Understanding Interest Payments on Tax Lien Investments

When you loan someone money – assuming you draw up a note and loan it in the conventional sense, not via a personal interaction – you can expect to receive a portion of your repayment every month or other predetermined time period, along with a portion of the interest on the loan. Many new tax lien investors assume that since they are essentially loaning a property owner money in order to pay off property taxes, the same principle applies. However, this is not the way interest payments on tax liens work. You must understand how and when you will get paid before you invest to make sure that your investing strategy is right for you.

When you purchase a tax lien, you get paid interest exactly once: when the lien is redeemed. At that point, the owner is assessed fees, fines, penalties and interest all in one fell swoop. Until the lien is redeemed, you will not get any payments from the owner, nor should you expect any. In fact, approaching the owner directly rather than through legal channels can actually get you in trouble in some cases. If the lien is not redeemed, then you will be expected to recoup your losses when you foreclose on the house.

Which type of redemption do you prefer – foreclosure or payment with interest?

Thank you for reading! Your comments and questions are welcomed below.