Choosing the Right Strategy: Tax Lien Certificates or Tax Deed Investing?
Written By Tony Martinez
Main Points
When it comes to investing in real estate through delinquent property taxes, there are two powerful paths: tax lien certificates and tax deed properties.
Both offer the opportunity to generate good returns, but they differ greatly in how you make money, how much time and effort is required, and what kind of investor each strategy is best suited for.
In fact, many people confuse the two.
Whether you're looking to earn fixed income with minimal ongoing involvement or you're ready to roll up your sleeves and acquire properties for pennies on the dollar, this guide will help you determine which strategy fits your financial goals, lifestyle, and level of risk tolerance.
In this article, we’ll break down the key differences between tax liens and tax deeds, explore how each system works, and help you answer the ultimate question: Which strategy is right for you?
What’s the Difference Between a Tax Lien and a Tax Lien Certificate?
What is a Tax Lien?
When a property owner fails to pay their property taxes for a whole year, the county government places a tax lien against the property. This lien represents the unpaid taxes and becomes a first-position claim on the property, taking precedence even over the mortgage.
To recoup these unpaid taxes and fund essential public services, such as schools, police departments, and road maintenance, the county offers tax lien certificates for sale to investors.
By purchasing the tax lien certificate, you are essentially paying off someone else’s delinquent property tax bill. In return, you earn a legally mandated, fixed, and secured interest rate, ranging from 8% to 24% per year, depending on the state.
The property owner then has a redemption period: a grace window ranging from 6 months to 4 years, depending on the state, to repay the amount owed plus interest. If they redeem the lien, you will receive your investment back, plus interest. If they don't, you may have the legal right to foreclose and take ownership of the property free and clear of other liens.
What is a Tax Deed?
A tax deed involves purchasing the property itself, not just a claim against it like a lien. When a property owner fails to pay their property taxes and the redemption period has passed, the county government may auction off the property to recover the unpaid taxes.
This means you are buying the property outright, typically free and clear of all other liens and mortgages, for just the price of the back taxes and penalties. With the right strategies, properties can be acquired for a fraction of their fair market value.
However, tax deed investing does require more effort to make a profit. You need to know exactly what you're doing, because your outcomes depend entirely on the quality of your research. You need to identify valuable properties, verify clear title potential, and ensure the investment makes financial sense.
Tax deed investing offers the potential for great returns, but only if you take the proper steps after the purchase. This could include reselling the property, renovating it for rental income, or using it for other income-generating strategies. Simply buying it isn’t enough; you need to take action to unlock the profit.
Which State is Right for You?
Choosing the right state to invest in is one of the most important decisions you'll make in your tax lien or tax deed investment journey. That's because every state handles delinquent property taxes differently, with unique rules, regulations, timelines, interest rates, and procedures.
There are three main systems across the U.S.:
1. Tax Lien Certificate States – You invest in the lien and earning a fixed, secured interest rate (ranging from 8% to 24% per year). This is ideal if you want passive income and high security. Tax Lien Certificate States
include: Arizona, Colorado, Mississippi, Kentucky, Vermont, New Jersey, etc.
2. Tax Deed States – You’re acquiring the actual property, often for just the back taxes and penalties. This is for investors seeking immediate ownership and the potential for larger, but more active, profits. These include: California, Utah, Kansas, North Carolina, New York, etc.
3. Redeemable Deed States – A hybrid of the two, where you technically receive the deed, but the owner still has a redemption period. Some of these states even allow you to take possession and rent the property during that period. Redeemable states include: Texas, Tennessee, Georgia, South Carolina, etc.
Each state also has its own timeline for redemption, interest rate structure, auction format, and research requirements. That’s why thorough education and strategy alignment are essential. Some states favor passive investors, while others require active involvement and detailed research.
Before you choose a state, ask yourself:
Do I want to earn interest or to acquire property?
Do I have the time and skills to do proper due diligence?
Am I comfortable working with online auctions, or do I prefer in-person opportunities?
What level of investment capital is available to me?
The right state for you depends on your investment goals, available time, risk tolerance, and strategy.
Tax Liens 101: Redemption Period and Why It Matters
In tax lien certificate investing, the redemption period is the legally mandated grace period the property owner has to repay their delinquent property taxes, plus interest and penalties before the investor can initiate foreclosure proceedings.
Depending on the state, this redemption period can range from 6 months to 4 years.
Why is this important?
Because in the vast majority of cases, over 99% of tax lien certificates are redeemed by the property owner during this period. That means you, the investor, don’t end up with the property. Instead, you receive a check for your original investment plus the fixed, secured interest, which can be as high as 24% annually, depending on the state.
This makes tax lien investing:
Lower risk because the property backs your investment, and redemption is the most common outcome.
Front-loaded, meaning all of your research, analysis, and decision-making is done before you invest. Once you buy the lien, you’re essentially hands-off until you get paid.
Attractive for investors because you don’t have to deal with property management, renovations, or tenants.
It’s this combination of high security, fixed returns, and minimal post-investment effort that leads many investors to see tax liens as simpler and less work-intensive than tax deed investing.
Making Money: Tax Liens vs. Tax Deeds
Understanding how you generate income is crucial to selecting the right investment strategy. Both tax liens and tax deeds offer the potential for impressive returns, but the method, timing, and risk profile are very different.
Tax Liens: Earn Fixed, Secured Interest
With tax lien certificates, you make money by earning interest on your investment. You pay off a property owner’s delinquent taxes, and in return, you’re legally entitled to a fixed, state-mandated interest rate, typically between 8% and 24% per year.
Profit Source: Interest and penalties when the lien is redeemed.
Payout Timing: When the property owner pays the county (within 6 months to 4 years).
Hands-On Level: Minimal after purchase. All the work is upfront.
Risk Profile: Low risk, as over 99% of liens are redeemed. The property secures your investment.
Bonus Potential: If the lien isn’t redeemed, you may foreclose and acquire the property.
Key Tip: Since the property serves as collateral, always ensure it’s valuable, even though the goal is to earn interest, not own the real estate.
Tax Deeds: Acquire Property at a Massive Discount
With tax deed investing, you make money by acquiring the actual property, usually for just the price of the back taxes and penalties. Once the redemption period has passed (or doesn’t exist), the property is auctioned off or made available through specific strategies, such as USTLA’s “Get the Property” systems.
Profit Source: Equity gained from purchasing property below market value.
Payout Timing: After you take title and sell or rent the property.
Hands-On Level: High. You must complete thorough research, file the necessary paperwork, and possibly renovate and manage or sell the asset.
Risk Profile: Higher. Mistakes in research or property conditions can affect profitability.
Bonus Potential: Immediate ownership. Typically, no waiting for redemption.
Key Tip: You make your money on the buy, not the sale. Your research must be exact! This is where tax deed investors either win big or lose money.
The Work Behind the Reward: Investing Capital and Time
With both tax liens and tax deeds, thorough and accurate research is essential because your outcomes depend heavily on it. Whether you're earning interest or acquiring property, the quality of your research determines the quality of your results.
In tax lien investing, the bulk of the effort comes upfront. You identify the right lien, conduct your due diligence, make the investment, and then the process becomes mainly passive.
This isn’t passive income in the traditional sense; you’re not receiving ongoing payments, but it is passive in that your money is invested and quietly earning interest without any day-to-day involvement.
Once you've placed your capital, you simply wait for the property owner to redeem the lien. When that happens, you're paid your original investment plus a fixed, secured interest rate. There's no property to manage, no tenants to deal with, and no post-investment decisions to make.
Tax deed investing, on the other hand, requires significantly more time and effort, both before and after acquisition. Yes, you still need to conduct rigorous upfront research to avoid costly mistakes, but once you acquire the deed, the real work begins. You don’t make a single penny until you take meaningful action. That could mean renovating, renting, marketing, or flipping the property. It's an active process, and every step requires attention, strategy, and execution.
Though with tax deeds, the potential profit is far greater than that of tax liens.
The bottom line: tax liens are less hands-on, making them a preferred choice for investors seeking a lower-effort, reliable investment. Tax deeds require full engagement, but for those willing to put in the work, the potential for high profits is substantial.
Clarify Your Financial Priorities
Before deciding between tax liens and tax deeds, ask yourself a crucial question: What type of financial outcome are you working toward?
Are you seeking a reliable income with a minimal daily time commitment? Or are you ready to roll up your sleeves and put in the work to earn larger, lump-sum profits?
With tax liens, your income is tied to fixed, state-mandated interest rates. It’s a powerful, predictable return, but it’s earned over time and doesn’t require much hands-on involvement after your initial research and investment. For many investors, this low-effort, low-risk path is a perfect match for building consistent long-term returns.
But, if your goal is to build wealth quickly or acquire real estate at massive discounts, then tax deeds may be the right strategy. They offer the potential for much higher profits, but those profits come at a cost: significantly more time, effort, and responsibility. You’ll need to manage the property, oversee improvements, or execute a sales strategy, and nothing is earned until you do.
Here at USTLA, we specialize in property acquisition through our proprietary "Get the Property Strategies."
One of the most powerful methods we’ve developed is called OTC Tax Deed Property Acquisitions. Through this strategy, investors are able to acquire valuable real estate for nothing more than the back taxes and penalties owed, and take ownership free and clear with no mortgage.
What makes this strategy even more exciting is the flexibility it gives you as an investor. Many of our clients simply sell these properties “as-is” for a quick profit without putting another dollar into renovations, while others choose to build a portfolio of cash flow properties. Either way, it’s one of the most effective paths to creating real wealth through the power of tax lien and tax deed investing.
So get started with USTLA today and check out our Free Online Crash Course.
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Vital Information Beginner’s MUST KNOW FIRST so you can Get Started Right
Lesson #1
What is Tax Lien Investing & How Can it Help You Achieve Financial Freedom
Lesson #2
How to Acquire Properties for the Back Taxes & Penalties Only
Lesson #3
How Much Investment Capital is Needed to Get Started?
As with all investments, there is always an element of risk. Even if the interest rates are written into state government law, mandated by state government law, and are regulated by state government law, there is a chance of you losing part or all of your investment. You must always try to get the best education and practice safe investing, no matter which investment vehicle you choose.