Welcome to the Blue Money Report

When looking into investment returns, the average consumer does not realize that there safe options other than CDs and Mutual funds. Admittedly, they are not options that would immediately come to mind. They are however options that have come to the minds of your bank, your insurance company and maybe even your investment company.

As a member of the general investing public, you may not think twice about where banks and other financial institutions actually invest their own money. But if you do think about it, you will realize that they need to make investments that yield a much higher rate of return than they pay out in order for them to pay you interest or dividends on your investments. You maybe really surprised to learn just how much more they do earn.

Banks and other financial institutions have been investing for decades in what are called Tax Lien Certificates or TLCs for short. What are TLCs? Basically, they are first priority liens on real estate. County Governments across the country sell these TLCs at public auction a regular basis.

To understand more fully what that means, we need to step back for a minute and talk about real property tax collection. Virtually all of the states across the United States have given County and Municipal governments the power to assess and collect a tax on real property as a method of collecting money to run the business of government and to enable them to provide needed services. Counties create tax Liens across the United States as the result of non-payment of real estate taxes. Local government needs its real property tax revenue to run the business of government so they sell either a lien on the real estate (at much higher than market interest rates) or the real estate itself to collect the back taxes.

Banks and other institutional investors know about these TLCs and have enjoyed high yield returns on their money for decades. They are able to do so by using the capital provided by the small investor, such as you and I. In exchange for the use of that capital, they pay the small investor interest rates that are a fraction of their own return. Their returns on TLCs can be 12%, 16%, 18% or more. And it is an investment that is secured by a first priority lien on the real estate upon which the taxes are currently in default.

Unless the property owner wants to risk losing the property altogether, they must pay the back taxes along with statutory interest and penalties in order to have the lien removed. This money is remitted to the County, which in turn remits your money to you the investor. The County thus levies the lien and collects the money from the property owner before releasing it. As an investor, you can't get much more simplicity and safety than that.

So, why haven't you heard about TLCs? How can you "cut out the middleman" so to speak and obtain those high rates for yourself? There is no real secret to safely obtaining these types of yields, if you know where to look. While each state has its own statutes relating to delinquent tax collection, some general information holds true across the country. Some states, in order to enable the counties to collect delinquent taxes allow for the sale of TLC's bearing a high rate of return. Others allow the counties to sell the property outright. This would be called a Tax Deed Sale, Tax Foreclosure sale or some other similar name. While Deed sales can be even more lucrative, they are the subject of another article.

Focusing on TLCs and the high rate of return they offer, it is relatively easy to obtain information about sales. They are all public auctions and are advertised in the legal notices in you local newspaper. Yes, those very notices that most of us ignore can be a gold mine for the average investor. The notices of sale are normally published a number of weeks before the sale. You can also call your tax collector and ask if they conduct Tax Lien sales and when they are scheduled in your county. They can also provide you with a copy of the rules of the sale. Some even have prepared brochures outlining the statute, how it works and listing FAQs.

In short, just by asking, you can obtain the information that you need to successfully buy TLCs. In short, you can cut out the middleman and invest the way your bank does. Then sit back and laugh at "choices" that include 2 and 3% interest rates.

Lillian Villanova is the author of What Your Bank Doesn't Want You to Know...About Where to Invest Your Money and the soon to be published two volume set The "You can do it" Guide to Tax Lien and Tax Deed Investing. Both contain specific information about how anyone can succeed buying Tax Lien Certificates and Tax Deeds starting part-time from home, even with little or no operating capital. For information on how to purchase her books log on to 1stBooks.com

Today's Commentary: 01.21.03
With a Face to the Wind

Saddam, ever the belligerent dictator, called on defense of Baghdad in the most biblical of terms. That and the increased fears that Iraq is only the beginning had traders selling their long positions in dollars. No one wanted to get caught over a long weekend with positions that couldn't be moved. The administration my not have wanted the dollar to continue to fall this way, and his minion, Treasury Secretary John Snow has been relatively quiet. Could it be that this was the plan all along? A weaker dollar would show that the trade deficit was closing as our goods began to look less expensive on the open market. Although I'm finding that scenario a bit flat. The European economy isn't doing much better in the way of GDP. Their consumers tend to tighten down on their purchases when times get tough and increased spending isn't likely.

Americans, every last patriotic one of them, will continue to buy goods from overseas at the same break neck pace. We might be global, but no one spends like we do. The only thing missing in President Bush's speech soon after the 9.11 attacks, you know the one where he encouraged us to keep on spending, was that Americans should buy American. (It should have gone without saying that spending was also his plan.) The attraction of our goods has diminished somewhat and while we don't resemble the guy on the corner selling watches from a trench coat, the U.S. of A. isn't as popular as we once were either.

Gold continued to draw attention to itself last week ending the trading relatively flat. The metal is up 4% for the month of January and 27% year over year. Speculation leans toward traders dumping their positions once the war starts but that could change should the dollar fall further.

The Michigan Confidence Survey showed that folks aren't as thrilled as expectations presumed. The number was off significantly from where it was targeted for the month.

The coming week will have eyes on housing starts. There will be a further dissection of whether there is actually a housing bubble continues with the release of this number on the 21st. Home builders are bracing us for some declines here without saying that they may have drained this golden vessel dry. Folks have done all of the refinancing they could muster and the wonder of late year interest rates has them mostly wondering. Along with lenders, those rough 'n' refi days may have passed for the builders as well.

Let's face it. If you were a leader of business who is watching consumer confidence drop instead of going up the forecasted amount. You are watching production numbers, trade deficit increases, inventories, and add in the increased tensions of, as the protesters in Washington on Saturday called, "march of the American War Machine" poised for Iraq, all mount up opposition to any investment. You wonder will Libya be next. Maybe North Korea, all the while wondering if at what point will the climate to spend some money, hire some people and otherwise get on with business begin to surface. And with giants like IBM and Microsoft muttering caution, you know as well as I do, you are not going to jump into and do anything foolish.

Investors have got to start feeling the same way. If things get worse, and informal surveys conducted here have found that most folks believe that worse is more likely, it will be long strange trip for business through 2003, especially with Mr. Bush at the helm.

His proposal on dividend tax relief continued to foster much debate this past week. And if it should get the votes it needs to drive the deficit to dizzying new heights, we, as investors might have to change our strategy in our retirement accounts.

If you have a portion of your portfolio, and we hope you do, invested in a tax efficient equity mutual fund such as an index fund, there will be some question as to why you would hold it in a tax deferred account. Most mutual funds, even the ones who turn over often and incur barrels of capital gains taxes, pay these distributions to your account quarterly. Index funds tend to have less capital gains and more dividend payout. Wouldn't it be wiser, we're thinking, to keep these types of funds outside tax deferred accounts if the dividend tax relief gets any legs? We are also thinking that perhaps it might be wise to keep heavily taxed bond funds in those tax deferred accounts instead. before you make any moves in the new year, it might be worthwhile to see how this bill pans out.

But the markets, if anyone is listening, is starting signal doubt that the dividend tax elimination plan has legs. Hal R. Varian, economics professor at UC Berkeley points to municipal bond pricing as the best indicator of whether or not the President's plan will pass. If those prices go down, he suggests, the plan will not get the votes it needs to pass. Like reading tea leaves.

If only someone could guarantee a little sunshine and blue skies that would last more than a week or two. The markets have become painful to watch. It was easier watching the white knuckle ride into the abyss of the last two to three years, than to witness the sticks and stones that break market bones of the last week. And of the next few weeks as earning season and those disclosure remarks start trickling in.