Midnight Cable Programs Cause Trouble

Fred and his wife are considering investing in tax lien and deeds. They saw a show about it and want to know if it's a good investment. Dave warns Fred off of it since he doesn't know what he's doing.

QUESTION: Fred in Texas and his wife are considering investing in tax lien and deeds. They saw a show about it and want to know if it’s a good investment. Dave warns Fred off of it since he doesn’t know what he’s doing.

ANSWER: Let’s start with this: The stuff on midnight cable having to do with real estate investing or tax lien investing is all bogus. Stay away from those people. You’re going to get yourself into a mess.

Can you invest in foreclosure real estate and make money? Yes, you can. Can you invest in tax lien certificates in a few states and make money? Yes, you can. I’ve actually known some people who did it, and I knew a guy very well once to the point that I almost did some with him on some Florida and I think Minnesota. There are just a couple of states that have the certificates that do it that way. Most of them don’t. Basically, it’s a guaranteed rate of return because you either get the property if you invest in these—it’s basically a property tax foreclosure sale—or the homeowner catches up their taxes including interest, which all goes to you because you’ve bought this certificate from the state that represents their back taxes. That is a real thing. It really does happen.

But let me give you the numbers on this stuff. You’re going to spend an amazing amount of time trying to place $5,000 or $10,000 because there are just hundreds and hundreds of these that you go through that you’re not even going to want to fool with. They don’t make the process easy. It’s a needle-in-a-haystack thing. Now there are guys who spend time who are real professional investors—they’re not midnight cable idiots—and they actually go into the courthouse and spend the time to comb through this stuff. They’ll find eight or 10 of those things and drop $50,000 or $100,000 in something like that, and they can make 8–12% on their money, depending on which state it is, and it’s pretty safe if you know how to do the title searches and you know how to comb through all the hay to find the needle. But this idea that you can just walk down there and buy one like you can buy a C.D. at a bank ... it just doesn’t work that way.

Make sure you know how to do your title searches and know exactly what your rules are in the particular state you’re going to. If you know that and you know that you’re going to spend a lot of time hunting down tax lien deals that are legitimate and are safe actually putting money in—because there’s enough equity in the property—because you may end up owning property here. Do you really want to own property in Minnesota when you live in Texas? Probably not. That’s the kind of stuff you have to think about. The conclusion I came to after I dug into it in detail with the tax lien certificates was that it’s more trouble than it’s worth.

Don’t do stuff off midnight cable. Never do that.

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