What do Suze Orman and Dave Ramsey say about investing in tax lien certificates?

Question

There's a huge book I want to look for at the library that supposedly covers every aspect of this type of investment. Someone told me these two gurus oppose this form of investment. Why?

Answer 1

I believe that tax lien certificates can be a good idea if you live in a state that has them. This allows you to check out properties before paying the taxes on them.

If you live in another state, you're trying to invest on a long distance basis. You can't tell from an address whether the property is in a good or bad neighborhood, for example.

It's a lot more trouble, and takes a lot more time and effort. Plus, these things are no secret anymore. All properties in high interest states will be sought after by pros who have more money than you.

If you get the property, you may indeed sell it for a big profit -- but right now, some properties can't be sold at all. In general real estate collapse, such as now, you'd be responsible for repairs etc even though you couldn't sell it.

Answer 2

My understanding is this,

"The general rule is that where two or more creditors have competing liens against the same property, the creditor whose lien was perfected at the earlier time takes priority over the creditor whose lien was perfected at a later time."

Thus a mortgage lender has priority liquidation (ownership) over the investor in the tax lean on the property. Very few properties in the USA are fully paid for, thus the lender has control over the property.

There are very few times one will find a fully paid property where the lender is out of the picture, and someone has no money to pay the property tax.

If someone has a fully paid home, they can just go out and get an equity line of credit to pay the property tax or sell the home, and cash out.

I would avoid investing in this real estate TV hype.

Answer 3

Dave advises mutual funds, mutual funds and mutual funds! He says not to do a gimmick that claims you can make money fast, etc. Suze says the same thing.

The reason it is a huge risk is that all you did was pay someone's taxes. If they pay it back sure you "win" however, if they don't then you "own" a property right after the mortgage holder. Let's face it, if someone isn't paying their taxes they aren't paying their mortgage either. So now you "invested" money into a property that now you must fight for ownership. Mortgage lenders are first in line for a foreclosure- not the tax lein.

In short and to quote the 2nd website: "...it's not extremely easy, it's not risk-free, nor is it always a particularly quick way of turning a profit..."

Suze & Dave are about proven ways of investing for the long term.