Last Updated on August 28, 2025
Table of contents
Avoid in Tax Sales: Simple Guide to Staying Safe
Tax lien and tax deed investing might look easy, but you must do your homework before you bid. Many people think they can buy houses for pennies and get rich quickly, but that is not true. Tax lien investing looks simple yet still takes work and experience.
If you skip important steps, you could lose money. This guide explains what to avoid in tax sales and shares a true story about a house worth $140,000 that was listed for just $9,000.
Learn the rules first
Every state and county has different rules for tax sales. Some places sell tax liens (a right to collect back taxes); others sell deeds (the property itself). The bidding, interest rates, and redemption periods differ. Check local laws and deadlines before you bid. Without this knowledge, even a low price can become a costly mistake.
Slow down when evaluating
Do not rush into a purchase. Buyers should not make quick decisions and should consider getting help from a local realtor. A realtor knows the neighbourhood and may see problems you miss, such as poor road access or declining market values. Take your time to gather information and compare several properties before you choose one.
Know the price and set a limit
Many new bidders think any price below market value is a good deal. But you need a big margin for repairs and extra fees. Do not pay more than one‑third of a property’s fair market value.
Call the county assessor to learn the market value and check recent sales of similar homes. Include unpaid taxes and interest in your calculations. If you pay too much, you may not earn any profit.
Inspect the property yourself
Online pictures can be old or misleading. You should inspect the property in person. Drive by and look for fire damage, missing roofs, or broken windows.
An investor saw a listing for a house valued at $140,000 with only $9,000 in back taxes. It seemed like a great buy. Before bidding, he drove by and found a burned‑out shell with no roof. The cost to rebuild would erase any gains, so he decided not to bid. This shows how a simple visit can save you money.
Avoid condemned houses
Condemned properties may have very low starting prices, but they bring big problems. They were called “black sheep” of real estate. Many need to be torn down, and some sit on contaminated land. The title may be tied up with banks or government agencies. Unless you have building experience and time to handle paperwork, it is best to avoid these houses.
Watch out for tribal lands
Land on Native American reservations follows different rules. In many cases, tribal land is exempt from property taxes. That means counties cannot enforce a tax lien. The article warns that buying liens on tribal land is a waste of money. Check maps and legal descriptions; if the property is inside a reservation, do not bid on it.
Use an LLC when you buy
If you buy in your own name, you could be personally responsible for accidents or legal disputes. An LLC separates your personal assets from the investment, adding a layer of protection. Setting up an LLC is not expensive in most states.
Stay away from fractional ownership
Some tax sales involve undivided interests, where you buy only a fraction of a property. You might own a piece of a house with strangers. These deals are complicated and can require court action. Unless you can hire a lawyer and wait for a court decision, it is better to avoid these situations.
More things to avoid in tax sales
- Redemption periods: In many states, the owner can pay back taxes plus interest and reclaim the property. Do not assume you will get the deed right away.
- Hidden repair costs: Even houses that look fine may need repairs. Always set aside money for fixes.
- Missed deadlines: Counties have strict rules about sending notices and filing papers. Missing a date can void your lien.
- Assuming rules are the same everywhere: Each state has its own rules. Never apply one state’s rules to another without checking local laws.
Tips to succeed
- Start small and close to home.
Buy one lien in a county you know. It is easier to inspect and research.
- Work with professionals.
Realtors, title companies, and attorneys can spot problems and help with paperwork.
- Set a strict bidding limit.
Decide your maximum bid before the auction and do not go above it.
- Keep detailed records.
Save copies of receipts, notices, and important dates. Good records protect your claim.
- Be patient.
Tax lien investing takes time. You might wait months or years for a return.
Frequently Asked Questions (FAQs)
A tax lien is a legal claim the county places on property when the owner does not pay property taxes. Investors can buy the lien at auction, then collect the unpaid taxes plus interest.
Learn local rules, check the market value, and inspect the property. Also, make sure you have funds for repairs and legal fees.
Condemned houses often need to be torn down or have serious code violations. They can cost a lot more to fix than you expect.
In some states, the property owner can pay back taxes, plus interest, within a set time called the redemption period. During that time, you cannot take possession of the property.
An LLC protects your personal assets. If there is a lawsuit or title problem, the claim is against the company, not you.
Conclusion
Tax lien investing can be a good way to earn money if you know what to avoid in tax sales. Do your homework, look at each property in person, stay away from condemned and tribal land properties, and use an LLC to protect yourself.
The story of the $140,000 house that turned out to be a burned‑out shell shows why careful inspection and clear rules matter most. With patience and knowledge, you can invest safely and find real bargains.
These are just a few important things that you need to know and avoid when it comes to tax sales investing. Check this video about Tax Lien Dangers To Avoid.
Talk Soon
Dustin
PS: We’ve got great new videos every week, so head over to our page and subscribe.
