Why You Can't Just 'Add Tax Liens to Cart': The Importance of Proper Research
Written By Tony Martinez
Main Points
When most people hear about tax lien investing, they imagine it’s as easy as picking out groceries. Grab a list, add a few liens to your cart, and start collecting interest, or even property, just like that. Unfortunately, that couldn’t be further from the truth.
Successful tax lien investing isn’t a casual click-and-buy process. It requires a disciplined investment strategy, thorough research, and a clear understanding of state-specific regulations and procedures. Knowing how to complete proper research is one of the most essential skills every successful tax lien investor must master.
Today, we will dive into tax liens and break down the critical elements that distinguish smart, profitable investors from those who simply gamble and hope for the best.
What Exactly Are Tax Liens?
A tax lien is a legal claim that a government places on a property when the owner fails to pay their property taxes. It gives the government the right to collect the unpaid taxes, plus interest and penalties, by placing a hold on the property.
However, when you buy a tax lien certificate, you're not buying the property. You’re buying the right to collect the debt. That’s a crucial distinction that many new investors overlook.
Buying a tax lien means you are buying the tax lien certificate. These certificates are a great way to earn secured interest backed by physical property. Typically, with tax liens, 99% of the time they will be redeemed, which means your investment earns interest.
Each Tax Lien Is Unique
Not all tax lien certificates are created equal. Every lien represents a different property, and behind each one lies a distinct set of risks, rewards, and red flags. Successful investors don’t try to buy everything; they selectively choose liens that align with their goals, risk tolerance, and due diligence criteria.
These factors vary, such as:
Location: A lien on a single-family home in a stable neighborhood is vastly different from one on a vacant rural lot.
Value: Some liens may represent properties worth $200,000, while others may be worth just $2,000.
Condition: The property may be in pristine or condemned condition.
Legal and Zoning Issues: Some properties may have other liens, code violations, or legal disputes.
What Could Go Wrong? The Hidden Pitfalls of Tax Lien Investing
While tax lien investing can offer attractive returns and the potential for property ownership, it's not without its risks. Many new investors get excited by the low entry cost and high interest rates, only to discover too late that they’ve bought a lien tied to a worthless or problematic piece of real estate.
To avoid costly mistakes, it’s essential to understand what you’re really buying. Not all tax liens are created equal, and some can come with serious red flags that undermine your entire investment. Below are some common pitfalls to watch out for when evaluating a tax lien opportunity.
Some things to watch out for include the following:
Unbuildable lots or landlocked parcels
Properties in flood zones or remote areas
Irregular shapes or unusable land
Toxic waste sites or mobile home pads on rented land
The appeal of tax lien investing lies in its promise of annualized interest and the potential to acquire property at a significant discount. But every savvy investor knows that the fine print and the land under the lien matters.
Don’t let a great interest rate blind you to a bad deal. Taking the time to thoroughly research the property behind the lien can be the difference between a profitable investment and a long-term liability.
Research The Property, Not Just The Lien
A tax lien certificate might seem promising on paper, but the underlying property could be a disaster. Successful investors research:
- The condition of the property
- Its market value
- Any other liens or encumbrances
- Zoning or environmental issues
- Neighborhood trends and development plans
Blindly purchasing a lien on a burned-down building or landlocked lot won’t lead to riches; just avoidable headaches.
As a smart investor, it is essential to conduct thorough research (using parcel maps, assessor’s data, and Google Street View) to target specific properties that interest you, and potentially obtain them, although this is rare.
If you come in with proper knowledge and research, you can easily filter out properties that don’t meet your criteria, which will save you time and unwanted issues.
Exit Strategy
Every successful tax lien investment starts with a clear exit strategy.
Are you looking to earn high-interest returns while the property owner redeems the lien? Or are you hoping to acquire the property itself in the future? The approach you take, from the types of liens you pursue to the states you invest in, should align with your ultimate goal.
Knowing your desired outcome before bidding helps you evaluate opportunities more strategically and avoid wasting time and money on liens that don’t align with your investment plan.
With this, your research should be aligned with your goals:
High redemption areas = interest income
Low redemption areas = potential property acquisition
Knowing what you're trying to achieve will shape the type of liens you pursue. It’s also important to note that liens on primary residences are redeemed 99% of the time.
Don’t Shop, Strategize
Treating tax liens like items in a shopping cart is a recipe for disappointment. Real success in this field comes from treating it as a serious investment strategy. Do your research. Know the law. Understand the property. And have a clear goal before you spend a dime.
In tax lien investing, the real winners aren’t the ones who buy the most liens; they’re the ones who buy the right ones.
Are you ready to start your investment journey?
Join thousands of other savvy investors who have begun their journey with the United States Tax Lien Association (USTLA): the trusted source for education, tools, and support in the tax lien investing world.
If you are looking to acquire physical property, our OTC (over the counter) training introduces you to the step-by-step process of acquiring tax deed properties directly from counties, without the competition of auctions. You’ll learn how to find, evaluate, and secure these hidden opportunities so you can start building your portfolio with confidence.
Enroll in Our Free Course Now and take the first step toward building real wealth through tax lien investing: the right way.
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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.