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54 I N D U S T R Y I N S I G H T / C H A R L E S S E L L S This "investment secret" has been edging closer to the mainstream among real estate investors, but it remains a confusing and often intimidating strategy. Tax lien investing is a more-than-billion-dollar-a-year business that holds the promise of mid to high double-digit returns for those who know what they're doing and who have the patience for a process that can take several years to complete. However, tax lien investing is certainly no pennies-on-the-dollar or get-rich-quick opportunity, and it may not be right for every investor. It requires a keen understanding of the variances among state statutes, a high level of due diligence, and continuous research to stay current on legislation. Let's take a closer look at the strategy and its risks and rewards so you can determine whether it makes sense for you. WHAT IS TAX-LIEN INVESTING? When a property owner fails to pay real estate taxes, local governments are denied the revenue they depend on for funding infrastructure and essential services such as law enforcement, firefighting, schools, hospitals, etc. If the taxes on a given property remain delinquent, after a certain amount of time, the government may auction off its tax lien—the right to foreclose on that property due to nonpayment of taxes. In most states, a tax lien is a "super lien," meaning it has priority over all other types of liens (mortgages, deeds of trust, and other private liens), secondary only to IRS, state, or municipal liens, making it an attractive investment. Some investors are drawn to this type of investing since it provides an element of real estate diversification in their portfolio without their having to invest in a piece of property. Others like the possibility of above-average returns for a relatively low outlay of capital. HOW DOES A TAX LIEN AUCTION WORK? First, understand that you are bidding on the right to collect on the delinquent taxpayer's debt rather than on an actual deed to the property. e government auctioning off the lien is interested in recouping its lost or potentially lost revenue rather than in making a profit, so the lien often ends up being sold for a fraction of the property's market value, presenting a potentially lucrative return on investment for the investor. e winning bidder pays the amount of taxes owed in return for the right to collect that money—plus interest penalty charges that can range as high as 16 to 36 percent—from the property owner or, barring that, to foreclose on 54