7 Common Myths About Tax Lien Certificate Investing: And the Truth Behind Them
Written By Tony Martinez
Main Points
You’ve likely encountered a lot of hype and confusion surrounding tax lien investing. From internet “gurus” promising overnight riches to conflicting claims about how the process works, it can be hard to separate fact from fiction. That’s why we’re setting the record straight.
Tax lien certificate investing is an excellent starting point for those new to real estate, offering secured, predictable returns with relatively low risk. But let’s be clear: it’s not a get-rich-quick scheme. While the interest rates can be attractive, the real value lies in learning the fundamentals, protecting your capital, and building a strong investing foundation.
In this guide, we’ll debunk the most common myths about tax lien certificates, expose the exaggerations, and give you the clear, honest truth, based on real-world experience and results.
Tax Lien Myth #1: ‘You’re buying the property.’
Truth: You’re buying a lien, not the property. The goal is interest, not ownership. Foreclosure is rare and a last resort.
For tax lien certificates, you are purchasing the piece of paper that states you can collect the interest on the taxes from that property.
If the property owner fails to redeem the lien within the legally defined period, you may have the right to foreclose; however, in reality, foreclosure is rare (occurring less than 1% of the time) and is always a last resort, not the intention behind the investment.
Tax Lien Myth #2: ‘You can get rich quickly.’
Truth: Tax liens are more of a long game. Returns can be strong, but they take time, planning, and patience.
Most seasoned investors will tell you: Liens alone won’t make you wealthy.
However, when combined with a diversified strategy that includes tax deeds and other real estate opportunities, tax liens can become a powerful and low-risk component of a broader wealth-building portfolio.
In short, this is a game of strategy, not speed.
Tax Lien Myth #3: ‘It’s totally passive income.’
Truth: Tax lien investing is NOT passive income.
You only get paid when the lien is redeemed, a process that can take anywhere from a few months to several years. When that happens, you receive a one-time lump sum of your original investment plus interest.
This differs from traditional forms of passive income, such as rental properties or dividend investments, which provide ongoing, recurring monthly payments. Tax lien investing is passive in the sense that there’s no management or upkeep, but it’s not designed for regular cash flow.
Think of it more like a delayed fixed return, backed by real estate, rather than a steady income flow. It’s low-effort after you invest, but it’s not automatic, and it’s certainly not passive in the traditional sense.
Tax Lien Myth #4: ‘Every tax lien pays out big interest.’
Truth: Interest rates vary by state, and you don’t always get the maximum rate. Plus, early repayment can reduce your return.
We can illustrate this point with a simple example:
Let’s say the state offers a 12% annual interest rate, and you purchase a tax lien certificate for $1,000.
If the homeowner redeems the lien after 3 months, you won’t earn the full 12%; instead, you’ll earn a prorated portion based on the length of time the lien was outstanding.
Here’s the math:
12% annually ÷ 12 months = 1% per month
1% × 3 months = 3% return
3% of $1,000 = $30
So, when the homeowner pays off the lien, you’ll receive your original $1,000 investment back plus $30 in interest.
Tax Lien Myth #5: ‘You can’t lose money.’
Truth: You can lose money if the lien is tied to worthless or distressed property, or if you overpay at auction.
Let’s go back to our earlier example:
You invest $1,000 in a lien at an annual interest rate of 12%. The property owner redeems after 3 months, and you earn just $30 in interest.
$30 may be your profit but, there can be non-refundable auction fees, recording costs, or other administrative expenses that weigh on your profit. That small return might not cover your actual out-of-pocket costs, meaning you could end up losing money on what looked like a “safe” investment.
Tax Lien Myth #6: ‘You don’t need to research the property.’
Truth: Before you buy, you must investigate the property’s condition, location, and legal standing.
That’s one of the biggest mistakes new investors make: assuming every lien is a good deal. It is essential to conduct thorough research on the property to gather vital information that can be costly to overlook. Is it landlocked? Unbuildable? Damaged beyond repair? Carrying code violations?
Even though you are not looking to buy the property, it is crucial to know what you are getting into.
In tax lien investing, research is everything. And unlike other forms of investing, nearly all the hard work happens upfront. Once you’ve done your due diligence and purchased the right lien, the rest is less hands-on, and you just wait for the redemption and collect your interest.
Tax Lien Myth #7: ‘Anyone can do it without training.’
Truth: Technically, yes, but success comes from knowing the laws, timelines, and best practices. Education is the difference between risk and reward.
That’s why USTLA exists: to give you the training, tools, and strategies you need to succeed confidently and avoid costly mistakes. We’re here to guide you every step of the way on your investment journey.
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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.