Currently around half of the states offer tax lien certificates and the rest offer something called tax deeds or a combination of both tax liens and tax deeds.

In a tax deed state, you do not buy the lien, you are bidding on the actual property. If you are the winning bidder you will own the property outright. Its yours, and you can do whatever you want with it; renovate it, rent it, tear it down, live in it its yours. These properties will almost always come with a title that is free and clear of all liens and encumbrances and you probably paid somewhere in the neighborhood of 50 70% of market value. Which means, you could sell it tomorrow for 80% of market value.

How does a property in a tax deed state end up at auction?

If youve ever been late paying a bill you know that you get numerous notices of delinquency by mail or by telephone. Normally you have quite a bit of time before anything really bad happens. It is the same case when people go delinquent on their property taxes. When they miss a payment the county will to inform them and will kindly ask them to pay up. This continues for a while until the county finally says enough is enough, if you dont pay up by this day you will lose your property. Coincidentally that day is usually the day before the auction is scheduled.

I want to point out that by investing in tax deeds you are in no way stealing anyones home. These property owners have had every opportunity to repay the debt. The county will do everything in their power to avoid sending a property to auction and in many cases they wait 4 years or more before the property actually gets there.

Typically you will end up paying more for a tax deed then you would for a tax lien certificate but it is a different type of investing. In tax lien certificate investing you are looking for the guaranteed 8% - 50% return on your money with a chance at higher if you get to foreclose but you have no right to the property until the redemption period expires. In tax deed investing you are buying the property outright and you can do anything you want with it and there is potential for a huge return on your investment in a short amount of time but it does require more work on your behalf. It depends on your own personality and investment needs as to which type you choose.