What Investors Should Know About Houses With Tax Liens

Have you ever heard of tax lien investing? It might sound complicated, but it’s actually a simple and smart way to earn money, or even get a property at a discount. When someone doesn’t pay their property taxes, the local government puts a lien on their house. That means the homeowner must pay the overdue taxes before they can sell or refinance the home.

Here’s where you come in. As an investor, you can buy that tax lien. If the homeowner pays what they owe, you earn interest on your investment. But if they don’t, you could get the chance to own the house.

This guide will show you how investing in tax liens works and what steps to take if you want to try it. Whether you’re just getting started or looking to grow your real estate knowledge, understanding this process can open up new opportunities

Understanding Tax Liens

What is a Tax Lien?

A tax lien is a legal claim the government places on a property when the owner doesn’t pay their property taxes. It’s the government’s way of making sure they eventually get paid. Once the lien is in place, it becomes part of the public record and must be dealt with before the property can be sold.

In some cases, if the debt remains unpaid, the property could go up for a tax lien auction, where investors can bid to buy the lien. This creates an opportunity for investors to earn interest or even take ownership of the property later on.

Benefits of Investing in Tax Liens

Tax lien investing can come with some exciting benefits:

• High Returns: Depending on the state, you might earn between 8% and 36% interest on your investment.
• Chance to Own Property: If the homeowner doesn’t pay their taxes in time, you may be able to take ownership of the home, often at a price far below its market value.
• Diversification: Adding tax liens to your portfolio helps spread out your risk and can give you a new way to grow your money beyond traditional real estate or stocks.

Risks Involved

As with any investment, there are some risks you need to consider:

• Property Condition: Some homes with tax liens may have been neglected or need major repairs, which can be costly.
• Redemption Period: The homeowner usually has time, called a redemption period, to repay their debt. If they do, you’ll earn interest but won’t get the house.
• Legal Rules Vary: Every state has its own laws about tax liens and auctions. It’s important to understand your local rules before investing.

Where to Find Tax Lien Properties

Local Government Websites

One of the first places to check for tax lien opportunities is your local government’s website. Many counties and cities publish a tax sale properties list online. For instance, you can visit the St. Louis County Collector of Revenue or St. Charles County Tax Sale Information to find relevant listings. These sites often have details about upcoming tax sales, including lists of properties available.

Online Platforms and Auctions

Several online platforms specialize in tax lien sales, making it easier to find tax lien property nearby. Websites like Auction.com can allow you to participate without physically attending. These platforms often provide detailed information about the properties, including back taxes owed and auction dates. You can also find information on tax delinquent properties from a trusted real estate software like DealMachine.

Public Records and Courthouse Visits

If you prefer a more hands-on approach, visiting your local courthouse can be beneficial. Public records are a valuable resource for finding a property tax sale list. You can access property tax records and liens, giving you a comprehensive view of potential investments.

Steps to Invest in Tax Lien Properties

Step 1: Research and Due Diligence

Before you invest a single dollar, take time to learn how the process works in your area. Every state has different rules for tax lien sales, so it’s important to understand the laws first. You should also research the property itself; look at its location, condition, and market value. Some tax lien properties might seem like a great deal, but they could need expensive repairs.

Start by learning where to find tax lien properties in your local area. County websites, online auctions, and public records are all great places to begin your search.

Step 2: Budgeting and Financing

Set a clear budget for how much you’re willing to spend. Remember, buying the lien is just one cost. You might also need to pay legal fees, maintenance costs, or even repair work if you end up with the property. Some investors use savings, while others look into financing options like credit lines or even a HELOC (Home Equity Line of Credit) to fund their purchases.

Knowing your numbers before the auction helps you stay smart and avoid overspending.

Step 3: Participating in Auctions

Once you're ready, register for a tax lien auction. Some are held in person at the county office, while others happen online. Make sure you understand the rules before the auction begins. Some auctions require pre-registration or a deposit.

During the auction, don’t get caught up in bidding wars. Stick to your budget and focus on the properties that offer the best mix of value and potential return.

Step 4: Managing Your Investment

After winning a lien, keep close track of deadlines and paperwork. The homeowner may still pay their taxes within a set time (the redemption period). If that happens, you’ll get your money back plus interest. If not, you might be able to start the process of taking ownership of the property.

Either way, it’s important to stay organized. Good record-keeping helps you manage timelines, legal documents, and any next steps smoothly.

Tips for Successful Tax Lien Investing

Building a Network

Real estate investing is easier, and often more profitable, when you’re connected. Try joining local real estate groups or attending meetups where other investors share tips and experiences. You can also talk to real estate agents, attorneys, or even past investors who’ve bought houses with tax liens. These relationships can lead you to better deals and help you avoid common mistakes.

Staying Informed

Laws and real estate trends can change over time, so it’s important to stay up to date. Follow trusted real estate blogs, sign up for investment newsletters, or take part in online forums. You might also want to check local news for updates on tax sales or changes in property tax laws. The more you know, the better decisions you’ll make.

Also, keeping an eye on interest rate predictions can help you plan ahead, especially if you’re using financing to buy tax liens.

Utilizing Technology

Technology can make tax lien investing a lot easier. Software like DealMachine help you find and track properties, manage leads, access data, and stay organized. Online auction sites also provide maps, details about back taxes, and updates on upcoming sales. These tools save you time and help you make smarter choices.

Lastly, learning about different real estate exit strategies—like wholesaling, flipping, or holding rental property—can help you turn your investment into long-term profit once you gain control of a property.

Learn how one investor made $22,000 from investing in a tax delinquent property in the video below.

Conclusion

Getting started with tax lien investing might seem a little tricky at first, but once you understand the basics, it opens the door to exciting opportunities. Whether you're earning interest or gaining ownership of a property, this strategy can help you grow your real estate portfolio in a unique way.

Just remember to do your homework, stick to your budget, and use the tools and resources available to you. With the right knowledge and a little patience, investing in tax liens can become a smart and rewarding part of your financial future.

Ready to dive in? Start by visiting your local government website or checking out an online auction platform to see what tax lien properties are available near you.