Last Updated on August 31, 2025
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Why Tax Deed Investing Can Be a Smart Strategy?
Buying real estate through tax deeds might sound hard, but it’s actually pretty simple and a smart way to start in real estate.
If a property owner doesn’t pay their taxes for a long time, the county can sell the property in a tax deed sale to get the money back. Whoever wins the bid usually becomes the new owner, often paying much less than the property’s full value.
With tax liens, you don’t buy the property itself—you buy the unpaid tax debt. The owner then has time to pay it back, and you earn interest while you wait.
Knowing the difference and following the right steps can make tax deed investing a good way to earn money.
Why Consider Tax Deed Investing?
High potential returns
Tax deed sales can bring very different profits. Some investors make anywhere from 10% to 90%, depending on the location and timing. Since properties are often bought for less than their real value, investors may gain extra equity once other debts or liens are cleared.
Own a rental property
When you buy a tax deed, you can rent out the property. Renting it can give you a steady income. For example, if you invest $100,000, the rent could bring back about 40%. As the property value goes up, the rent you earn can also grow.
Control your time
Many people get into tax deed investing to get out of the regular nine-to-five job. When you own a property, you set your own schedule. It takes some time to learn the local rules and check out properties, but the freedom makes it worth it.
Simpler purchase process
Tax deed sales work differently from normal real estate deals. You don’t need a mortgage, credit check, or long closing process. Instead, the property is sold at an auction. If you have the money, you pay your winning bid and any back taxes—no bank loan required. In some states, these auctions are even held online, making it easier to join.
Legality and security
Tax deed sales are legal across the United States because local governments have the authority to collect unpaid property taxes. This method of investing has existed for more than 200 years, and with proper due diligence, it can be a secure way to build wealth.
How Tax Deeds Work
In a tax deed sale, the county takes a property when the owner doesn’t pay the taxes and then auctions it to the highest bidder.
In most tax deed states, the old owner doesn’t get a redemption period. Once you pay the winning bid and get the deed, the property is fully yours.
However, you should budget money for title services or a quiet title action because some titles can have unresolved issues. These services ensure you can sell or refinance the property later.
Tax deeds differ from tax liens. With a tax lien investment, you purchase a claim on the property’s unpaid taxes.
The property owner can still redeem the property by paying back the taxes and any interest owed.
Redemption periods vary by state; while waiting, the investor earns interest.
If the owner does not pay within the redemption period, the investor may foreclose on the property, but this process takes more time and may require legal steps.
Tax Deed vs. Tax Lien Investing
| Feature | Tax Deed Investing | Tax Lien Investing |
| What you buy | Full ownership of the property | Debt owed on unpaid taxes |
| Redemption period | Usually none; ownership transfers immediately | Interest rates set by the state (often 8 %–36 %) |
| Profit source | Equity and potential rental income; sale of property | Interest payments; possible foreclosure |
| Typical returns | Variable; can range from 10 % to 90 % | Interest rates set by state (often 8 %–36 %) |
| Process complexity | Requires research but fewer legal steps than liens | Requires monitoring redemption and potential foreclosure |
Step‑by‑Step Guide to Getting Started
- Learn your state’s rules – Each state has its own regulations. Some sell tax deeds; others sell liens or both. Start by checking your county’s tax collector or clerk website to understand auction schedules and requirements.
- Find tax deed sales – Identify upcoming auctions in the counties where you want to invest. Many jurisdictions post lists of available properties online. You can also use services like foreclosure sites or county portals to research properties ahead of time.
- Research properties – Review public records to check property values, outstanding liens, and zoning. Because you often cannot tour the inside, look at exterior photos, satellite images, and neighbourhood data. Consider potential repair costs; some properties need major work.
- Set a budget and bid – Decide how much you are willing to spend, including room for title services and repairs. During the auction, bid up to your maximum amount. If you win, pay the bid and taxes promptly; payments are usually due immediately or within a short time window.
- Secure the title – After the sale, work with a title company to clear any liens or address “quiet title” issues. This step ensures you can transfer or refinance the property later.
- Plan your exit strategy – Decide whether to flip, rent, or hold the property. If you choose to rent, screen tenants carefully and set a competitive rent. If flipping, estimate renovation costs and potential sale price. In some cases, selling the property as‑is may be profitable.
Tax Deed Potential Risks and How to Manage Them
Property condition – Tax deed buyers often cannot inspect interiors before purchase.
Some homes may need significant repairs or could even be uninhabitable.
To manage this risk, use conservative estimates for repair costs and avoid properties in poor condition.
Hidden liens and taxes – While most tax deed sales clear other liens, there may still be outstanding utility bills or code violations.
Always order a title search before finalizing the purchase.
Market variability – Some counties are very competitive or located in declining markets.
Research local economic trends and housing demand before bidding.
Overbidding – Emotions can lead to overbidding at auctions.
Set a firm budget and stick to it.
If another bidder exceeds your limit, let it go; there will be other opportunities.
Frequently Asked Questions (FAQ)
A tax deed sale is an auction in which a local government sells a property whose owner failed to pay property taxes. The winning bidder receives the deed and becomes the owner.
With a tax deed, you buy full ownership of the property, whereas a tax lien is a claim on unpaid taxes. In a tax lien, the property owner can redeem the property by paying the taxes and interest within a redemption period.
Yes. Local governments are authorized to sell properties to collect unpaid taxes, and this process has existed for over two centuries. As long as investors conduct proper research and clear title issues, tax deed investing can be a secure investment.
Once you own the property, you can rent it out for income. The original article notes that renting a $100,000 property could yield about a 40 % return. Actual returns depend on market rents, expenses and property condition.
First, check state and county rules and locate upcoming auctions. Research properties, set a budget, and bid at the auction. If you win, pay the bid and taxes, then secure the title and choose whether to flip, rent or hold the property.
Final Thoughts
Tax deed investing combines the thrill of auction bidding with the potential to acquire real estate at deep discounts.
Compared with traditional purchases, tax deeds can offer high returns, simple acquisition, and flexible exit strategies.
The key to success is doing your homework: understanding your local laws, researching each property thoroughly, and planning your budget and exit strategy before you bid.
When approached carefully, tax deed investing can be a deliciously good way to build wealth.
So, if you are looking for a better way to invest your extra cash or make money in real estate, Tax Lien and Deed investing could be the perfect route for you to take!
Give us a call if you need some help!
Talk soon,
Dustin
