As you consider the purchase of an investment property, it’s critical that you verify the current physical condition of the property with a property inspection and a trip or two with your contractor. At the same time, you want to verify the legaltax lien certificates position of the property, specifically who else may have an existing interest in the property, as listed on a title report, provided to you by your real estate attorney or title office.

One item you may find interesting is called a tax lien certificate. These liens are not well known by the general public and even some real estate investors are not quite sure what they are and what they represent.

When a county sends out its property tax bills, it does so in plenty of time for the property owner to plan for the property tax payment. If the property owner does not pay the taxes when due and the county has exhausted its collection efforts, the county can sell a tax lien certificate to an individual investor. The investor will bid to pay the delinquent property taxes on behalf of the property owner and receive interest on that payment. The county gets the taxes and the investor owns a tax lien filed against the property.

The returns will vary based upon the location of the property but in Cook County for example, the rate of return, or penalty rate, is 18 percent of the balance every six months up to three years. If the property taxes aren’t paid within the specified redemption period, the tax lien certificate holder has the right to foreclose on the property. Ouch.

But tax lien certificates may be bought and sold between private individuals. If there’s an existing tax lien on a property, you can locate the owner and make an offer to purchase the tax lien, clearing the way for your purchase.