Are you interested in buying properties and wondering if they sell tax deeds or tax liens in Texas? Well, there are a few things you should know about how it works in this state.
I’m Ted Thomas. I’ve been investing in tax liens and tax deeds for over 30 years, and I’ve been teaching it for more than 25 years.
Today I’m going to answer your question, “Can you buy tax deeds or tax liens in Texas?” Well, you’re going to be surprised, and you’re going to like what you hear. Texas sells redeemable tax deeds which are a hybrid of liens and deeds, and the payout is outrageously high.
I’m also going to give you some inside tips. Before you go to the auction, you’ll definitely want this information.
Can You Get Tax Deeds or Tax Liens In Texas?
We’re going to talk about redeemable tax deeds, because they do not sell tax liens in Texas. They sell tax deeds, which means a tax defaulted property. Texas sells what they call a redeemable tax deed, which simply means that when you buy the deed to that property, it’s redeemable.
In other words, the owner can come back and buy it back from you. However, if they come and buy it back from you, they have to pay you whatever you paid plus 25%.
Think about what I just said. You’re going to make a 25% return.
254 Counties Hold Tax Auctions in Texas
Now, let’s talk a little bit about Texas. First of all, it’s a big state with 254 counties. Harris County, Houston has the largest population, followed by Dallas.
They hold auctions in Texas every month. That means they’re authorized to have 254 county tax sales every single month. You can spend the rest of your life there and never leave Texas, and you’ll find a lot of auctions.
What is a Redeemable Deed?
Now, what do they sell? When the property owner does not pay their property taxes, the treasurer will put that property in default and sell a redeemable tax deed to that property at auction. That means they will auction off the deed.
When you buy a redeemable deed, the deed is usually a transferable device to you. Well, you’re not going to get a property. You don’t get possession, but what you have is the deed.
Though they don’t sell tax liens in Texas, the deed is like a tax lien certificate. It’s a piece of paper. You’re going to get that deed, and the deed will earn you 25% in one day.
Any day from day 1 to day 180, if you own that deed, and the property owner comes in and redeems (pays for it), they have to give you back all your money plus 25%.
Let’s think about this. If you bought a deed for $50,000, the property owner can come in and buy it back from you by adding 25% to that. That would be $12,500 in 180 days. Think about the return!
The whole state is like that. So Texas is a (redeemable) tax deed state.
Does a County Tax Sale in Texas Wipe Out the Deed of Trust?
In most cases, at a tax lien or tax deed sale, the mortgage is wiped out. That doesn’t mean the mortgage is torn up; that means that it’s cleared off the property.
In a redeemable tax deed state, the mortgage, or in this case, it’s a deed of trust, is going to stay on the property.
When you buy a redeemable deed property in Texas, you either get back whatever you paid plus 25%, or you get the property. If you get the property, you’ll be responsible for that deed of trust.
2 Ways to Profit From Texas Tax Auctions
What does all this mean to all of you? You cannot buy tax liens in Texas; it’s a tax deed state, but why is the county selling redeemable deeds? They’re auctioning because they did not collect back taxes and the county needs money.
If you go to a big auction, like in Harris county, you’ll see 10 or 12 auctioneers in the same room auctioning different properties at the same time. You’ll have to pick which to go to.
How do you make money? You make money in two ways in Texas, and you make powerful amounts of money.
Earn a 25% ROI if the Tax Delinquent Property Owner Redeems the Deed
If you raise your hand to buy, offline or online, you’re buying a redeemable deed. When you do that, if they come in one day and pay you, you’re going to get all your money plus 25%.
The property owner has 180 days to pay you; that’s six months. They can recover their deed any day in 180 days, and that means you’re going to make 25% when they do.
95% to 97% of these people will come in and redeem. It’s a great investment if you’re looking to earn an inflation-beating passive income.
Sometimes it can roll into a second year, but that has to do with agricultural properties. I don’t want to confuse you on this one. I want to make sure you get it. So, that should be clear.
Acquire Real Estate by Paying Back Taxes on Property
If the property owner does not redeem the deed, then you get the property. At Texas tax auctions, you can find tax defaulted real estate for sale for pennies on the dollar.
Anyone can buy a redeemable deed. You just have to be the top bidder at the auction. The highest bidder gets it.
How do you know what to do? Well, first of all, I wouldn’t just show up at the sale and start bidding if I was an amateur. I would go to the sale two or three times to observe the auction.
Do Your Research Before Buying Tax Delinquent Property
You also need to do your due diligence on the tax sale properties. Since you could end up with the property if it’s not redeemed, don’t bid unless you’ve done your research.
A lot of properties will be in the $300,000 to $500,000 range. If they’re selling a property that has that kind of value, and it has a $200,000 mortgage on it, you’ve really got to think about what you’re doing because the mortgage is staying with the property.
What if you decide to bid $100,000, and you’ve got a mortgage for $200,000. You’re at retail value. So you need to understand what you’re doing at a Texas tax auction.
If you bid $100,000 and the property owner does not come in and redeem, you now have a $300,000 property that you paid $300,000 for. That’s not profitable.
The point is a little education would go a long way.
What Type of Deed Do You Get at Texas Property Tax Auctions?
This question comes up on a regular basis. What type of deed will you get for an auction property?
In Texas, a redeemable deed is the deed that would normally transfer the property. That deed goes to the auction buyer.
The deed of trust is nothing more than a promissory note. So, try to keep those two clear in your mind, and don’t let anybody trick you and let you think that the mortgage is wiped out. It’s not. The trust deed will stay on that property.
At a regular tax deed auction, they could give you a treasurer’s deed or a quitclaim deed, anything but a warranty deed. The county is not going to warranty your property.
When you get a quitclaim deed, that means the county is disclaiming any responsibility, and the responsibility is yours. Don’t think a quitclaim deed is something that’s easy to handle. You will have to do a quiet title if you get one.
We hope you enjoyed Ted’s lesson, “Can you buy tax deeds or tax liens in Texas?”
If you’d like to know more, there’s no one more qualified than Ted Thomas, America’s leading authority on tax lien certificates and tax defaulted property investing, to teach you how to do this.
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Ted Thomas is America’s Leading Authority on Tax Lien Certificates and Tax Deed Auctions, as well as a publisher and author of more than 30 books. His guidebooks on Real Estate have sold in four corners of the world. He has been teaching people just like you for over 30 years how to buy houses in good neighborhoods for pennies on the dollar. He teaches how to create wealth with minimum risk and easy-to-learn methods.