TAX LIENS AND TAX DEEDS
Learn the Difference Between Tax Liens and Tax Deeds to determine if you want to make Passive Income that pays high interest rates or Massive Income buying properties for cents on the dollar with a nice margin for resale.
Either way, you can make a lot of money by knowing the difference between tax liens and tax deeds and how to invest in each one.
The Difference Between Tax Liens and Tax Deeds, and the benefits each has to offer, is important to know to determine your investment strategy.
I’m Ted Thomas, and for the last 25 years, I’ve been involved with tax lien certificates and tax defaulted properties. Today I’m going to cover the difference between tax liens and tax deeds, and there’s quite difference as you’ll see.
America is full of money-making opportunities, and this is certainly a money-making opportunity.
If you’re very conservative, you’re going to fall in love with tax lien certificates.
If you’re a little bit on the aggressive side, if you’re an entrepreneur, you’re going to love tax deeds. I’ll explain both of those, so you will understand the difference between tax liens and tax deeds.
Before I finish, I’ll also cover two big mistakes that taxpayers make. Newcomers, people that are just getting started, and people that have experience, make big mistakes at the auction.
Along the way, I’ll teach you a little bit about tax lien certificates and tax deeds and the difference between tax liens and tax deeds investing.
COUNTIES SELL TAX LIENS AND TAX DEEDS
First you should know that these tax deeds and tax liens have been around for over 200 years. There are over 3,000 counties across the United States, and they all sell either tax liens or tax deeds.
About half of the counties will sell a tax lien certificate. When you buy one of those, you do not get possession of the property. Let me say that again. You do not get possession of the property when you buy a tax lien certificate.
When you buy a tax deed, you’re actually buying a property from the county. That is the biggest difference between tax liens and tax deeds.
Thousands of people default on their taxes every year. I’m talking about thousands. There will be over 5,000 tax defaulted auctions this year.
The county is then in trouble. The local county won’t be able to pay the bills if a lot of people default on their taxes. So they do something about it.
THE DIFFERENCE BETWEEN TAX LIENS AND TAX DEEDS
In half of those counties, the action that will be taken is: the county will sell a tax lien certificate.
They’ll do this in the hopes that you’ll buy it to make a profit for yourself, but it will also give the county money to pay the bills.
The other half of the counties will sell tax deeds, which simply means that the property’s already been defaulted and confiscated. The local government is going to sell that property for 10 or 20 cents on the dollar.
WHY DO COUNTIES SELL TAX LIENS AND TAX DEEDS?
Let’s figure out what’s happening here. The reason that the counties have trouble is because a lot of people haven’t paid their tax.
If the property owner doesn’t pay the tax, who is then going to pay the firefighters? Who’s going to pay the police department? Who’s going to fix the roads? Who’s going to pay the county employees? You’re getting the idea.
So the local county has a lot of bills to pay. Half of those counties will sell a tax lien certificate.
How did they ever get to the point where they’re doing that? Well, the state got together with the counties because the counties are having trouble collecting money.
So the legislature authorizes the treasurer to first levy a tax on every property. Then it authorizes the treasurer to go ahead and collect taxes.
If the treasurer cannot collect taxes, they’ll do one of two things.
In the tax lien certificate states, they will put the property in default, and then they will sell a tax lien certificate. They will not push the person out of the property. So they’re benevolent. They leave the person in the property.
If someone will pay the tax, they finally get their money.
WHAT ARE THE BEST STATES TO GET TAX LIEN CERTIFICATES?
Why would you pay the tax? Well, because the lowest I’ve ever seen a certificate pay is 12%, and that’s in New York, out of Nassau and Suffolk County.
If you went to Cook County, Chicago Illinois and DuPage County, Chicago Illinois, they pay up to 36%.
So the county treasurer controls this whole process, and it’s all regimented. All of these sales are conducted and administered and mandated by local governments.
You’re never going to give Ted Thomas any money. You’re always going to invest with the government, and you’re going to get a check back from the government.
That means if you bought a tax lien certificate, you would not get possession of the property.
Now, they’re going to have a few of these around. Let me just demonstrate that to you for a second.
I have a local newspaper from Duval County, Florida, and this newspaper has a list of tax lien certificates. In this newspaper, there are no pictures. It’s just a list of tax lien certificates, and it’s a big, big list.
The point is there are going to be 32,000 just in this county. In the state of Florida, there will be over 1 million certificates that are available this year. Florida pays 18%.
So tax certificates are as low of 12%. In Arizona, they’re 16%. Here in Florida, it’s 18%. Iowa’s 24%. You’re getting the idea. You could earn a lot of money on a tax certificate.
I have another one here. This happens to be a newspaper from Tampa, Florida.
In Tampa, they have over 40,000 certificates. You’re not going to be able to read this newspaper. The numbers are too small because they’ve got 40,000 certificates in here that are available.
Though you do not get possession of a property when you buy a tax lien certificate, you not only help a homeowner because they don’t kick them out on the street, but you’re also helping the local county.
So the county can contribute some money to the hospital, pay the libraries, pay the school teachers, pay the county employees.
The average person is never thinking about all the bills the county has to pay, but the property owners are sure thinking about that, because they have to pay property tax. So everybody is required to pay property tax.
The rates on tax lien certificates are 12% to 36%, but they don’t just sell tax certificates.
HOW DO TAX DEEDS WORK?
A county may sell tax deeds. So what’s the difference between tax liens and a tax deeds?
Regarding a tax deed, when the treasurer doesn’t get paid, they’re authorized to go out and confiscate, to seize, the property. Then once they have the property, they’re going to resell it into the marketplace.
Except they don’t sell it for retail; they sell it for very close to the taxes they collected. If you could buy that property at very close to the collected taxes, you might buy it for 10 or 20 cents on the dollar. Think about that.
So the tax lien certificates give you great interest rate returns. With tax deeds, you’re able to buy a property at rock bottom dollar. (I love to buy them low and sell them low.) That’s the difference between tax liens and tax deeds.
THE DIFFERENCE BETWEEN TAX LIENS AND TAX DEEDS & THE MORTGAGE
In both cases, whether it’s a tax lien or a tax deed, there’s no mortgage on the property. When a government auction takes place at the county level, it wipes out the mortgage.
That doesn’t mean that Ted Thomas wiped out the mortgage. That simply means the government, their action, takes the mortgage off the property. Then they’re going to resell the property with no mortgage on it.
The government is allowed to do that.
Of course, they give proper notices to everybody involved, but the mortgage is wiped out in a tax lien certificate sale and with a tax defaulter.
So there is no difference between tax liens and tax deeds if you’re looking to invest in a mortgage-free property.
THERE’S A WORLD OF DIFFERENCE BETWEEN TAX LIENS AND TAX DEEDS
In one case, you get the property. That means you bought a tax deed. In another case, you get a piece of paper, which is a certificate. That means you bought a tax lien certificate.
The deed states, which is half, are states like New York and California.
If you don’t pay the taxes, they seize the property. They kick the people out, evict everybody that’s there, then they resell the property back into the marketplace.
Those properties are sold for 10 cents, 20 cents, 30 cents on the dollar with no mortgage on them. So there’s a world of difference between tax liens and tax deeds.
When you buy a tax lien certificate, you’re going to get a predictable, certain and secure investment. You can’t invest with me, you’re going to invest directly with the government.
The other opportunity is tax deeds, which are perfect for entrepreneurs. You’re actually buying the property, and you’re buying it for cents on the dollar, depending upon the bidding.
However, that property will start in the auction at somewhere very close to the back taxes.
THE DIFFERENCE BETWEEN TAX LIENS AND TAX DEEDS INVESTING
Now that you know the difference between tax liens and tax deeds, should you focus on tax liens or tax deeds if you’re just getting started?
Well, do the easiest thing for you. With a tax lien certificate, you’re not going to have any concerns about losing your money because you’re investing the money with the government and getting it back from them.
What you’re concerned about is what interest rates you’re going to get. So that’s a nice, easy investment.
If you’re willing to put in a little bit more time and get a little educated, then I would say, start with the tax deeds. Because what if you can buy a property for say, 20 cents on the dollar?
Let’s say it’s a $100,000 property that you could get for 20 cents on the dollar. Well, you’ve got a lot of margin there to make money.
You don’t have to wait to get retail. Sell it for 40 cents on the dollar. You make yourself $10,000 to $20,000.
Try whichever one you feel the most comfortable with. Find out what it is in your community, and work in the local community before you go outside of it. Everything can be done online.
CAN PEOPLE OUTSIDE THE USA BUY TAX LIENS AND DEEDS?
Can people outside the United States buy in the United States? The answer is yes.
We have clients already in Canada and in the British Isles. We also have people in Singapore and Bangkok, and of course, Australia. Anybody can buy a property online today.
Five years ago, we pioneered that, but it’s normal now for people to buy and resell online. You get the same deals, but you just do it all online.
You have to give it directly to the county, and then it’s all managed there. It’s perfectly safe.
YOU DON’T WANT TO MAKE THESE MISTAKES
What I’m going to do now is tell you about two things that I want you to be very careful of.
MISTAKE 1
If you’re going to go to an auction, I don’t care if you’re a newcomer, or you’re an experienced investor. People make big mistakes and lose hundreds of thousands of dollars at tax auctions. How do they do that?
Well, they go to the auction, and they start bidding on properties that they’ve never seen.
You do not want to buy a property if you haven’t had boots on the ground and your eyes on their property, or if someone you trusted didn’t do that.
Why? What if they’d had a hurricane? Or if there was a flood? What if there was a tornado? Many things can happen to properties. What if it burned down?
All those things could happen, and now you’ll own a property, except there isn’t one there.
When you buy at these auctions, you have to pay for what you buy. I don’t know anybody that gets a refund. So you want to make sure that you know exactly what you’re buying.
MISTAKE 2
The second mistake people make is they’re anxious. They’re excited. So they go to the auction, and then someone gets a property before they do.
There’s a long list of properties to get. So they get aggressive. They start bidding again, except they have no exit or selling strategy.
If you don’t have an exit strategy, do not, I’m telling you, do not buy because you could pay way too much money.
Those are the two big mistakes that people are making.
SUMMARY
It’s important to know the difference between tax liens and tax deeds. Both are sold by counties, but they’re not the same thing. Both offer the opportunity to profit, but in very different ways.
You can benefit from investing in either or both depending on your needs.
What’s the difference between tax liens and tax deeds?
A tax lien is a passive investment that can pay you an interest rate of up to 36%, and it’s secured by real estate. You can get started buying tax lien certificates, even if you don’t have a lot of money to begin.
If you’ve got more money to invest, you may want to consider tax deeds. When you invest in a tax deed, you acquire the property, often for pennies on the dollar. This can leave you with a significant margin for a quick resale.
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