Tax Deeds: Your Ticket to Real Estate Investments
Written By Tony Martinez
Main Points
For those looking to break into real estate investing, tax deeds offer a strategic way to acquire properties at significantly discounted prices; however, there is a lot to learn about the system, including how it works and how you can succeed.
While the idea of purchasing property for pennies on the dollar is appealing, tax deed investing comes with its own set of rules, risks, and rewards. Like any real estate strategy, it requires preparation, research, and the right approach.
We will go over what tax deed investing is, how properties are acquired below market value, and what it really costs to get started. This article will break it all down step-by-step so you understand the system, the risks, and how to make smart, strategic moves. For those looking to get started in real estate investing, it can be a powerful way to build lasting financial momentum.
Definition: What is a Tax Deed?
A tax deed is a legal document that transfers full ownership of a property from a delinquent taxpayer to the winning bidder at a public auction.
Tax deed investing offers a powerful opportunity to acquire real estate, often at a significant discount to market value.
This process occurs only after the homeowner fails to pay their property taxes within the redemption period, which typically ranges from six months to four years, depending on the state. Once that period ends without payment, the local government is allowed to foreclose on the property to recover the unpaid taxes.
At a tax deed auction, you, as the investor, are not buying a lien; you’re buying the property itself. There’s no further redemption period or opportunity for the homeowner to repay. Ownership is transferred directly to you on the day of the sale, often allowing you to purchase the property for just the amount of the back taxes and fees, commonly referred to as acquiring property for “pennies on the dollar.”
The Auction Process: Acquiring Tax Deeds
So, how do people obtain tax deeds?
Well, the good news is, you don’t have to live in a tax deed state to acquire tax deeds. Through the strategy of "assignment purchasing," you can safely acquire tax deeds from the comfort of your own home.
Here’s how the tax deed states work: let’s say it’s a state that allows five years of delinquency. Once property taxes are five years delinquent, these properties will be offered at tax sale.
By law, the opening bid must be the price of the back taxes and penalties only. When you acquire one of these properties at tax sale in a deed state, you’re purchasing and owning the property. Remember, in a tax lien certificate state, you’re not acquiring property; you’re merely acquiring a first-position lien on the property.
How Much Does This Cost?
It’s a question everyone asks, and for good reason. The great news is that entry into tax lien and tax deed investing doesn’t require a fortune.
Some properties can be acquired for as little as $500.
The key is knowing where to look and how to do the research. With the right guidance and tools, finding these low-cost opportunities becomes entirely possible.
With tax deeds, you’re acquiring the property itself, not earning interest like with tax liens.
The profit doesn’t come immediately or directly; instead, it’s tied to the property’s equity and resale potential. Since tax deed properties are often purchased below market value, the opportunity lies in what you can do with the property next, whether that’s reselling it, renting it out, or holding it as a long-term asset.
One of the biggest advantages is the low cost of entry. You don’t need a large amount of capital to get started. Many tax liens and even tax deed properties can be acquired for just a few hundred dollars. This makes it an accessible investment strategy for beginners looking to break into real estate without a huge upfront commitment.
Skip the Auction: How Unpurchased Liens Become Tax Deed Opportunities
Here at the US Tax Lien Association, we take a different approach. Rather than competing at public auctions to acquire tax deeds, we use our Over-the-Counter (OTC) strategy, allowing investors to bypass the auction entirely and purchase directly from the county, often after the redemption period has already expired.
Imagine a county holds a tax lien auction with 5,000 liens available, but 2,000 of them don’t sell. Those unsold liens are returned to the county’s inventory, and a three-year redemption period begins, starting from the date of the auction. While those liens sit in the county’s system, the clock keeps ticking.
Once the redemption period ends, in states like Alabama and Mississippi, those liens are handed over to a state agency and converted into deeds. That’s because the original property owner has run out of time to pay their taxes. These deeded properties are then added to a large public list. Currently, Alabama alone has around 20,000 properties available in this manner.
Most of the list isn’t valuable, but there are always great deals in the mix. Since USTLA began focusing on this strategy, our clients have acquired hundreds of properties in Alabama using this exact process.
Here’s how it works:
You do your research, find a property you’re interested in, and submit an application to the Department of Revenue. They look up the property and calculate the total amount of back taxes, penalties, and interest owed. That total becomes your purchase price. No auction, no bidding; just a smart way to acquire property for a fraction of its value.
Caution About Tax Deed States
Even with a solid understanding of tax deeds, it’s still essential to exercise caution when investing in tax deed states. One major challenge is that tax deed auctions tend to be highly competitive.
Just like in tax lien states, properties in tax deed states must first go through a public auction before they can be made available for direct purchase. The over-the-counter process we described earlier, where you buy directly from the county or state, only becomes an option after those properties remain unsold at auction. “Over the counter” simply means you’re bypassing the auction and purchasing the property straight from the government entity.
Generally, a property reaches the tax deed stage after the homeowner has been delinquent on their property taxes for approximately five years. During that time, they’ve been given multiple opportunities to pay off the debt and redeem the property. If they still fail to pay, the county moves forward with a tax deed auction, where the property is offered for sale to recover the unpaid taxes.
While tax deed investing offers exciting opportunities, it's often misunderstood. Many new investors assume every property is a hidden gem or that the process is always straightforward. In reality, tax deed properties can come with issues like title complications, property damage, zoning problems, or liens that aren’t cleared through the sale. That’s why thorough research, due diligence, and understanding local laws are absolutely essential before making a purchase.
Take the First Step: Learn How to Invest in Tax Deeds
Tax deed investing can be a powerful tool for building long-term wealth and jumpstarting your journey to financial freedom. By acquiring real estate at a fraction of market value, tax deeds offer a unique opportunity to grow your investment portfolio, especially when paired with the right knowledge, research, and strategy.
If you’re ready to learn more about how you can achieve financial freedom through the power of tax lien investing, then I highly recommend our invaluable Free 3-Module Online Video Tax Lien Investing Crash Course that you begin today right from the comfort of your own home.
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Featured Lessons
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.