I Got a Check for 30% Interest YesterdayBy Dr. Steve Sjuggerud
Saturday 12 March 2011
Saturday, March 12, 2011
It's probably the best investment I've ever made – and will ever make – in my life…
No, it's not the biggest investment I'll ever make. The check was for $12,000 (which was
principal plus interest).
And no, it's not the highest return I'll ever make. Thirty percent is great, but it's not like
I won the lottery. I'm not going to retire on $3,000 of interest.
But I believe it was the lowest-risk, highest-returning investment I'll ever see.
The nice thing is, I can do it over and over again. And you can, too…
Let me explain, starting with a question… What do you think an east coast Florida
property 100 yards from having your toes in the sand is worth? This property is a
normal-sized building lot, in a normal neighborhood.
At the height of the boom, it could have been worth a half-million dollars or more.
Now… maybe half that?
For whatever reason, the guy who owned that lot didn't pay his property taxes.
he county needs his property tax dollars right now, though. So I paid his taxes for
him – by buying a tax lien certificate. It wasn't for charity… There's a big return
involved.
The terms of my tax certificate were incredibly simple. Until the owner pays the
delinquent taxes, interest due to me accrues at 1.5% per month.
After I had held the tax certificate for 20 months, the owner paid his back taxes
due, plus interest. So I made a 30% return on my investment (1.5% per month
times 20 months).
Arguably everyone is better off… The guy had time to get his property tax money
together before the government auctioned off his property, and the county got
money from me when it needed it to keep providing services to residents.
My downside risk was just about nonexistent in this deal…
In the worst-case scenario, if the owner goes years without paying his property
taxes, his property eventually gets sold on the courthouse steps, with a starting
bid of the total back taxes due. After the property sells on the courthouse steps,
the county would pay me back with full interest.
Your risk is, the property is not worth enough to cover the back taxes due. So if
you're going to do this, you need to make sure the property is worth real money.
This property is certainly valuable… 100 yards from the beach. It would sell for real
money. Heck, I'd be willing to build a house on it and live there.
Tax lien certificates can be an incredible opportunity… particularly in
our next-to-zero-percent world. This is because the rate of interest is set by
law, not by the investment markets.
Brad Thomason is a friend of mine who manages a large portfolio of tax lien
certificates across maybe a dozen states. He shakes his head at the risk-to-reward
ratio in these things… "Over the last 10 years, a diversified portfolio of tax lien
certificates has probably beaten every other major asset class," he told me on the
phone yesterday. "But they're less risky than just about every asset class, except
for Treasury bills."
That's investment nirvana.
"Individuals can do even better than I can, if they're willing to put the time in," Brad
explained. "We can't be in every market. With millions of dollars to put to work, we
have to focus on major markets." (You can learn more about Brad and about tax
Property taxes become delinquent after April 1. So Florida tax lien certificate sales
kick in again in May. There's a LOT to learn about tax lien certificates. So do your
homework before you invest.
But at the end of the day, if you're careful what you invest in, you could turn out
like I did… With a check for 30% interest – where you have just about zero risk of
not getting paid.
Brad has been doing this a lot longer than I have. He explained, "A portfolio of tax
lien certificates is ideal for a guy who has already made his money, and is not content
with just 2%-3% a year."
In our zero-percent world, learning about – and potentially investing in – tax lien
certificates makes a lot of sense to me…
Again, the 1.5% a month that I made – which turned into 30% interest over 20
months, with essentially no risk – was probably the best investment I'll ever make.
Good investing,
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