To this day, real estate is still one of the best ways to generate passive income.

Buying real estate is one of the most effective investing strategies to become wealthy. It’s an asset that grows in value overtime, and can even produce an additional monthly income stream. For many people, the biggest problem they have is they don’t have enough money to invest. As a result, they are unable to create more wealth, because they lack it in the first place. 

For example, in Vancouver, the real estate market is at an all time high. For the last 10 years, property prices have been rising steadily. Analysts are speculating that the average price of a home in Metro Vancouver is around $983,000, and could reach as high as $1 million by 2021.

These sky high prices are what prevents many people from entering the real estate market. But for some investors, they have the knowledge and know other ways to own real estate without the hassle of having a large amount of cash on hand. For investors that are looking to invest in real estate but don’t have enough money for a down payment, there are tax lien certificates. 

Tax Lien Certificates – A Cheaper Alternative To Real Estate

Tax lien certificates allow investors to generate a return on their investment, without needing a lot of cash on hand. It allows investors to collect interest every month, and in certain situations, own real estate at a very low price. 

You can think of tax lien certificates like your credit card. When you don’t make your credit card payments on time, the credit companies hit you with high interest rates. The government does something similar with tax liens – if you don’t pay your property tax on time, they will charge you penalties and absurdly high interest rates to make sure you pay up. This is because throughout the United States, the government has millions of dollars outstanding in overdue property taxes from property owners who will not or cannot pay their property taxes. And to fund the daily services of police, fire, hospitals, schools, roads, the government needs this money to continue operating.

The biggest difference between your credit card company and the government, is that the government needs the money NOW and doesn’t care about the interest they’ll charge you. In order for them to acquire the money immediately needed to continue operations, they sell the right to collect your taxes – called a ‘tax lien’, to investors. 

Tax Lien Certificates Generate Money Without You Having To Do Anything

Investors can purchase this tax lien from the government. In exchange, they have the right to collect back their money, plus interest. This is called a tax lien certificate, which gives the investor the right to collect the taxes you owed. For example, let’s say a homeowner owes $1,000 in property taxes – the government sells a tax lien certificate for $1,000 to you and gets the money immediately. Now, instead of the homeowner paying the $1,000 of property tax to the government, they would pay you – AKA you are now the credit card company receiving payments.

Tax lien certificates allow you to charge you absurdly high interest rates to homeowners, which you can collect on. The longer they take to pay their taxes, the higher your ROI. If the homeowner refuses to pay his outstanding property taxes within a certain time frame, the holder of the tax lien certificate has a right to foreclose the lien – meaning you get the property.

In the best case scenario, tax lien certificates allow investors to acquire real estate at a very low price.

How Much Can You Actually Make From A Tax Lien Certificate?

Let’s look at an example: Say Mr. Homeowner doesn’t pay his property tax for a year and owes $3,000 in taxes. As a result, the government puts a lien on his property, and sells it to you for $3,000 at an interest rate of 20% to encourage Mr. Homeowner to pay up. One year later, Mr. Homeowner wisely comes to his senses and finally pays off his property tax. You now get your $3,000 investment back plus 20% in interest – a total of $3,600, with a $600 profit made in a short amount of time.

However, if Mr. Homeowner still doesn’t pay his property tax by a certain date, you get the property. Assuming the home is in Vancouver, you just managed to acquire a $983,000 house for a fraction of the price.

In certain situations, tax lien certificates allow you to acquire a house for a fraction of the price. Click To Tweet

Why Most People Put Their Money In A Bank, And Why They Shouldn’t

You are probably thinking – why anyone would put their money in a bank for a measly 3% interest rate? It would be smarter to invest that money into a tax lien certificate, that gives an exponentially higher interest rate.

The reason is because most people don’t know tax lien certificates even exist. And there is a good reason for it. Say you are an investor, and you’ve been buying tax lien certificates for awhile now. You’ve made a very good profit on the interest rates you’ve collected, and even acquired a house or two.

Would you want to tell every stranger, friend and family member about it so they can do the same? Of course not! Doing so would only invite more competition and reduce the number of opportunities you have.

3 Reasons Why You Should Invest In A Tax Lien Certificate

Tax lien certificates have a number of advantages over other investments.

First, is the low amount of investment need. Tax lien certificates range in price anywhere from $10 to millions of dollars. For investors that lack a large amount of capital, tax lien certificates are one of the best options for investment.

Second, is how simple it is. Unlike investments like stocks and bonds, tax lien certificates are constant. No need to analyze charts and watch if the price goes up or down – tax lien certificate returns are fixed. You can relax knowing you’ll get a nice return for your investment, without the fear of the market crashing.

Third, is the potential for huge returns. In the situation that a homeowner is unable to pay their property tax, you collect interest on the amount that is due. If the homeowner is still unable to make their payments by a certain date, you get ownership of the property. There are only a few assets out there that can generate returns like tax lien certificates can.

The Biggest Risk Behind Tax Lien Certificates

You may be wondering, “Dan, what are the risks behind tax lien certificates?”

Tax lien certificates are government-backed investments with minimal risk. If you fail to do your research, you may end up with a property you don’t want. The worst case scenario is that the homeowner quickly pays off his taxes and you collect a lesser interest rate. Other than that, there is very little risk with tax lien certificates.

Tax Lien Certificates Are Time-Tested And Have Been Around For Centuries

Tax lien certificates have existed for thousands of years. In 300 B.C., the Romans were looking to expand their empire vastly through trade and conquest. As the territory of Rome rapidly increased through their conquests, the Roman government was pressured to raise funds for their army and growing province.

To raise more funds, the Romans decided to issue taxes on the land, livestock and property at a 1-2% interest rate, similar to how taxes exist today in society. These taxes were collected by tax collectors and administrators, who used fear tactics to ensure it’s citizens would pay up.

A large majority of the property that was taxed was farmland, with the Roman treasury heavily reliant on collecting taxes from the farmers that lived on these lands. However, a series of crop failures led to farmers having difficulty paying their taxes every year. Combined with the issue of trying to collect taxes from the newly conquered territories, tax revenues decreased and were very inconsistent. In order to stabilize Rome’s funding to provide for their rapid expansion, private collectors were given the opportunity to purchase the right to collect taxes in a particular region. These rights were auctioned off to the highest bidder, with other collectors competing with one another to obtain these documents.

Tax Lien Certificates – A History of Exploitation

Because the Roman government was busy managing the affairs of the entire province, they had no time to collect taxes. This is the reason why collectors were given the opportunity to purchase these rights. By having collectors collect taxes on their behalf, it freed up the number of responsibilities they would have to manage. Much like tax lien certificates today, these collectors would be paid an interest rate for their investment, and even take ownership of the property if it’s citizens failed to pay their taxes. As a result, revenue was increased and much more consistent due to these private collectors ensuring taxes would be paid, allowing for the province of Rome to continue expanding.

However, these private tax collectors would often resort to underhanded tactics and overt threats to ensure people would pay taxes. Many of these farmers were often faced with threats such as having their homes burned to the ground, or their children kidnapped if they weren’t able to pay up. Some collectors would even charge much higher interest rates than what is originally printed on the documents – taking advantage of their position of power to get farmers to pay more than they should. 

After many years of abuse and chaos, the Emperor Augustus would eventually reform the way these tax collectors collected taxes from farmers. Laws and regulations would be put in place to ensure tax collectors did not go overboard with their methods of collecting, preventing farmers from being taken advantage of. This system of taxation and private tax collection would eventually spread throughout the world to Egypt, China and eventually feudal England, where the practice of selling tax collection rights would spread over to America, and be officially passed in the Sixteenth Amendment of the United States Constitution.

Why Financial Education Is Crucial In Life

Throughout history, those who possessed financial knowledge were the ones who flourished. The Romans were the first to invent the idea of tax lien certificates. This led to private tax collectors terrorizing local farmers and abusing their power to collect more money. These farmers were unaware of how the laws worked and did not take the time to educate themselves. As a result, they ended up being exploited by others for their own personal gain.

Those who did take the time to educate themselves, took advantage of the Roman government. They knew the government was too busy handling other state affairs to collect their own taxes. Even if they did abuse the system, they wouldn’t be punished for their actions. Thus, they were free to exploit farmers for their own gain. 

Today, the laws regulating tax lien certificates are much stricter and enforced, however the idea is the same. For homeowners who are unable to pay their taxes on time, they risk losing their entire property. Tax lien certificate investors benefit from these uneducated people, and capitalize on their mistakes. This is why financial education is extremely important, because it allows you to see opportunities that others do not.

Financial knowledge allows you to see opportunities others do not. Click To Tweet

Your Personal Invitation To An Exclusive Event in Las Vegas

Now if you’re interested in learning more about how tax lien certificates work, and how you can leverage homeowners that don’t pay taxes for your own personal gain, I’m hosting an exclusive live event – only for serious investors looking to make 24%, 36%, or even as high as a 58% return on their investments.

If you want to stop reading about how tax lien certificates work and instead put what you’ve learned into practice and become one of those investors that collect handsome interest rate cheques, click here to learn more about North America’s best kept investment secrets.