TAKING STOCK: Investing in tax liens

Dear Mr. Berko:

What are tax liens? A local businessman offers a course for $2,700 that supposedly would show how I could keep my AutoZone job and make $75,000 or more buying tax liens part time. I could cash in $13,000 from my wife's individual retirement account to begin with. It sounds like a dream come true and something I could easily do, and I could use my truck as an office. It wouldn't require a college degree, and I could quit my AutoZone job, which pays $12 an hour, because I don't need to make $75,000 a year; $50,000 would be plenty.

Also, what do you think about marijuana stocks? A broker who bought brake pads and headlights for his wife's car from me last week said that if I invest $2,500 in several of the right pot stocks, this money could grow to $25,000 in a year.

-DA, Destin, Fla.

Dear DA:

Yep, that broker is right on the mark. In about a year, you could turn $2,500 into $25,000 with the right stocks. The key phrase is "the right stocks." However, I doubt that this broker is the proper professional to give you advice. Any broker with enough smarts in his head to turn $2,500 into $25,000 wouldn't be buying brake pads and headlights at AutoZone to install on his wife's car. He'd take that car to a service station and have a mechanic do the job.

There are 37 or so pot stocks trading between a penny and a buck-with questionable revenues and no earnings-just waiting for pigeons like you to take a position. You'd make more money selling the product than buying the stock.

Every day, consumers have pieces of their financial future ripped from their custody by snarky salesmen who peddle cotton candy dreams like that local businessman. I've met some of these honey-tongued lowlifes, most of whom live and play in South Florida. They advertise on satellite radio and the Internet and brag among themselves that fleecing consumers is as easy as Christmas and Easter. And that's true. Most Americans spend their evenings with TV remotes in one hand and a beer in the other and dream of being rich enough to enjoy big-screen TVs, SUVs, ATVs, fast cars and the good life. We dream of "being rich" because dreaming about "how to become rich" is too much work. But when touts such as that businessman appear in our vision field, dreaming about how to become rich is easy. This flimflam man is bad for your financial health.

Investing in tax liens commenced shortly after our country was founded. Tax liens are obligations that local taxing authorities (county or city) place on a piece of real estate when it becomes apparent that property taxes will not be paid by the owner. Lien investors purchase tax lien certificates (usually at a government auction) for the delinquent amount from the local taxing authority. The investor expects to receive the return of his original investment plus interest, usually between 3 and 8 percent. If the delinquent taxes are not paid, the investor's lien (which takes precedence over any mortgage) allows him to own and sell the property. Property owners usually have six months to two years to pay the taxes and interest after the lien is purchased.

Be mindful that a tax lien is profitable only when purchased on a property whose value is significantly higher than the amount of the tax lien. And this is a vicious business. You're competing against experienced, well-financed syndicates, mortgage companies with loans on that property, investors of significant means, and professionals who manage money for the wealthy, pension plans, endowment funds and the like. Competing with these pros is like watching a 125-pound 14-year-old kid compete for a left tackle slot with the Chicago Bears.

Ninety-six percent of property owners pay their taxes within the stipulated time frame, so most lien investors get back just their principal plus interest. And the properties with the best potential usually avoid the auction process and are privately reserved for political friends.

Profits from liens are enormously exaggerated, so don't quit your day job.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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Published: Tue, Nov 25, 2014