What Types of Properties Are Most Likely to Redeem?

When you invest in tax lien certificates for a safe, secure investment that will next you anywhere from 14 to 50 percent interest on your funds, chances are you want the property owner to redeem the certificate. If you don’t want to deal in real estate sales, then earning the interest on past due taxes is ideal. But how can you increase the odds that the property owner will redeem? You may want to limit your purchases to real estate of the following types.

Properties Secured by Mortgage Loans

Any real estate that is not paid off and secured by a mortgage loan is very likely to redeem the tax lien certificate within the redemption period allowed. Of course, the mortgage lender does not want to lose the property because that takes away the collateral securing the loan. This is why the majority of mortgages require the homeowner to place property taxes in escrow. But there are a few loans written without this requirement.

If you can locate real estate that is secured by a mortgage and the lender does not collect the property taxes, this is a very safe bet for purchasing a tax lien certificate. Chances are that the lender will pay the lien in order to prevent the property from being foreclosed on by the certificate holder but it’s not guaranteed. With so much of today’s real estate suffering from lower valuations, in some cases the lender might just let the property go.

Owner Occupied Homes

The second type of real estate that is nearly always redeemed is a residence where the owner is still occupying it. Certainly this does not hold true in all cases as sometimes the owner just can’t afford to pay the taxes, but the odds of getting your money repaid are better when the home is occupied.

Another option in this case is that you do foreclose on the property and gain the deed. What do you think the chances are that the former owner will want to continue living there? I think they’re pretty good. In this case, you can become a landlord and eventually sell the property back to the former owner. This is what one of my students, Karen Lewis, did and she made a tidy profit – but not without some hiccups along the way.

You will need to decide for yourself if you want your tax lien certificates redeemed or if you’d rather take ownership of the defaulted property at some point. This consideration will determine which tax lien certificates are the best investment for you.