If you are interested in low risk profits, and who isn’t, you may want to invest in tax lien certificates. But what are they and what makes these certificates so financially attractive?

A tax lien certificate may be issued by a government authority, usually the county, when a property owner has fallen behind on tax payments.

As a real estate investor you may then purchase this certificate.

What you are essentially doing is giving the property owner a short term loan. You have purchased the property owners debt from the government authority that issued the tax lien certificate, with the property as collateral. If the debt, and agreed interest, is not repaid to you within the time specified you take over ownership of the property.

What makes the purchase of tax lien certificates a very attractive investment is that typically the certificate purchase price is for the amount of the taxes owed, not for the amount the property is worth. Tax lien properties can often be purchased for just pennies on the dollar.

While not fool proof, buying tax lien certificates can be a winning formula for you the investor. If the property owner repays the debt then you have profited from the interest. If the property owner defaults then you have effectively purchased the property for the amount of the taxes owed.

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