As 2013 comes to a close, I like taking the week after Christmas sitting in my favorite coffee shops plotting my investment strategy for the upcoming year. As I sit sipping my favorite latte typically something with chocolate or mocha I try to sketch out the risks in the asset classes that I would like to invest within. One of the asset classes that I am extremely bullish on for 2014 are tax liens.
In 2011, I made my beta investment into tax liens after reading books and blog entries. After nearly 2 years of waiting and testing out the investment, I was able to complete a successful investment within the asset class and establish a partnership for the purpose of tax lien investing. As me and my partner researched deeper into the asset class, we realized that the tax lien asset class was not riskless as many books try to portray.
Tax lien investing is a high sharpe ratio investment (fancy way of saying a high risk adjusted investment). Gurus, Books and education based websites tend to neglect discussing the risks associated with delinquent property tax liens and certificates. Here is a safe rule of thumb to live by: Higher returns generally correlate with higher risks.
My partner and I started noticing these risks as we worked on investing our partnership funds into Over the Counter liens. The top three risks that we realized can have a material impact on your returns and potentially your principal are as follows:
Top Three Tax Lien Risks
1. Municipal Risk:
Municipal risk encompasses risks associated with fines, condemnation and demolition. As <a target=_blank title="OTC Tax Liens: How We Made 6% in Less Than 120 Days …read more