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Tax certificates are a real estate investment. You may pay $1,000 for a tax certificate in Illinois and receive an interest rate of 36 percent for a full year. The 36 percent depends on the delinquent homeowner paying the delinquent property taxes. Each state has its own interest rate.
Redemption periods vary from state to state. Redemption period is the amount of time given for a delinquent homeowner to pay delinquent property taxes including interest. In Illinois, for example, the redemption period is 2 years from the date of the tax certificate sale.
When the delinquent property taxes are paid, you receive your original bid, including accrued interest.
The amount you receive depends on the date the property taxes are paid, in relation to the date of the tax certificate sale. Using the above example, you would receive $360 on your $1,000 investment if the property taxes were paid in 1 year.
If the property taxes aren't paid by the redemption date, the owner of the tax sale certificate can legally claim ownership of the property. The process of taking ownership after the redemption period expires varies from state to state.
It's always better to evaluate property you plan to bid on, before the tax certificate sale occurs. This protects you from bidding on property that is considered useless or uninhabitable.