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56 and take title to the property. e reason most states offer such high rates of return is to make it attractive for large investors so they can clear their back taxes off the books and make their budget for the year. Auctions are primarily an annual event that enables local governments to be paid now, as opposed to down the road—or never. Some states, such as Georgia or Texas, actually conduct their auctions every month. Interest rates vary from state to state, and not all states allow tax lien sales. For instance, the maximum statutory interest rate in Arizona is 16 percent, with a three-year right of redemption, In Illinois, it is 18 percent with an up-to-three- year redemption period. In Texas, the maximum could be as much as 50 percent, with as little as a six-month right of redemption. Investors should thoroughly research an individual state's laws before participating in any tax lien sale. KNOW THE DANGER ZONES e redemption period is the amount of time allotted by state statute in which a property owner can pay off the tax lien, with interest and penalties, to the holder of the tax lien certificate. If the property owner fails to make such timely payment, the investor may foreclose on the property and sell it at full market price. However, many states have extensive pre-foreclosure requirements, such as giving the property owner notice that you have the lien, filing court papers, placing media notices, conducting title searches, etc. Failure to follow a state's requirements could render your lien invalid and your entire investment worthless. Many investors choose to work with a local attorney or third-party tax-lien-investing specialist to ensure no necessary step is omitted. Due to the various ever-changing laws, policies, and procedures from state to state and county to county, novice investors can quickly become overwhelmed by the purchase and management of tax-lien investments. ey may choose to engage the services of a lawyer or tax- lien investment specialist in the area where the subject property is located; those professionals may focus on a single area or a combination of service areas. e investor may also opt for a turnkey firm that handles it all—from bidding at the auction to handling all the legal aspects, oversight, repair, rent, redemption tracking, collections, evictions, and any other process associated with their investments. is may go as far as attending hearings and closings on the investor's behalf. Tax lien investing is being dominated more and more by institutional investors such as hedge funds and banks. A reputable third-party provider can identify and research the niche markets that the "big players" haven't yet moved into and can provide the resources within those markets to help the individual investor succeed. WHAT TYPE OF INVESTOR ARE YOU? It's important to identify what type of investor you are so that you don't waste millions (or more) on an inappropriately located acquisition. ere are two types of investors: property investors and redemption investors. Property investors are more interested in obtaining property at a fraction of market value, yet they also need a fair yield should the lien redeem. In their case, it makes the most sense to focus on states where the redemption laws are more aggressive, which increases the chances of foreclosure; or states where, if the lien/deed redeems, the yield will be better than average. ose areas include Georgia (12 months, 20 percent), Texas (6/24 months, 25 percent/50 percent), or South Carolina (12 months, 12 percent). Redemption investors are more interested in obtaining a conservative, high-yield return upon the redemption/payment of their tax liens. at means focusing on states where the redemption periods are longer/less aggressive yet provide a high annual compounding yield, such as Illinois (36 months, 36 percent) or Iowa (24 months, 24 percent). Buying tax liens is not a good fit for every investor. In addition to an investor's commitment and continuing hard work, it also requires up-front capital, as most governments require cash payment at the sale. It takes time for any return on investment to be realized. Yes, the returns can be tremendous, but be sure you are aware of the risks. MEASURE THE RISKS Statutes can fluctuate from state to state and county to county, not only where interest rates and redemption periods are concerned but also regarding required filings and notifications. Failure to follow a municipality's rules could endanger your entire investment. Other risks to be aware of include: · Tax lien investing involves a fixed-sum payment when the lien is resolved, which can be a drawback to investors seeking to earn residual income over time. · Most auction rules preclude an investor from viewing the property except from the outside, which can lead to some unhappy surprises (and a losing investment) upon foreclosure and takeover of the site. · ere is a possibility of subsequent liens, which the investor, as initial lien holder, will have to purchase. · Another risk is the level of competition you may encounter at auction, as more and more big investors are moving into this market sector looking for bargains. Do your due diligence—and then some. ere's no substitute for in-depth research into your chosen local market and individual opportunities. Since you won't get to see the inside of the property for which the tax lien certificate is offered, look closely at nearby properties and neighborhood values. Check county records for any additional liens on file. Make sure you understand each municipality's guidelines. Be prepared for an auction to quickly ramp up out of the "good deal" range. Know how much you're willing to pay and don't go beyond it. Tax liens can be a great alternative form of investment, but as most investors discover, it takes devotion and hard work. If it were as simple as "buy and profit," it wouldn't be the so- called "little-known investment secret nobody is telling you about." Tax lien investing is being dominated more and more by institutional investors such as hedge funds and banks. A reputable third-party provider can identify and research the niche markets that the "big players" haven't yet moved into.