What's More Profitable: Tax Lien Certificates, or Tax Deed Properties?
Written By Tony Martinez
Main Points
With real estate investing, there are quite a few avenues you can take to generate meaningful returns. Two of the most overlooked, yet highly strategic options are tax lien certificates and tax deed properties. While they may sound similar, each offers a distinct path to profit, and each carries its own level of risk, effort, and reward.
In this article, we’ll break down the key differences between these two strategies, share real-world investment examples, and explain why tax deed properties often offer greater profitability, while tax lien certificates can be an ideal entry point for beginners into the real estate world.
What Is The Difference Between Tax Lien Certificates and Tax Deed Properties?
At a glance, tax lien certificates and tax deed properties might seem similar because both involve unpaid property taxes and are facilitated by local governments; however, in reality, they represent two very different types of investment opportunities.
Tax Lien Certificates
When a property owner fails to pay their property taxes, some states allow counties to sell a tax lien certificate to investors. By purchasing the certificate, the investor pays the outstanding taxes on behalf of the owner. In return, the investor is entitled to collect the debt, plus a fixed interest rate set by state law.
This is not a property ownership strategy. Instead, it's an interest-earning investment backed by real estate. When the property owner redeems the lien by paying their taxes (which occurs in over 99% of cases), the investor receives their initial investment back, plus interest, in a lump sum.
Tax Deed Properties
In tax deed states, if a property owner doesn’t pay their taxes for a set number of years, the county can sell the physical property at auction. When an investor wins the bid, they receive the deed to the property, often free and clear of mortgages or other claims.
This strategy is all about acquiring real estate at a significant discount. It typically requires more research, capital, and hands-on involvement, but it also comes with greater potential for equity, rental income, or resale profit.
In short:
Tax liens offer predictable, fixed returns with lower risk.
Tax deeds offer the potential for bigger profits through property ownership, but also carry more complexity and commitment.
Understanding this distinction is the first step toward choosing the strategy that fits your goals.
Comparing Your Investment
Now that you understand the difference between the two investment strategies, let’s compare a $1,500 example with a $15,000 example when invested into each strategy.
Tax Lien Certificates:
Depending on the state, interest rates on tax lien certificates typically range between 8% and 24%. While that might sound appealing, the real returns often surprise new investors.
You invest $1,500 in a tax lien certificate with an 18% annual interest rate.
If the property owner redeems after one year, you earn $270 in interest.
That breaks down to about $22.50 per month and remember, you only get paid once, in a lump sum, when the lien is redeemed.
Also important: there’s a redemption period, or grace window, during which the property owner can pay back the taxes. This period varies by state, but commonly ranges from 2 to 4 years. Your money is tied up during this time, and there’s no monthly cash flow.
Tax lien certificates can be a safe, state-backed way to earn fixed returns, but they’re not fast, and they’re not designed for big profits.
Tax Deed Properties:
You purchase a tax deed at auction for $15,000.
The property is later evaluated at $93,000.
That means you now own a piece of real estate worth over 6 times your purchase price with no mortgage attached and full legal ownership.
Even though $15,000 requires a much larger initial investment than the tax lien example, the potential profit is significantly greater.
However, you only realize that profit once you decide what to do with the property; whether that’s flipping it, renting it out, or pursuing another strategy.
So, you do not have a guaranteed profit.
Though, unlike tax lien certificates, there’s no waiting period for redemption. Once you win the bid and complete the necessary paperwork, the property is yours. However, tax deeds require more upfront effort: you’ll need to research title history, assess property condition, and have a plan for resale or use.
Tax deed investing involves more risk and responsibility, but the profit potential is significantly higher than what tax liens typically offer.
What Are The Advantages?
While tax deeds often prove to be more profitable in the long run compared to tax liens, there are clear advantages to both strategies.
Many people don’t jump straight into tax deeds because they require a significant commitment of time, research, effort, and capital. Not to mention, the process can feel unfamiliar or intimidating to those new to real estate investing.
Tax liens, on the other hand, offer a lower barrier to entry. They allow beginners to get started with less money, gain valuable experience in property research and due diligence, and earn fixed, secured returns without immediately taking on the responsibilities of property ownership.
Some may look at successful tax lien or tax deed examples and think, ‘Why isn’t everyone doing this?’ The reality is that while both strategies can be highly rewarding, they demand the right knowledge, systems, and discipline to avoid costly mistakes. Those who take the time to learn the process, and apply it consistently, are the ones who see long-term success.
Ready To Start Investing?
At the United States Tax Lien Association, we teach both strategies and show you how to use them together to build a smarter, stronger investment approach.
Take the first step by joining our Free 3-Module Online Tax Lien Investing Crash Course. Learn exactly how these strategies work, where the real returns are, and how to start investing with confidence.
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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.