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Tax lien certificates are a little known or understood investment type that can reap tremendous rewards for their owners. Essentially they combine the potentially high returns usually associated with riskier investments with the security offered by lower income financial instruments such as bonds.

Here is how they operate:

1. The investor purchases the tax lien certificate which is secured to the property it relates to ' in effect the investor is paying the property tax on behalf of the property owner.

2. As an example, the tax lien may relate to real estate/land owned by someone who has not paid their property taxes. This is where you step in ' by paying off the tax lien and getting a certificate in return. This certificate entitles you to (a) interest on the lein and (b) the amount of the tax.

3. Interest payable on the property is passed directly to the certificate holder. The entire billing & collection process is done by the government administration and paid to the certificate holder. The rate of interest on the lien varies but tends to be between 8% and 50% per year.

4. Research shows that over 98% of tax lien certificate holders receive payments to the value of their investment within two years ' and if they do not, the tax lien certificate holder can end up owning the property for little more than the amount that was paid for the certificate.

While you may be forgiven for thinking that tax lien investments are reserved for the very rich and experienced, you would in fact be wrong. They are quite simple and can be obtained for as little as a few hundred dollars.

Some experts believe that tax liens are one of the best kept secrets within the investment world ' they offer high returns on capital and it is an investment backed by the government itself. In fact, investment expert Robert Kiyosaki has mentioned the benefits of tax lien certificates in his Rich Dad Poor Dad books.

Consider these staggering advantages of investing in tax lien certificates:

Tax liens typically earn incredible rates of interest on your investment. Where else can you achieve typical rates of 15%, 25% and more per year on a low-risk investment?

The investor is never responsible for ensuring that the interest, taxes etc are collected by the non-payer. This is the duty of the government who will handle all of this on the investors behalf.

Should the non-payer fail to settle the monies owed, the investor has the legal right to foreclose on their land/real estate for an incredibly low fee. The length of time can vary between one to three years before foreclosure becomes a possibility.

Tax lien investing is fairly simple ' and arguably a lot easier to understand than stocks (and certainly less risky).

As with all investments, it's important to be well armed with knowledge and experience on your side plus an understanding of the potential problems you may face when deciding to put some of your capital into tax liens.

Below we outline some important considerations:

1. To uncover the most profitable tax lien opportunities can take somewhat more capital and research than standard ones. It involves visiting tax lien sales which can be time consuming ' and before bidding on anything you should consider visiting the real estates mentioned in the tax lien sales. This can be harder than it sounds because the amount of information available is very basic.

2. Remember, that aside from buying the tax lien, you will also need to pay the taxes on the property until it is redeemed. Once you do invest in tax liens, you cannot retrieve your initial investment ' instead you must wait till the lien is redeemed or the property falls into foreclosure.

Tax liens are wonderful things - high yields, the opportunity to pick up real estate for just pennies on the dollar and returns that are backed by the U.S. government. Start investigating them now before they become common knowledge.