A tax lien. In normal circumstances, it might sound like bad news. But what if you’re someone who swoops in and purchases the tax lien—through a Self-Directed IRA, no less? Then you could potentially find outstanding returns from a high-interest investment. Of course, it helps to know what tax liens are and how you might potentially use a Self-Directed IRA to invest in one of your own. So let’s explore.

And if you’d like to follow along, you can always check out our tax lien investing page here at AmericanIRA.com, because that’s where much of this information comes from. And if you get curious at any point to learn more, you can always give us a call at 866-7500-IRA.

The Basics of Self-Directed IRA Tax Lien Investing

The government collects taxes. It’s a fact of life. But you know the government can potentially profits on your behalf? With tax lien investing, that’s kind of how it works. When your Self-Directed IRA purchases a tax lien, it essentially steps into the role of lender to the property owner who hasn’t paid their property taxes. The local tax collector does the work, collecting the profits and sending them to your IRA.

The Benefits of Tax Lien Investing

Lots of investors are drawn to tax lien investing for the potential of high-interest returns. That’s especially true in the higher interest rate environment we’ve seen in the past few years.

In most states, tax liens offer interest rates that are notably higher than typical investments, making them appealing for those looking to grow their retirement savings quickly. An added bonus for investors? The opportunity to acquire property directly: if the property owner doesn’t redeem the tax lien within a set period, the investor can often initiate foreclosure. They then take ownership of the property. In most states, tax liens take first position, meaning they’re prioritized even over existing mortgages or deeds of trust.

To give you an idea of the potential returns, we noted on our tax lien investing page that Florida’s maximum rate (at the time of writing) was 18%, with a guaranteed 5% return regardless of time held. Astounding.

Understanding Foreclosures

One of the more creative aspects of tax lien investing comes into play if foreclosure becomes an option. In such cases, investors have the flexibility to decide how best to use the property. Some may choose to sell the property for a profit, while others might hold onto it, renting it out to generate steady income.

And what if you don’t feel like you understand enough? As with any investment, it’s always wise to consult with professionals before diving in. For tax lien investing, having a realtor or appraiser assess the property’s value before bidding on its lien can give you some really valuable insights. Additionally, speaking with an attorney to fully understand the specific tax lien laws in your state can set yourself up for success. Remember: tax lien investing has a lot in common with buying real estate. You’ll want to evaluate the location, current market value, and have a clear exit strategy in place. And that all falls on you.

Our Experience

At American IRA, tax lien investing is part of what we do every day. We help people administer their accounts so they’re free to invest in the wide range of retirement investments available to them. Our team has worked to simplify the process, ensuring that you can manage your tax lien investments and tax sale transactions quickly and with confidence. If you’re ready to open a new account or have questions, feel free to contact our office at 1-866-7500-IRA (472).