If you don't know the difference between a tax lien and a tax deed, you're about to bid on the wrong thing at the wrong auction. That's an expensive lesson nobody needs to learn twice.
Let's make this crystal clear.
Tax Liens: You're the Bank
When you buy a tax lien certificate, you're paying someone's delinquent property taxes. The county gives you a certificate that says the owner now owes you that money, plus interest.
How it works:
- You pay the past-due taxes at auction.
- The owner has a redemption period (6 months to 5 years, depending on the state) to pay you back with statutory interest.
- If they redeem, you get principal plus interest (often 10-18%).
- If they don't redeem, you can foreclose and potentially take ownership.
Best for: Investors who want passive, predictable returns without managing property.
Example: ‘Linda’ buys $80k worth of liens every year. Over 90% redeem within 18 months. She averages 14% annual returns and has never dealt with a tenant or a toilet.
Tax Deed Certificates: You're Buying the Property
When you buy a tax deed, you're buying the actual property at auction, often for a fraction of market value.
How it works:
- County forecloses on the property for unpaid taxes.
- Property goes to public auction.
- The highest bidder wins the deed.
- You now own real estate and can rent, flip, or hold it.
Best for: Investors who want to acquire property at steep discounts and don't mind the extra work.
Example: ‘Tom’ bought a tax deed on a 3/2 house for $48k. Market value was $185k. After $22k in repairs and six months of title work, he sold it for $170k. One deal, $100k profit.
The Key Differences
Tax Liens: You're a lender. The owner can redeem. You earn interest. Passive income. Lower cost. Minimal time.
Tax Deeds: You're a buyer. Typically redemption. You earn through resale. Active real estate. Higher cost. Significant effort.
Which States Do Which?
Tax lien states: Florida (hybrid), Iowa, Maryland, Montana, and about 15 others.
Tax deed states: California, Idaho, Minnesota, New Hampshire, Oklahoma and about 15 others.
How to Decide Which One Fits You
Ask yourself: Do I want checks or keys?
Want steady, hands-off interest income? Focus on tax liens in high-redemption states.
Want to acquire real estate below market value and willing to deal with repairs and title work? Go after tax deeds.
Many experienced investors do both. They keep 70-80% of capital in safe, high-redemption liens for cash flow, then use 20-30% to cherry-pick deed opportunities.
Know which one you're buying before you bid. Know which strategy fits your goals. And never assume the rules are the same from state to state.
Not all liens are created equal. Know what you're buying.
This blog is for informational purposes only and should not be relied upon as financial or investment advice. Real estate investing carries risks, and individual results will vary. Always consult with your team of professionals before making investment decisions. The authors and distributors of this material are not liable for any losses or damages that may occur as a result of relying on this information.
