Tax certificate, tax liens and tax deed sales can be a great way to earn money if you grasp all the the risks and rewards. The real key to tax lien investing is the research. You need to not only learn about the property you are investing in, but the whole legal process of tax lien certificate or tax deed sales. You need to have a total handle on the risks as well as the rewards.

Avoidable Mistake #1 Know the Property

This is not a huge terrible mistake, it actually happens all the time, but sometimes you can end up with a tax certificate or lien on worthless property, so you end up just walking away.

Avoidable Mistake #2 Know The Legalities Of The State

Fifty states, means fifty different ways to go about real estate law and practices, including tax lien investing with lien sales and tax deed sales. Each state has its own laws and its own terminology it uses. Some have set number of years the owner has to repay you, others have rules about which liens are absorbed during a tax deed sale, and other states have two or three different types of sales, each with its own set of consequences. Some do not even allow these kind of sales.

Avoidable Mistake #3 Not Doing Your Homework!

If a tax deed is purchased and the property ends up in you, the investors name, you become personally liable for everything. Not only the cost of property, taxes, and outstanding liens but you personally are held liable for anything that happens on the property. If someone were injured, they come after your personal finances. It is important to set up a business entity, so all liability only goes to what the business holds, and your personal holdings cannot be touched.

With tax lien investing, if you do not go through the legal due diligence searches on the property and make sure to find out if there are other liens, you could find yourself having to pay those other liens yourself! It boils down to the difference between a lien and a deed. With a tax lien, or tax certificate, you are not the owner of the property, so there is no liability. When buying what is actually the tax deed, you must do a lien search because you are now the owner of the property, which makes you the one responsible for any other liens that have been placed on the property, that were not wiped out during the tax sale. You are also responsible for all of the current real estate taxes and any other assessments on the property.

Avoidable Mistake #4 Not Using A Business Name

There is nothing worse, than investing in something advertised as a wise investment plan, that others and having it blow up in your face. Tax lien investing is a profitable investment option, but only if you go in with your eyes wide open, having done your homework and treat it like a real business.