these are sometimes overlooked by busy people. There is always the possibility that they don't have the money to pay the taxes either. When this occurs, the county will be alerted of all the property taxes that are overdue. After a small grace period passes, the county must take action. While they get revenue from all kinds of taxes, they, like any other business must have a budget. They have employees and overhead like everyone else. A huge part of their yearly budget is the real property taxes that they collect. Sometimes it can be difficult for them to predict how many property taxes will go unpaid. Therefore there has to be another alternative for them to collect their money in a timely manner.

To make up for this lag-time that they don't have their money, they use an alternative method of raising capital. They do this through the use of tax lien certificates. The county where the property resides will sell tax lien certificates for the overdue properties. Investors will attend these public auctions in which the tax lien certificates are auctioned off. In some states, the bidder can obtain as high as a 16% return on their investment. The bidding will usually start out at the highest percentage rate allowed by the state in which it is being held. Then the bidders will bid until no one wants to go lower. For example the first bidder will bid at 16%. The next may bid 15 ?% and so on. In this way a tax lien certificate can be purchased. What a tax lien provides for the investor is a low-risk investment in which they can make a high return. They now have the right to collect the overdue taxes with a generous return. If the property owner fails to pay the taxes, the tax lien certificate can now buy the property. This can be a great investment for the tax lien holder.

A tax lien certificate is an extraordinary foreclosure investment as well as a great paper investment. It is a way that you can make money just like an investor in a mutual fund or some other security. However with a tax lien, you decide the rate of return you will get ahead of time. If you don't get the rate of return after a given period of time, you'll get a great deal on a property. Keep in mind that 95% of the time, the outstanding tax balance will be paid by the owner. Sometimes you may get lucky though and get a house. This is when the investment can really pay off for you. The vast majority of the time, the transaction will simply amount to a paper investment for you. You give a certain amount of money for the certificate and you get a guaranteed rate of return. Compared to other forms of investments, this is a relatively unknown investment market. Financial advisors or stock brokers have no reason to tell you about this form of investment, if they even know anything about it. There is no incentive for them, like there is with other securities. They aren't involved in this form of investment at all. The only people who know about it are the ones that are doing it. They are not usually willing to part with this information because they will consider you competition. Once you find out about this form of investment, you will be wise to strongly consider it.

There are currently 32 states in the U.S. that are selling tax lien certificates. This gives you many counties to pick from when you want to do business. You don't have to be a resident of the county to invest in their tax liens. Therefore, you can live in New York and buy a tax lien in some random county in Florida. Much of the information you need can be obtained on the internet or by phone. Sometimes, there are tax liens that go through the system without a buyer. You may be able to obtain a list and simply buy what you want.

When a foreclosure auction occurs, you may be able to get a great deal. The best way to buy property at these is to make an affordable opening bid. When you do this, you will build very substantial equity in the property. If you obtain the property at this price, you will do quite well. Not many people usually show up at these auctions and many of the ones that do are not prepared to overbid. Therefore, you can sometimes get a great property at these auctions. It will even be at a price that you can afford. Most importantly it is at a price that you can eventually gain a profit on. As with any other type of purchase? you make your money when you buy, not when you sell.

Nearly all purchases of tax lien certificates have equity of over 95% of the property's value. No other kind of real estate property foreclosure process offers anywhere near this much potential equity. You'll be lucky to get anywhere near that through other avenues.

Keep in mind that this is an area of real estate that not many people know about. Even if you are inexperienced, there is a good opportunity for you to make some money. You won't have very much competition in many cases. It may take some trial and error on your part to figure it out. Every other form of investment offers the same. If you try it a few times, you are bound to do well.