5 Dangerous Tax Lien Myths That Could Cost You Money
Written By Tony Martinez
Main Points
Tax lien investing can be a powerful strategy when executed correctly, but it's also often surrounded by misinformation. USTLA is here to guide you in the right direction and give you the truth when it comes to your investing.
Here at the U.S. Tax Lien Association, we combine over three decades of real-world experience with proven strategies to help investors safely maximize returns, avoid costly mistakes, and build lasting financial security through tax lien and tax deed investing.
Other 'gurus' out there will make numerous bold statements that lack factual support. Believing the wrong advice could lead to poor decisions, missed returns, or wasted money.
Let’s break down five of the most common myths and set the record straight.
Myth #1: “You’ll Automatically Get the Property”
Truth:
Holding a tax lien certificate does not give you ownership of any physical property. When you buy a tax lien certificate, you are essentially purchasing the right to the unpaid taxes that the homeowner is obligated to repay, along with the specified interest rate.
In most cases, the homeowner redeems the lien, and you earn interest, not the property. Over 99% of residential liens are repaid, meaning it is extremely rare for an investor to actually take ownership of the property.
Tax lien investing is not a real estate acquisition strategy.
The system is designed to help homeowners catch up on their taxes, not to transfer ownership; so, if your primary goal is to acquire real estate, tax lien investing may not be the right strategy for you.
Myth #2: “All Tax Liens Are Good Deals”
Truth:
Not all tax liens are worth your money. Some are tied to worthless, landlocked, or severely damaged properties. Price doesn’t equal value, and thorough research is critical when investing your time and money into something.
Just because some tax liens are cheap does not mean that you should buy them.
Knowing how to conduct proper research specific to tax lien certificates is an absolute necessity for locating, identifying, and acquiring highly profitable tax lien certificates on properties of high value.
Remember, tax lien certificates are available on every type of real estate. This means not every lien is tied to a valuable asset. There is a real chance you could lose money on a tax lien if the underlying property is worthless, the owner never redeems, or you’re forced into foreclosure on a property that can’t be resold or used. That’s why thorough research and proper due diligence are absolutely essential before purchasing any tax lien certificate.
Myth #3: “You Can Get Rich with Just $100”
Truth:
Yes, you can invest with a small amount but that doesn’t mean big profits.
A $100 lien at 24% interest earns $24 per year.
While that return is solid in percentage terms, the dollar amount is small. Depending on when the homeowner pays, your return will be affected. Although this example may appear to yield a $24/year return, if they redeem the lien in just one month, you’d only earn about $2 in interest. And after accounting for certificate fees or administrative costs, you could actually lose money.
This is where many new investors get confused. They hear about high interest rates and assume massive profits are just around the corner. In reality, tax lien investing is a slow and steady strategy that focuses on earning secure, predictable returns over time. It’s not a fast track to wealth, and it certainly isn’t a get-rich-quick scheme.
Basically, it’s pretty hard to get wealthy from tax lien investments alone, especially when starting with small amounts.
One crucial detail many beginners overlook is that, as an investor, you only receive your return in a single lump sum when the property owner redeems the lien. That means your money is tied up for months, sometimes years, without generating any additional income in the meantime. It's not a stream of passive cash flow; it's a one-time payout, which resets the cycle and requires you to start the research and reinvestment process all over again.
However, tax lien certificate investing serves as an excellent starting point for new investors to learn the systems, build confidence, and gain hands-on experience in real estate-related investing, without the pressure of managing physical properties.
With the help of USTLA, our lessons can lead you to more advanced opportunities, including acquiring real estate through more strategic approaches. For beginners, it’s a smart way to get experience without overextending financially.
Myth #4: “The Process Is the Same Everywhere”
Truth:
Many new investors assume that once they learn the basics of tax lien investing, they can apply the same approach in any state, but that’s far from true. Each state (and often each county within a state) has its own laws, auction procedures, redemption periods, interest rates, and requirements for investors.
For example, Florida uses a bidding system where the interest rate can be bid down, while Arizona offers a fixed interest rate with different foreclosure rules. Some states provide tax deeds, not liens. Each state has its own set of rules regarding its tax sales.
Understanding the local process is essential for avoiding costly mistakes. Savvy investors take the time to learn the specifics of the state and county in which they’re investing before spending a dime.
It’s not a one-size-fits-all system. Local knowledge is power in this game.
Myth #5: “There’s No Risk in Tax Lien Investing”
Truth:
It’s true that tax liens are backed by real estate, which provides a level of security many other investments don’t; however, that doesn’t mean they’re risk-free. Your capital can be tied up for years while waiting for a lien to be redeemed, and if the property owner redeems early, your return may be minimal. On the other hand, if they don’t redeem at all, you may be forced into foreclosure, which could leave you with a property that’s in poor condition, has title issues, or holds little market value.
Ultimately, the goal is to make money, not just participate in the process. That’s why it’s critical to know which liens are worth pursuing and just as importantly, which ones to avoid. Successful tax lien investing hinges on informed decision-making, thorough property research, and selecting liens that align with your financial goals and risk tolerance.
At USTLA, we’re here to guide you every step of the way on your journey to financial success. We are fully committed to educating, training, mentoring, and supporting you so you can achieve your most important financial goals with confidence.
Get started today by enrolling in our Free Online Tax Lien Investing Crash Course; your first step toward smarter investing and long-term wealth.
And if your goal is to acquire property, and you’d like to learn more about that, here at USTLA we specialize in property acquisition through our proprietary GTP Strategies.
One of these strategies is OTC Tax Deed Property Acquisition, which we developed to help investors acquire valuable real estate for only the cost of back taxes and penalties; owning the property free and clear, with no mortgage. These properties can often be resold 'as-is' for a profit, without putting additional money into renovations.
It’s one of the most powerful ways to turn a small investment into long-term wealth, and we look forward to helping you explore it further.
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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.