Last Updated on August 26, 2025
Table of contents
Why Tax Lien Investing Can Be Profitable?
Tax Lien investing is a good business because:
- High returns: Each state sets the interest rate on tax lien certificates. Rates can be as low as 4% or as high as 36%. That’s higher than savings accounts or many bonds.
- Backed by the government: Because the tax debt comes from the government, investors have a legal right to collect the money. That makes it safer than some private loans.
- Possible property ownership: If the owner doesn’t repay the taxes within a set time, you can take the property for a low cost.
- Easy to start: You don’t need a lot of money. Some liens sell for a few hundred dollars. You can buy them at local auctions or online auctions.
What Is Tax Lien Investing?
When people don’t pay their property taxes, the local government can sell the unpaid tax bill to investors. The investor pays the unpaid taxes and receives a “tax lien certificate.” The homeowner now owes the investor the tax amount plus interest set by the state. If the owner cannot pay, the investor can take over the property.
Example From Illinois
In Illinois, a county sells tax lien certificates when homeowners fail to pay property taxes. If you buy a certificate for $3,000, Illinois law lets you earn up to 36% interest per year.
The homeowner has a period, often up to two years, to pay you back. If the homeowner pays the taxes and interest after 18 months, you get back your $3,000 plus 18 months’ worth of interest.
If they don’t pay, you may be able to take the property. Other states that investors like because of high rates or short waiting periods include Florida, Arizona, and Colorado.
Risks and Things for Tax Lien Investors to Watch Out For
As a tax lien investor, it is important to watch out for risks you may encounter with tax lien investing.
- Property problems: The property might be in poor condition or have environmental issues. Fixing it could cost more than your investment.
- Owner rights: Some states let the owner get the property back even after you take it, which could cause extra costs.
- Research needed: You need to learn the local rules, check the property condition, and make sure there are no other unpaid liens or mortgages.
- Competition: Banks and large funds sometimes buy the best liens and lower the returns for small investors.
- Paperwork: After buying a lien, you must send notices to the owner and follow the rules about redemption periods.
How to Get Started as a Tax Lien Investor?
- Learn the rules
Every state has its own tax lien laws. Read about the process and talk to other investors.
- Choose a location
Look at states with higher interest rates or shorter redemption periods.
- Set a budget
Start small and grow as you gain experience.
- Go to auctions
Auctions can be online or in person. Review the properties before bidding.
- Do research
Check the property’s value and condition. Make sure you know about any other liens or debts.
- Keep records
Track deadlines and send notices to the property owner when required. If a lien isn’t paid, talk to a lawyer about taking the property.
The Bottom Line
Tax lien investing offers a secure way to grow your money—if you know what you’re doing.
As a tax lien investor, equip yourself with the right knowledge and tools to maximize your potential returns. By starting strong and staying prepared, you can achieve great success in this business.
But it’s also a reality that you have to at least get ready. Equip yourself to become knowledgeable enough to start the business, so that a great potential of good returns will be accomplished in doing so.
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Talk soon,
Dustin
FAQ
A tax lien is a legal claim on a property because the owner didn’t pay their property taxes. Investors can buy these liens from the local government.
When the homeowner pays back the taxes, the investor gets the tax amount plus interest, which can range from 4% to 36%.
No. Most owners pay back the taxes before the deadline. Only if the owner doesn’t pay during the redemption period can the investor take the property.
States often named are Florida, Arizona, Illinois, and Colorado. They have high interest rates or shorter redemption periods, but laws vary widely, so research is key.
Properties can be damaged or have other debts. You also need to follow legal steps and send notices. Competition from large investors can lower profits.
It can be, but it requires research. Start with small investments, learn the rules, and consider working with experienced investors until you understand the process.
