The Savvy Investor’s Introduction to Tax Sales 101: Tax Liens and Tax Deeds

Tax liens and tax deeds are some of the best investments to come out of the COVID-19 crisis. I need to introduce you to something called tax sales. Without a doubt, I would have to say that tax lien certificates and tax deeds might be the answer to a lot of our investment needs. Both are related to paying back taxes on houses and property and both are great, often overlooked investments.

No one would argue that COVID-19 has not caused turmoil and havoc in the economy. In spite of that fact, the economic crisis that has emerged has also made these great investment vehicles more attractive than ever. It’s an economic rule that when a crisis occurs, opportunity almost always follows. Unemployment may be at an all-time high, but that also means millions of houses and properties owe back taxes. That means that tax sales are an opportunity that comes along very rarely. 

tax lien and tax deeds

While this is obviously sad news for some, there is a silver lining to this grey cloud. You see, local governments depend upon property taxes to fund schools, as well as services like police, fire departments, and all the other services necessary to keep cities running. Without tax income, local governments cannot function, and the normal daily lives of people would come to a screeching halt. This where a tax sale comes in. In this situation, they come up with a solution that everyone can benefit from.

To address that problem, counties offer both tax lien certificates and tax deeds. Both tax liens and tax deeds are good investments because they are a win-win solution to the problem. They provide the counties and local governments with income to continue providing services, and both offer investors safe and often great returns on their investments. 

If you’d like to get started today, you can begin now at no cost by taking advantage of Ted’s FREE Master Class. It’s only about 1 hour of streaming video and will open your eyes to the incredible opportunities available in tax delinquent real estate investment.

What are Tax Lien Certificates?

A tax sale is where we get started with tax lien investing. This is based on tax lien certificates, or just tax liens, which are investments that are issued by local governments. Although technically speaking, there are federal tax liens, where the I.R.S. has a tax lien sale, for the sake of our discussion, we are mostly discussing investments issued by counties.

How to Buy a Tax Lien Certificate

Tax lien certificates, sometimes called auction certificates or just tax liens, are offered in almost half the states in the U.S. and the District of Colombia. They are sold at auctions both online and in person. There are two main ways auctions function, but in both cases, buyers compete for the certificates by bidding. Once they win the bidding process, the tax lien will pay them a fixed percentage on their investment. Their investment consists of the amount of back taxes due to the county and any administrative fees incurred.

At a tax sale, while that percentage earned on the investment varies, once the bidder wins the right to purchase the tax lien certificate, and does so, their return is guaranteed. This is a huge distinction from other investments like stocks. Stocks, which are fractional ownership of publicly-traded companies, go up and down according to market forces and company performance. So while stocks can and often do go down in value, tax liens do not. This is a great advantage of tax liens overstocks, your income is guaranteed against losses on your investment.

In times that we are experiencing now when COVID-19 has many stockholders desperate over their losses, tax lien holders are sitting back gratefully sowing solid returns on their investments.

Here is one of my previous articles on whether or not tax liens are a good investment, click here.

What are Tax Deeds?

At a tax sale, there is another type of investment that is amazing. Simply put, tax deeds enable investors to buy houses and properties for the money owed in back taxes. They have a long history in the U.S., as they were created by state governments over 200 years ago. In the states where they are offered, how they are sold could be called different things. In California and Ohio, tax deeds are sold at tax sales. In Texas where and how they are sold could be referred to as back taxes land for sale. In all cases, purchasers bid for the right to own a house or property by paying the delinquent taxes.

Whether you buy a home or property, you end up with the potential for a great return on your investment. When using the right information and buying carefully, investors who buy houses or property with tax deeds often end up paying pennies on the dollar. So let me give you a quick rundown on what is a tax deed, and how you can take advantage of one of the most exciting investments you are likely to find anywhere! First, you have to check if the state where you want to invest is one of the tax deed states. Although it may sound obvious, a tax deed is sold at a tax deed sale/auction, where bidders compete against each other, usually bidding the property up.

So even though a tax sale has two types of investments, we have to remember some things. The nature of property is that it’s value goes up and down in cycles. Additionally, the actual deed buying process has more variables than buying tax liens. This means there is a need for more knowledge when investing in tax deeds. There can obviously be more risk associated with tax deeds than with tax liens. With risk comes the potential for amazing returns on their investments.

What Else Should Someone Interested in Tax Deeds Know?

There is at least one more possibility at a tax sale. There are ten states, called hybrid states where the buyer of the tax deed can still have the delinquent taxes paid by the person who owes the taxes. During the period where that is allowed, which varies from state to state, the purchaser would still be paid a percentage on their investment, usually quite a good return. If you are not investing in tax liens and tax deeds, you are missing out on two amazing opportunities, especially in times of crisis and stability, like we are experiencing now.

Your tolerance for risk, your investment strategy, and your willingness to become hands-on will determine whether tax liens or tax deeds are better for you. Often people who learn about tax liens and tax deeds combine the two and get both reliable and exceptional returns on their money. Either way, an investor whose portfolio does not include one or both of these great investments is losing out on a fantastic way to build wealth or diversify their portfolio and insulate themselves from market volatility. In fact, it’s often in times of crisis that tax liens and tax deeds perform the best, especially when compared with many other forms of investments like stocks.

For a more detailed comparison of tax liens and tax deeds to other investments, see the following article by clicking here.

So, at a tax sale, you have at least two major and several minor options available to you. If you want a good investment, earning a regular rate of return, often 16% or more, then tax liens are for you. If you want to buy homes or property by paying back taxes, and are willing to learn a bit more, and put in a bit more legwork, then tax deeds are for you. With that extra study and work, comes the potential to earn spectacular returns on your investment. Tax sales are worth the effort of learning because they can change your life.

Either way, whether through tax liens or tax deeds, anyone who overlooks these two investment vehicles is missing out on some of the best financial opportunities available.

If you’d like to get started today, you can begin now at no cost by taking advantage of Ted’s FREE Master Class. It’s only about 1 hour of streaming video and will open your eyes to the incredible opportunities available in tax delinquent real estate investment.

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Ted Thomas

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.

The Ted Thomas Difference:

  • Ted is recognized as America’s Tax Lien Certificate & Tax Deed Authority and has been helping people with investing in tax defaulted properties for over 30 years.
  • Ted has built a team of certified coaches that have 70 combined years of auction experience and are available to his students by phone to guide and mentor you to avoid getting overwhelmed or worse, losing money
  • Ted has ironclad PROOF that what he is teaching you does work. With hundreds of successful students providing testimonials and a 4.9 Google rating which is unheard of in this industry.
  • Ted and his staff don’t hide behind a website; they can be reached during office hours at 321-449-9940.

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