Last Updated on September 8, 2025
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Tax liens might be the BEST place for you to start in this business, and here’s why they are often the perfect gateway for new investors. If you’re looking for a way to make high returns on your money with relatively low risk, tax lien certificates could be exactly what you need.
Why Tax Liens Are a Great Starting Point for New Investors
Many people want to get into real estate but feel overwhelmed by the cost and the risks. A simple way to start is by investing in tax liens. This guide will help you Start Tax lien investing even if you have never bought real estate before. When a homeowner does not pay their property taxes, the local government puts a claim on the property called a tax lien. Counties auction off these liens to recover the unpaid taxes. If you buy a lien, you pay the taxes owed and, in return, earn interest until the owner pays you back. Tax liens rarely lead to owning the property; they work more like a short‑term loan backed by the real estate. For beginners, they offer high returns with relatively low entry costs.
What Makes Tax Liens Attractive
- High interest rates: Depending on the state, lien holders can earn from 4 % to 36 % interest. Many states pay between 12 % and 24 %. In Florida, the bidding starts at 18 %, and if a certificate is not sold, it still earns that rate. Iowa charges 2 % per month (about 24 % a year).
- Short holding period: Tax liens are usually paid off within six months to three years. This is much shorter than the commitment required to own a rental property, so your money is not tied up for decades.
- Small starting investment: Some certificates cost only a few hundred dollars. That allows you to test the waters without a huge financial commitment.
- Lower risk than many alternatives: Governments need property taxes to fund schools, police and other services. They repay you the principal plus interest when the owner catches up on the taxes. Foreclosure is rare, but if it happens the tax lien is often paid before other debts.
- Learning opportunity: Buying tax liens teaches you how auctions work, how to research properties and how to read county records. These skills are useful if you decide to buy actual properties later.
Step‑by‑Step: How to Start Tax Lien Investing
- Learn the rules in your state:
Not all states sell tax liens. Those that do often hold auctions either online or in person. Start by contacting your county or state treasurer. They can tell you when auctions happen and how to register. Many counties publish lists of liens to be sold.
- Choose a property type and set a budget:
Decide whether you want liens on houses, commercial buildings or vacant land. Also, decide how much money you are willing to invest.
- Register for the auction:
Many counties require you to register and provide identification before you can bid. In some places, like Florida, you can register online without a deposit.
- Research each property:
Look up the property’s address, value and any other debts. Avoid properties that are damaged or polluted.
- Understand the bidding process:
In many auctions, the interest rate starts at the highest allowed, and bidders compete by accepting lower rates. For example, Florida bids start at 18 % and drop in small increments until someone accepts. The lowest rate wins.
- Monitor your lien:
After you buy a lien, send the required notices to the property owner on time. You will get your money back plus interest when the owner pays off the taxes. If they do not pay, you may eventually foreclose, but this is rare.
Sample Tax Lien Interest Rates and Terms
| State/Region | Maximum interest rate | Redemption or payment period | Notes |
| General (U.S.) | 4 %–36 % | 6 months–3 years | Rates and rules vary by state. Counties often set the rate and bidding starts at the highest allowed. |
| Florida | 18 % per year (bids decrease in 0.25 % steps) | Paid back when the owner settles the taxes; unsold certificates still earn 18 % | No deposit is needed to register in many Florida counties. |
| Iowa | 2 % interest per month (about 24 % each year) | Owner can pay off the lien, interest and fees to redeem | Some counties may require extra paperwork when you redeem. |
| Typical small‑county auction | 12 %–24 % per year | 1–2 years | Check local auction rules for how bids and payment times work. |
Why Education and Due Diligence Matter
New investors often hear that tax liens are easy money, but you still need to do your homework. Don’t bid on a lien without researching the property. A high interest rate is of little value if the property is worthless or has other outstanding debts attached. Compare the amount of the lien to the property’s value: if the lien is a big part of the value, the risk is higher. Avoid neglected properties and places with environmental problems. Also, check for mortgages or other liens that might make foreclosure difficult.
Because states and counties have different rules, it’s smart to start small and learn the process gradually. Seek mentorship or classes if you’re unfamiliar with real estate. In some areas, competition from big investors can push returns down, so knowing where to look helps you find better opportunities.
Benefits Beyond Returns
Investing in tax liens is more than just earning interest. It can help you:
- Build knowledge of real estate systems: You learn how local governments collect taxes and how to read public records. These skills help when buying tax deed properties or regular real estate later.
- Support community services: Paying someone’s unpaid property taxes provides money for schools, police, fire departments and other local services.
- Step up to tax deeds later: Once you feel comfortable with liens, you can look at tax deed sales. Deed investing requires more research but offers the chance to buy property at deep discounts.
Frequently Asked Questions (FAQ)
A tax lien certificate is a document you buy from a county that represents unpaid property taxes on a property. When you buy it, you pay the taxes owed. The property owner must repay you the lien amount plus interest. If they do not pay by the end of the redemption period, you may start foreclosure, but this is rare.
Contact your county or state treasurer to find out if they sell tax liens and how the auctions work. Register for the auction and research the properties on the list. At the auction, bid by offering the lowest interest rate you are willing to accept (or bid a premium, depending on local rules). If you win, monitor the lien and send any required notices on time.
Returns vary by state and by property. Interest rates can range from 4 % to 36 %. Many liens earn between 12 % and 24 %. Florida liens start at 18 %, while Iowa charges 2 % per month. Your actual return depends on the winning bid and whether the lien is paid back.
It is generally safer than many other investments because the lien is backed by real estate, and tax liens are paid before most other debts. However, risks include poor property conditions, other liens, falling property values or bankruptcy. Always research each property and understand the local rules.
If the owner does not pay back the taxes within the redemption period, often six months to three years, you may begin foreclosure to take the property. This is rare because most owners pay to avoid losing their property. In some states, like Florida, a lien that is not sold at auction goes to the county and still earns interest.
Next Steps to Your Best Start with Tax Liens
Tax liens aren’t just an investment; they’re an education in real estate. Dive into this strategy to grow your portfolio and establish a strong foundation for future investments.
Check out today’s video to learn how tax liens can be your best start. And don’t forget to explore more on our YouTube channel for additional tips and strategies.
Let’s talk about it more in today’s video,
-Dustin
PS: There is a gap in knowledge about Tax Lien investing. Let me close that gap in today’s video. Don’t miss this one.
