Last Updated on August 31, 2025
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Tax Lien and Tax Deed Investing: A Real Way to Earn Returns
Have you heard people ask whether tax liens and tax deeds are real ways to make money? Yes, they are. Counties and cities need property taxes to pay for schools, police, firefighters, and other services.
When homeowners do not pay their property taxes, the local government puts a tax lien on the property and sells it at a public sale. Sometimes the government sells the property itself, which is called a tax deed sale. Both are regulated processes backed by law, and they give regular people a chance to earn interest or even take ownership of properties.
Why is this investing strategy real?
Tax lien and tax deed investing might sound like a scam, but it is not. In a tax lien sale, you buy the right to collect the unpaid taxes. You do not buy the property itself. The property owner must pay you back what you paid, plus interest.
If they don’t pay within a certain time, you may apply to take the property. In a tax deed sale, the government sells the actual property to recover taxes. Both types of sales exist to help local governments collect money they are owed and put properties back on the tax rolls.
How do Tax Liens and Deeds work?
- Local governments hold auctions.
Counties and cities hold auctions once a year or online. Douglas County in Colorado, for example, holds an Internet Tax Lien Sale every November. Weld County also has an annual sale.
- You buy the lien, not the property.
When you buy a tax lien certificate, you are essentially paying the taxes the owner owes. The property is still owned by the taxpayer. You receive a certificate that earns interest until the owner pays back the taxes.
- You earn interest.
The state sets a fixed interest rate or penalty that the owner must pay when they redeem the lien. In many Colorado counties, the rate is nine percentage points above the federal discount rate, which was 15 % in 2024. A PDF from Cheyenne County notes that investors earn interest at a rate of nine percent above the federal discount rate, with the 2024 rate at 15 %.
- Redemption period.
The owner has a set amount of time—often one to three years—to pay back the taxes, interest, and fees. If they pay, you get your money back plus interest. If not, you may be able to take ownership of the property. However, this happens rarely—less than one percent of the time in Douglas County.
Returns and what to expect
Returns vary widely. Tax lien certificates pay 8 % to 36 % interest per year. Some examples:
- Florida – Up to 18 % interest with a redemption period of two years.
- Arizona – Up to 16 % interest and a redemption period of about three years.
- Illinois – Highest returns in the U.S. with a 36 % penalty rate and a two-year redemption period.
- Texas – A hybrid system that charges a 25 % penalty in the first year.
- Georgia – A hybrid system with a 20 % penalty and a one-year redemption period.
- Colorado – In 2024, the rate was 15 % and the redemption period is three years.
Example
If you buy a tax lien certificate for $1,000 at 15 % interest, and the homeowner pays it off in one year, you get $1,000 plus $150 in interest. If the state uses a penalty system, like Texas, you could earn a 25 % penalty ($250) if the owner redeems the lien in the first year.
Benefits of Tax Lien and Deed Investing
- Low upfront cost. The purchase price is usually just one year of back taxes and fees, which can be a few hundred dollars.
- Fixed returns. The rate of return is set by law, so you know what you’ll earn if the owner pays.
- Secured by property. Tax liens are first in line and take priority over most mortgages.
- Potential to buy property. If a lien is not redeemed, you may acquire the property free of mortgages.
Tax Lien and Deed Risks
- No guarantee the owner will pay quickly. Some liens remain unpaid for years.
- Property issues. Counties warn investors that properties may be unbuildable or undesirable.
- Legal steps. Taking ownership if the lien isn’t paid can be slow and expensive.
- Premium bids. Many auctions let buyers pay more than the tax amount. Those premiums are not returned and earn no interest, so overbidding can reduce your profits.
How to start – simple steps
- Learn the rules. Find out if your state sells tax liens, tax deeds, or both. Some states do not offer tax lien certificates; therefore, check your county’s rules.
- Find an auction. Look for county tax lien sales on the treasurer or tax collector websites. Many counties now hold online auctions.
- Research properties. Check the property’s value, condition, and any problems before bidding.
- Register and budget. Auctions often require you to register and provide banking information. Decide how much you want to spend and stick to it.
- Bid carefully. In some auctions, bidders compete by offering lower interest rates. In others, they bid a premium above the tax amount. Understand how the bidding works in your county.
- Hold and watch the redemption period. After you win, pay for the lien and receive a certificate. Note when the redemption period ends. If the owner redeems, you collect your money plus interest. If not, you may apply to take the property.
Sample State Returns
| State/County | Rate or penalty | Redemption period | Comment |
| Arizona Tax Liens | Up to 16 % interest | ~3 years | Online auctions are common |
| Florida Tax Liens | Up to 18 % interest | 2 years | Bids start high and drop until someone accepts |
| Illinois Tax Liens | 36 % penalty | 2 years | Highest return; penalty instead of interest |
| Texas Tax Deeds | 25 % penalty | 6 months–2 years | Hybrid system; fast foreclosure |
| Georgia Tax Deeds | 20 % penalty | 1 year | Short redemption period |
| Colorado (example) | ~15 % interest (2024) | The rate is nine points above federal discount rate | The rate is nine points above the federal discount rate |
Advice for beginners
This strategy is real and has helped many people earn money with tax liens and deeds:
- Learn how it works. Take time to understand the process, interest rates, and redemption periods.
- Know the local rules. Each county has its own procedures, so research the rules where you want to invest.
- Start small. Buy a few liens first to build confidence. Once you understand the process, you can invest more.
- Be patient. It may take time before your first lien pays off or a deed becomes available. The results can be worth the effort.
FAQ
It can be. Rates range from 8 % to 36 %. But returns are not guaranteed and depend on the property and how much you pay. Overpaying for a lien or buying a bad property can reduce profits.
Sometimes. If the owner does not redeem the lien within the redemption period, you can apply for a deed. However, most liens are redeemed, and deed transfers happen in less than one percent of cases.
Some liens cost only a few hundred dollars. You should also budget for possible premiums and legal costs if you plan to take ownership.
Yes. Properties may be empty lots or have problems. Legal procedures can be complex. Research and education help reduce these risks.
No. About half sell tax liens; others sell tax deeds or use a hybrid system. Check your state’s rules before investing.
Final thoughts
Tax lien and tax deed investing is a real, legal way to earn money by helping local governments collect unpaid taxes. It requires learning the rules, doing research, and being patient. Start small, focus on good properties, and avoid overbidding. With care and diligence, tax lien investing can add a steady stream of income or even lead to owning property at a discount.
Ready to Start?
Dive into Tax Lien and Deed Investing today. If you have any questions, feel free to reach out. I’m always happy to help!
Talk soon,
Dustin
