Scroll Top

Tax Lien Investing: An exceptionally effective passive income investment


Tax Lien Investing: An exceptionally effective passive income investment

The key to “passive income” is to allow your money to work for you.  Tax liens are an effective way to do this.  In Arizona, an individual may buy tax liens and gain up to 16% on their investment if they are redeemed. If they are not redeemed, the investor may foreclose upon the home after three (and up to 10 years).The process is relatively straightforward.  After a property owner fails to pay its taxes, an individual may “buy” a tax lien by paying the property taxes for the property owner.   The Government is entitled to 16%.  As such, the investors bid on tax liens at a reverse auction, meaning that at 16% there may be ten people interested in this tax lien, but at 10% there may be three people, and you may be the winning bid if you’re still interested in the tax lien at 5%.  As the winning bid holder, you are entitled to a certificate of purchase. If the tax lien is not redeemed, you have a right to bid on subsequent tax liens.  If you hold the tax lien between three and ten years, you may begin the process of foreclosing upon the tax lien. To foreclose upon a tax lien in Arizona, the certificate of purchase holder must first send a certified letter thirty days before filing a lawsuit to provide notice to the lienholder that satisfies the applicable statute.  By statute, the lien notice must contain the following:

  • The property owner’s name.
  • The real property tax parcel identification number.
  • The legal description of the real property.
  • The certificate of purchase number.
  • The proposed date of filing the action.

In most cases, the property holder will redeem the taxes before you have to foreclose.  When the lien holder redeems, the holder of the certificate of purchase gets its principal plus its interest.  If they do not redeem, you can exercise your right to foreclose, and you get the property. If you are interested in the tax lien foreclosure process, you should contact an attorney so you understand and weigh the risks of this type of investment.