Tax Lien Investing: 5 Fast Ways to Lose Your Cash (And How to Stop It)
At first glance, tax lien investing may appear as an easy money opportunity, until it isn’t. Having trusted a sweet-sounding business deal, you watch your money disappear right before your eyes with no return on investment. With great disappointment, your hard earned cash turns as elusive as a magician’s rabbit. And just like you, I’ve seen it happen. But don’t worry: I’ll show you 5 quick ways investors lose money (and how to dodge them) so you don’t end up crying into your coffee.
1. Redemption Risk: “Thanks for the Loan, Sucker!”
The Problem:
You buy a tax lien, dreaming of 12% interest. But then—surprise!—the owner pays their taxes at the last second. In states like Texas, you might get 0.25% interest instead. That’s less than a savings account.
How to Stop It:
- Only bid in states with high minimum interest rates (e.g., Iowa: 2% monthly penalty!).
- Avoid counties where owners redeem fast (ask locals or check redemption stats).
2. Hidden Liens: The Debt Ghosts That Haunt You
The Problem:
You buy a lien, but the property has a senior lien (like an old mortgage or IRS debt). When the owner pays, that debt gets cleared first. You? You get crumbs.
How to Stop It:
- Run a title search (tools like PropStream work).
- Skip properties with liens older than yours.
3. Squatter Surprise: “Who the Heck Are You?!”
The Problem:
You win the lien, take over the property, and… someone’s living there. Now you’re stuck paying lawyers to evict them. Cha-ching! 💸
How to Stop It:
- Visit the property before bidding. Look for cars, toys, or mail piling up.
- If it’s occupied, walk away—unless you’ve got $10k for legal battles.
4. Toxic Waste? That’s Your Problem Now.
The Problem:
You get the property and find out it’s sitting on a buried oil tank or asbestos. Cleanup costs? $20k+. Oops.
How to Stop It:
- Stick to vacant land (fewer surprises).
- For houses, Google the address for old listings or news articles about environmental issues.
5. Bidding Wars: Why You Overpaid for Junk
The Problem:
In hot markets like Florida, seasoned investors swarm auctions. You get excited, overbid, and end up paying more than the property’s worth.
How to Stop It:
- Set a max bid and stick to it.
- Target rural counties (e.g., Mississippi) where competition is thinner than cheap toilet paper.
FAQ :
Q: Is tax lien investing risky?
A: Yep—like dating someone with 3 exes who still have keys to their house. Do your homework!
Q:Can you make money with tax liens?
A: Sure, but don’t quit your day job. Most folks earn single-digit returns unless they snag the property.
Final Tip:
If you’re new, start small. Bid $500 on a lien in a low-risk area (like Iowa). Treat it like a practice round—not your life savings.
War Story:
*My buddy Dave bought a Florida tax lien, dreamed of beachfront profits… then spent $14k evicting a guy who claimed he was “part-owner.” Don’t be Dave.*
