Earn a higer interest on your money with tax lien certificates

Ever since I read about tax lien certificates in Robert Allen's book Multiple Streams of Income, I have been fascinated at the idea of being able to earn such high rates of interest on an investment with very little risk. The basic premise of purchasing tax liens is that you are paying some one's overdue property taxes from the city government. You then wait out the redemption period, the amount of time a person has to pay back their past due taxes, and collect all of the interest and penalties accrued during that time. The rates of interest can get pretty high. In fact, in states like Florida, the interest rate is 18%. Other states can have even higher rates of interest. The best part of the process is that you do not have to live in the state that you chose to purchase your tax liens.

With my online savings accounts earning a measly 2.5% on my savings, I figured that now is a good time to get started in this type of investment. The first thing I did was read up on everything available on tax liens. Most of the information online duplicated itself but with each site I visited, I was able to learn just a little bit more about the process. I then found out when my local government would release the list of properties up for auction. After reading the information on my local city's website, I learned that I would have to register online to bid electronically. That meant that I did not actually have to participate in a physical auction at the government office. That would save me from getting into an emotional bidding war with the person across the room from me just because I want to beat him. This online process would allow me to keep my cool and bid in the privacy of my own home.

Once I was able to obtain the list online, I sorted the tax lien certificate amounts by cost. I only budgeted a certain amount for this year's investment, but if all goes well, I hope to have more to invest with next year. In the my county, tax liens ranged from $695,000 to under $100. That lets you know that you don't need a tom of money to get started in this great type of investment. Please note, however, that if you buy a tax lien for $100, the property owner has a greater chance of paying it off more quickly which means less interest on your money.

Then I researched all the properties in my price range by viewing the county's record. I looked at the address to asses the neighborhood. The reason why this step is so important is because if the person behind on their taxes is unable to pay the amount, you as the holder of the tax lien may be able to obtain the property free and clear (regardless of whether the individual has a mortgage on the home).
I have no interest at the moment of having to do a rehab on a distressed property so I visit is home to make sure that the properties I am bidding on appear to be move in ready.

The auction is coming up this Saturday so the next blog entry will detail the bidding process as I observed it. Be sure to come back.

In the mean time, here are some resources on tax lien certificates:

What you should know about investing in tax lien certificates
Tax Lien Investing Blog
Tax Lien Investing Tips

The actions I took that created my financial peak

As of late I have been a bit disorganized with my finances. I can't tell you off the top of my head exactly how much I have in my 401(k). I'm not quite sure if I my net worth has gone up or down since the beginning of the year. It seem that I have backslidden from my life of financial responsibility. What caused me to get where I am and how am I going to get back on track?

In 2007 I was in my financial prime. I created excel spreadsheets to track my income, savings, and my net worth. Every pay cycle I would update how much I was able to save and how much debt I was able to pay down. Just that simple action once or twice a month would bring my financial situation to my consciousness. I consistently thought about how I could increase my net worth and improve my financial standing. Because of that, I was able to increase both the amount of money I saved and the amount of debt I paid off dramatically.

So far this year I can't say that I am heading in the same direction. This year I am technically making even more money than last year because of an annual pay increase. My spouse is even doing a little better financially and can provide some help on the expenses. Yet still, I am almost positive that I was doing much better this time last year than I am right now. This year, my personal finances are not at the forefront of my thoughts. As a result, my decisions are not fully driven by my financial goals. Instead I am making decisions based on if I could afford to purchase. Just because I can afford to do it, doesn't mean that I should do it. Short term, I am not making a major impact on my finances, but by the end of the year, I'll be way behind where I need to be.

So now that I have confessed, I am ready to repent. My first course of action will be to update the spreadsheet that lists my assets and my debts. This will give me a clearer picture of my overall financial status. Once I have those numbers, I will create very short term goals for myself. Goals such as "I will save this much money by the end of the month." Then my goal will be to save a certain amount by the end of the year and to have paid off the rest of my credit card. The card is at a 0% interest rate so I have not been in a rush to pay it off. Even though I am not paying any interest to those people. Just the very fact that I am indebted to them should be motivation enough to wipe it out.

My hopes are to save 6 months worth of living expenses so I can allocate any "extra" income to my student loans. The economy is not getting any better to now is the time to buckle down. I am excited to get back on track with my finances. Last year I was so impressed with how much progress I made just by being consistent with my tracking. The system I created was so effective that I did not have to budget my income. I just merely allocated it. I didn't feel deprived yet I was able to increase my net worth dramatically. Take a look at your overall financial picture. Where do you stand? Do you have some short-term financial goals that you'd like to accomplish?

Where will you be financially at the end of the year if you were better allocating your income today?