Tax Lien Investments for Income

tax lien investing for incomeA couple of years ago someone I knew from work who was a fairly senior manager with the federal government was able to retire at a much younger age than was typical.  When I inquired as to how he was able to manage this, he said that he had been able to build up his income from part-time tax lien investing to make early retirement a real option for him.

If you are an investor looking for safe income investments, but wanting or needing higher returns than you can get from putting your money into bank CDs, one option to consider is investing in Tax Liens. If done properly, investing in Tax Lien certificates will enable you to realize safe, higher annualized returns than from typical debt investments.

The collection of real estate property taxes is a major priority in every taxing jurisdiction in the United States, as all homeowners know all too well.  If a county or municipality were unable to collect those taxes in a timely fashion, it would be unable to provide the public with important public safety services (police and fire departments) or public schools.  To avoid this problem, all counties in 26 states across the US will place a Tax Lien on any property with delinquent property taxes and then sells the delinquent tax debt to investors.  The county gets their money, the tax delinquent taxpayer gets more time to pay their already past due property taxes, and the investor gets a real estate-secured high yielding investment.

Safer with Higher Returns

A couple reasons that some income investors like to hold government issued Tax Lien certificates as part of their income portfolios are:

1. Rising and falling interest rates do not directly affect Tax Lien certificate rates because the maximum interest rates for Tax Lien certificates are mandated by state law, and actual rates of return are usually determined based on local auction results.

2. Rising and falling stock market prices also do not directly affect the rate of return. Each state has a mandated length of time for the delinquent taxes to be paid.  If they are not made current during this time period, the property is sold to pay the debt.

For most properties that have an outstanding mortgage, the mortgage lender will pay these delinquent taxes before it gets to the foreclosure stage.  The certificates can also be sold or transferred at a discount before the due date allowing the investor to make a smaller profit on the certificate should there be a need for cash prior to certificate redemption.

To illustrate the variability of laws from state to state, the following are examples of maximum interest rates and redemption periods for Tax Lien certificates in three states:

Arizona:  16%, 3 years
Florida:   18%, 2 years
Indiana:  15%, 1 year

The Pros and Cons of Tax Liens

The following video from the real estate investor Phil Pustejovsky is a good summary of the Pro’s and Con’s for investing in Tax Lien certificates.  Phil prefers to pursue opportunities with tax deeds versus tax liens because of the higher return on investment, but I suspect readers of this blog may be more attracted to the hands off aspect of tax lien investing.



As Phil points out, self-education and due diligence are prerequisites for ensuring these become smart investments for income.  If you do think you might want to study up on this type of investment, one good choice would be to try the tax lien investing course by Steven Waters. You can find out more about it by clicking here. ==> Tax Lien Investing





  1. I’ve heard of these liens before, but wasn’t really sure what they were. Will look into them some more. Thanks for the idea.

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