I will do several chapters where I will talk about a method for creating an annuity, well we are in Chapter 1, what are tax lien and how to invest in the real estate market.
I became a book eater like in my university days, one day reading a bestseller by Robert Kiyosaki, famous American entrepreneur author of “Rich Dad Poor Dad”, I focused on the word tax lien.
In my mind I had a big question mark, because I had been struck by the mindset of Robert Kiyosaki and his perseverance with which he was successful in life, so I decided to study how certificates work.
This way of investing was born in 1698 in New York (source Google), specifically the tax lien is a certificate issued by an American county for citizens who do not pay real estate taxes.
Paying this fee helps the county secure services such as:
- Streets cleaning
- Waste management
- Public safety
- Public transport
- Construction of infrastructure
Usually when we hear about real estate investment, we think about a lot of money to spend, so for the most part we talk about mortgage, while a tax lien is much easier, much less expensive and will allow me to create a passive annuity.
Let me give you an example, if the owner of a home in California doesn’t pay taxes, the County activates a credit recovery procedure. In America you don’t mess with taxes, but don’t think they’re so hard that they don’t help those in trouble, for example by offering delayed payments or a discount on the amount.
If you are an investor and want to buy a tax lien, you basically anticipate person’s taxes who is in debt with the County. Don’t worry because it’s all legal and guaranteed by American law.
I compare this form of investment to the world of options, where those who buy get rights, there is an expiration date and a counterpart.
Without going into details (there will be other chapters), if I buy a tax lien, I am not buying a house but a first-degree bond, I remind you that the house is still the owner’s.
If the owner does not pay taxes, I will be able to exercise foreclosure at the deadline and become the new owner. These certificates can be purchased on county sites or by auction (there is also the “over the counter” OTC auction).
I think they are a great financial tool to diversify portfolios, every month the investor will have a coupon with a regular interest rate but above all a limited risk compared to other forms of investment (stocks, bonds, options, futures).
It’s not as easy as it sounds, but with a little attention you’ll be able to create an extra annuity.