Rich Dad Education – Real Estate Blog

Dedicated to Elevating the Financial Well-Being of People from All Walks of Life

Tax Liens and Deeds Series – Part 5

Rich Dad Education’s fundamental mission is to help Rich Dad students achieve their financial objectives. Rich Dad Education’s elite trainings, such as their Tax Liens and Deeds class, offer Rich Dad students the ability to learn a tremendous amount of material in a short amount of time. This is the fifth article in a series of articles on the topic of tax liens and deeds and while it is impossible to replicate the unique and dynamic setting that a Rich Dad Education class offers, it is the goal of this series to provide you information that you can put into practice in your quest to escape the Rat Race.

In past articles in this Rich Dad Education series we have discussed:

  • Favorable outcomes of tax liens and deeds
  • How tax liens and deeds work
  • Differences between tax liens and deeds
  • The auction process
  • Different auction formats

Auction process will vary from state to state, including whether a particular state offers tax liens, deeds, or both. One of your first tasks as a tax liens and deeds investor is to learn the rules, procedures, and offerings for the state and county that you are looking to invest in. With online auctions appearing in more locales each year, it is becoming increasingly easier to find tax liens that meet your investing criteria.

Here are some pros and cons of the different aspects that may vary in the state you invest in:

Redemption Periods and Tax Liens States

The redemption period is the amount of time that the property owner has to pay back the lien (plus any interest or penalties). The redemption period can be less than a year and up to four years depending on the state. For states with longer redemption periods, the biggest con is that you can tie up your money for a lengthy amount of time. In these states many investors may set the minimum return they require higher to compensate for the lack of access to their investment capital.

Since the maximum rate varies from state to state, Rich Dad Education investors should focus their energies at first on states that offer the highest returns. While you might not live in one of these states, online auctions may give you access where in the past you could not have easily attended live auctions.

Interest rates reflect the maximum rates allowed by law. While these rates may be uncommon, it does give you a good sense of which states are investor friendly.

State – Interest Rate – Redemption Period

Alabama – 12 % – 3 Years

Arizona  – 16% – 3 Years

Colorado – 9% – 3 Years

Florida – 18% – 2 Years

Illinois – 36% – 2 Years

Indiana – 25% – 1 Year

Iowa – 24% – 1.75 Years

Kentucky – 12% – 1 Year

Louisiana – 17% – 3 Years

Maryland – 6%-24% (Varies by County) – 6 mos to 2 Yrs

Massachusetts – 16% – None

Mississippi – 18% – 2 Years

Missouri – 10% – 1 Year

Montana – 10% – 2 or 3 Years

Nebraska – 14% – 3 Years

New Jersey – 18% plus penalties – 2 Years

New York – 14% (NYC does not offer) – 1 Year

South Carolina – 8%-12% – 12-18 months

Vermont – 12% – 1 Year

West Virginia – 12% – 17 Months

Wyoming – 18% – 4 Years

District of Columbia – 18% – 6 Months

Some of these states do not pay interest on the overbid and other states not listed―such as Texas―offer high interest rates on deeds.

There are pros and cons for tax lien investing, just like any other form of investing. While tax lien investing fits the profile of the average Rich Dad Education investor nicely, be sure to see if it meets your personal investing criteria. Some of the questions you should ask yourself are:

  1. How much time am I willing to commit?  If time is a resource that you are in short supply of, then tax lien investing may be for you. There is a relatively low time commitment in tax lien investing versus tax deed investing or other forms of real estate investing.
  2. Are you limited in your initial investing capital? While having an abundance of capital does not preclude you from tax lien investing (in fact you may find it preferable), not having capital can limit you in other areas of investing. Tax liens are available and can be picked up for a few hundred dollars. These can be a great place for a beginner to get their feet wet.
  3. Do you have a low risk tolerance? While all investment carry risk, tax liens carry very little risk due to the regulation by state and local governments. Some investors are very satisfied with a solid rate of return with the peace and comfort that tax liens offer.
  4. Are you willing to tie up your investing capital? This is perhaps the biggest drawback of tax lien investing. For some investors it is a nonissue as the high rate of return, coupled with the low risk, outweigh their money being tied up. It is a factor you should consider.

In the next article in this Rich Dad Education series, due diligence will be discussed in relation to tax deeds. Rich Dad Education prepares their students to face the many scenarios that can occur in investing and the next article will prepare you to avoid some of the pitfalls facing tax deed investors.

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One response to “Tax Liens and Deeds Series – Part 5

  1. search engine August 14, 2014 at 6:07 am

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